The dramatic surge in internet usage amidst the COVID-19 pandemic and the suspended CRTC wholesale pricing are making life difficult for smaller internet service providers (ISP), causing at least one to increase its broadband internet subscription cost.
In an email obtained by IT World Canada, TekSavvy informed its subscribers that it would increase the monthly cost for its residential internet subscribers by CA$5 starting May 1.
“This price increase does not make us profitable, it doesn’t even come close,” said Andy Kaplan-Myrth, vice president of regulatory and carrier affairs at TekSavvy. “This is an increase so that we slow down the losses a little bit and wait this thing out. I totally anticipate that we’ll have to add even more capacity…But to be honest, this doesn’t even get us most of the way to profitability. And it’s possible that we would have to increase prices again, just to keep going.”
Increased traffic
Canada experienced a tremendous increase in network usage as more Canadians practice social isolation. TekSavvy said its network usage has increased by 20 per cent.
As a reseller ISP, TekSavvy would need to purchase more bandwidth capacity from facility-based ISPs like Rogers to accommodate more traffic.
Kaplan-Myrth explained that the appetite for broadband has always been increasing, but the COVID-19 pandemic has accelerated that demand to a scenario TekSavvy projected for the end of the year.
“[Since]January, we had already increased our capacity by about 20 per cent,” said Kaplan-Myrth. “And our users were just using it up there. There’s just been this unprecedented growth in usage.”
Responding to the massive surge in traffic, TekSavvy, like many other ISPs, temporarily removed its internet data caps for all customers. Between March 13 to April 5, TekSavvy subscribers on limited plans would see no overage charges. It’s also currently looking to further increase its peak capacity by 20 per cent.
Distributel, another reseller ISP, has experienced a 50 per cent increase in network traffic, although it does not yet have plans to increase prices for its subscribers.
“We [Distributel] haven’t made a decision yet,” said Matt Stein, chairperson of the Canadian Network Operator’s Consortium (CNOC). “But certainly costs are higher than ever before, and they continue to go up every year as Canadians use more and more internet, and especially after a period of having lower them for a while. We’re at an especially complicated time.”
Similar to TekSavvy’s predicament, Stein said that Distributel is also currently operating at a loss.
Climbing network demand has put strains across the industry. To shield critical services from interruptions, the Independent Telecommunications Providers Association, along with the CCSA and the CNOC, asked Amazon, Netflix and other OTT providers to reduce their streaming quality as a means to lighten network load. Following the letter, Netflix was the first to scale back its streaming quality in Canada. And while Amazon and Apple did not immediately follow suit, both companies have already reduced their stream qualities in Europe.
According to Ookla’s network performance chart, Canada’s mean broadband performance has seen a slight degradation between March 16 to March 22, the period when social isolation started to be heavily enforced. It does not yet have data for this week.
The ISP war
Besides network usage increases, the stay on the Canadian Radio and Telecommunication Commission’s (CRTC)’s internet wholesale rate was also a contributing factor to TekSavvy’s price increase.
Internet competition in Canada is held between facility-based ISPs that invest in deploying network hardware, and resellers that borrow a portion of that network for a price set by the CRTC.
As a reseller, TekSavvy delivers internet service through Rogers, a facility-based ISP that develops its own infrastructure. To foster competition, CRTC requires facility-based ISPs to loan their networks to resellers at a reduced wholesale cost.
On Aug. 15, 2019, the CRTC ordered facility-based ISPs to reduce wholesale internet rates by as much as 77 per cent. In addition, the new price would be retroactive to 2016, meaning that facility-based ISPs would need to refund the difference to resellers for the past three years. Bell estimated the collective total to around CA$357 million.
A month following CRTC’s announcement, TekSavvy reduced pricing or upgraded plans for 85 per cent of its customers. Distributel Communications, Start.ca and several other resellers also announced internet upgrades.
But facility-based ISPs criticized CRTC’s decision, with many calling for the Federal Court to put a stay on CRTC’s new pricing. The Federal Court eventually granted the stay on Sept. 27, 2019, leaving resellers who had already upgraded their customer’s plans in a bind.
“We’re hopeful that the court makes this decision quickly and we can get on with the new costs, so that we can continue to bring value and savings to Canadians,” said Stein. “Unfortunately, both because that process normally is not quick, and now with COVID-19–or I should say with the pandemic–the court’s availability is quite limited and business pressures are mounting on all sides.”
In November 2019, Bell Canada Enterprise (BCE) filed a petition to the cabinet, again calling for a retraction on CRTC’s reduced wholesale internet pricing. In its petition, Bell wrote that CRTC’s aggressive price-slashing disproportionately favours resellers and could impede the development of Bell’s 5G networks.
“Because the CRTC price regime from last August has been delayed in terms of implementation, because of the court action by the big guys, and the appeals of the big guys to stay the implementation of that pricing, we’ve actually been operating at a loss for a number of months.” Said Mike Stanford, vice president of marketing at TekSavvy.
TekSavvy took two courses to slow losses. One was to lay off about 130 employees, and the other was to increase internet subscriber costs.
“Both of those [measures] are an effort to reduce the size of the loss on a monthly basis so that it’s sustainable for us until we get clarity on when the new rate regime will be implemented,” said Stanford.
In February, TekSavvy accused Bell Canada and Rogers of anti-competitive practices to the Canadian Competition Bureau, stating that they inflated wholesale rates by as much as 900 per cent.
Correction: Matt Stein is the chairperson of CNOC, not the vice-chairperson. The original article has been amended to reflect that change.