DSL Prime News: The Inside Source

DSL Prime finds anti-competitive activity at Bell Canada and reveals the SBC connection, takes a closer look at Covad's financial state, and provides the DSL Prime News Briefs.

by Dave Burstein DSL Prime [May 15, 2002]

"Canadians must share the responsibility of making sure Canada remains innovative and competitive."

Industry Minister Allan Rock Bell Canada shot an arrow at the heart of the Internet, levying a $3-5 toll on a streaming movie and a $2.50 surcharge on a regular radio listener. They raised their basic rates 13 percent, and tacked on a surcharge of $7.90 (Canadian) a gig after 5 gigabyte. For all but the heaviest users, they still are far cheaper than Verizon or SBC, at about $31 U.S. compared to $49 down here. Kudos to them for introducing a low price tier, joining cable companies in the $17 to $25 "AOL Killer" at low speeds (128K). But protecting their own video products is surely shortsighted—and neither innovative nor competitive. We've come to expect this sort of thing south of the border, not north of it.

Covad's price cut makes business sense—$40 is still far above rates that companies in Germany, Canada, and Japan believe profitable, and similar to England and France. But it has a second agenda—can Mike Powell kill off the last competition to the bells when they are saving consumers money? Smart move.

DSLcon is this week in San Jose, where code DP342 was good for a $200 discount, which may not apply on-site. I'll be in North Carolina, at the Federal-State 706 Conference with Martin of the FCC, state regulators, and some innovative users of the Net, focusing on increasing U.S. deployment. Week after, the DSL Forum is in Chicago, with some very welcome worldwide growth numbers. (Subtract Verizon & SBC, and DSL is way ahead of cable.) I'll be in Laguna Niguel for Vortex, asking John Chambers, Bob Pepper, and everyone else "what will it take to make Technet's 100M fiber dreams real?" Then I redeye to Boston, for the Connectivity group of Internet thought leaders. Dave Reed, who wrote the original paper on e2e, is just one of the presenters. I can still get a few folks in as "speaker's guests"—e-mail me if you don't have a company to pick up the tab.

No Canada! Bell Canada reverts the Internet
Massive surcharge on audio and video—except company's own
The great fear among Internet pioneers is that large companies will carve out subnets, blocking content from others. SBC has threatened that many times, the cable guys already do that for video, and now Bell Canada is cutting off the future of the Net by a ridiculous over-charge on high-speed traffic. C$7.90 per gig is about ten times the real cost of the traffic load, based on publicly available figures for transit costs from Band-X, capabilities of the DSLAMs they are buying, dark fiber costs, etc. (My estimate, but Bell Canada refused to provide detailed numbers on what their costs were.) Historical costs were higher, but today fiber, routers, and all the other costs have come down dramatically. Pricing for 2002 to 2004 should be a tenth what BC is charging.

However, common sense shows Bell Canada knows the real costs. Bell has announced plans to deliver video on demand and other services, which are economically unsupportable at these prices for transport. Because the programming must be paid for, marketed, served, and billed, they can't pay more than 25 percent of the total for transport, and struggle unless that comes down even lower. Unless Bell intends to charge $12 to $15 for every movie in their VOD offering (which they won't), they are working with an internal number a small fraction of what they want to charge other users.

The cheap tier
Bell Canada also released a $21 service at 128/64K, matching plans from the cable companies. Cable companies in the U.S. have been experimenting with similar tiered pricing. This is the "AOL killer" service, soon likely to be widespread. The U.S. bells have not demonstrated any ability to respond if it spreads here.

Economic proof of monopoly
Basic economics give you tools to recognize monopolies. In a competitive market, supply and demand rules, and no company can maintain prices far above costs. With market power, you can price to the value received by the customer, often (as in the U.S. bells) far above what a competitive market would provide. "We and the cable guys should both raise our broadband prices," a telco CEO recently commented, and that's exactly what we are seeing here. Mike Powell makes the point that "Monopoly is not illegal", but monopoly pricing is against the public interest. If the signaling was overt, it probably was illegal. When you see pricing like this, it's time to look for a smoking gun.

A violation of NAFTA
Bell Canada owns TV networks, a satellite service, and newspapers. They are actively assembling programming that they intend to favor on their own network. This "audio/video" surcharge has the effect of blocking alternate programming coming over the net. That actively discriminates against Intertainer, Canal, Sony, or the many other video services developing. The cable companies have always blocked most programming—the Internet does not need "walls around gardens."

Should San Antonio control the Canadian media?
SBC and "Cowboy" Ed Whitacre are BCE's largest stockholder, controlling 20 percent. They shouldn't have this kind of influence over what Canadians can watch. They shouldn't have that kind of control over what Texans watch, either. Free speech belongs only to those who own a printing press, and the Internet until now has been the most democratic press ever invented. We need innovation, not old monopolies trying to control the future.

Copyright 2002 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

"The power of the printing press belongs solely to those who own the presses"
—A.J. Leibling

The Internet is the cheapest printing press ever invented.

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