The Canadian Radio-television and Telecommunications Commission has struggled for years to deal with an issue that lies at the heart of Internet services in Canada: how can it foster greater competition from independent Internet providers, while also addressing telecom and cable company concerns about network congestion?

In 2009, the CRTC believed it found the right solution. It established Internet traffic management guidelines (often referred to as net neutrality rules) that created limits on how Internet providers could throttle or limit download speeds and encouraged providers to use "economic measures" such as data caps to manage demand by making it costlier to consume large amounts of data.

While the net neutrality rules applied to all Internet providers, the CRTC was particularly concerned that the dominant incumbent providers would apply their throttling practices at the wholesale level, making it more difficult for independent ISPs, who rely on the incumbents to connect to residential customers, to differentiate their services. If independent ISPs were forced to provide throttled services, their competitive position would be undermined.

Just two years later, the CRTC finds itself facing a similar dilemma, this time involving the very data caps it once promoted. Some dominant incumbent providers want to apply data caps at the wholesale level, which would similarly make it difficult for independent ISPs to differentiate their services. The rules associated with wholesale data caps -- better known as usage based billing, or UBB -- was the subject of another CRTC hearing last week.

Decongestion remedy?

While the arguments about network congestion from dominant providers such as Bell remained much the same, as the week wore on it appeared the commission was beginning to realize that congestion claims may be overstated and being used to mask fears of competition from the independent ISPs.

Bell argued that it faces serious network congestion issues and therefore needs regulatory rules that would require independent providers to pay by volume (ie. the amount of data consumed). This represents a modest shift away from its earlier usage based billing proposal, but still rests on shaky ground.

CRTC Chair Konrad von Finckenstein asked why if Bell faces network congestion, its sister company Bell Aliant has not implemented usage based billing. Bell argued that Bell Aliant "supported" the concept, but acknowledged that competitive forces and marketplace conditions in Atlantic Canada were such that it is currently not needed. In fact, Bell offers different data caps in Ontario and Quebec, also a function of marketplace competition. In other words, the same "congested" network features different data caps in three markets, responding to the competitive environment.

Further testimony made it clear that Bell's congestion concerns place it in the minority of Internet providers. Rogers told the commission there is no bandwidth crisis and that it works hard so there is no congestion. Telus indicated that it does not employ usage based billing for its wholesale customers, since its network investments have allowed it to manage congestion without the need for such measures. Shaw noted that it recently raised its speed and data caps so that it offers plans far larger than those available from Bell.

Handling traffic

The CRTC commissioners appear to have recognized that proposals based on limiting the volume of Internet use are not only bad policy -- discouraging Internet use benefits no one -- but are ineffective in dealing with network congestion. The reason is that the amount of data consumed has very little to do with whether the network is congested.

Consider a four-lane highway that can comfortably accommodate 24,000 vehicles per day. If the vehicles are spread evenly at 1,000 per hour throughout the day, there is no traffic congestion. But if 20,000 of the vehicles attempt to use the highway over a four-hour period, the highway becomes very congested during that time frame. The aggregate volume of traffic may be the same, yet the congestion implications are very different.

The same is true of networks, which can be used to capacity without congestion concerns. It is only when there is simultaneous demand -- called peak periods -- that there is the prospect of congestion and the need to augment the network. Pricing to peak periods is precisely what the independent ISPs have proposed, noting that volume pricing hurts their competitive flexibility and does little to address congestion.

After years of debate, that message may finally have resonated. In her questioning of Bell, CRTC Commissioner Candice Molnar said: "We all, I think, can hopefully agree that there is no marginal cost to using the network when you are not causing augmentation." Bell agreed, and it now falls to the CRTC to take that admission to heart by crafting rules focused on competition, not congestion.