Arrival of fibre optics puts squeeze on lower-priced internet service providers


George Burger says his company, VMedia, can’t get internet service into customer buildings and homes the way it once did because copper wiring that the Toronto-based internet service provider uses to reach customers is being replaced, taking parts of his market with it.

The problem is that fibre optics networks – which carry internet signals over glass filaments – are gradually being installed directly into homes and replacing slower, but less expensive, copper-based wiring.

VMedia is one of hundreds of independent ISPs across Canada that rent space on the networks of large telecommunications and cable companies in order to cater to price-conscious consumers, who like the idea of paying monthly fees that are about 25 per cent less compared with the larger mainstream partners.

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But Burger says ISPs like his are increasingly unable to offer consumers such low prices as they lose access to old-style wiring that can be rented from a big player at a mandated wholesale price that’s low enough to still earn a profit.

Burger says it’s not always clear why VMedia can’t get access to a new customer in an older building.

“We know that we used to have somebody in that building that we were able to service and now we can’t.”

Graham Fletcher, owner of independent ISP the Internet Centre in Edmonton, shares Burger’s concern about the removal of old-style wiring such as digital subscriber lines (DSL) that phone companies deployed for residential internet services.

Sometimes, Fletcher says, old wiring is removed from conduits that run through a neighbourhood, while other times the copper wires remain but they’re unavailable for communications because their power is diverted for other uses.

“Either way, we lose the DSL business if they use the conduit for fibre,” Fletcher says.

The Canadian Radio-television and Telecommunications Commission has decided that the big phone and cable companies are obliged to allow small ISPs to use their newer residential fibre – but at interim prices that are too high to make business sense, and much higher than the wholesale prices for legacy wiring, Burger says.

VMedia, for instance, must currently pay $121 per month to Bell for each fibre optic line – higher than the promotional retail prices that Bell offered to consumers recently for its fibre-to-the-home products.

Both Burger and Fletcher – along with the Canadian Network Operators Consortium (CNOC) – have been pressing for the CRTC to complete its process for determining final wholesale prices for renting fibre optic infrastructure.

They expect the final wholesale rates set by the CRTC will be much lower than the interim rates that are currently in place.

“I’m pretty confident that, over time, the CRTC is going to realize that that’s going to have to be addressed,” Burger says.

“But for the moment, the way things stand right now, it’s really unclear on the direction that the regulators are taking in encouraging competition at the independent ISP level. And that’s the concern.”

Matt Stein, chief executive of Distributel – a national independent ISP based in Toronto – says the CRTC’s process “is taking much longer than we anticipated and throughout this delay the big carriers continue to operate without competition from companies like Distributel.”

“That means customers are not getting the full array of choice that they deserve,” says Stein, who is also chairman of CNOC, which represents independent ISPs.

But there’s a limit to the effect of lower prices on the indies, says Warren Shiau, vice-president of research at IDC Canada. He suggests consumers are willing to pay what Bell, Rogers and Telus are charging for various reasons, including consumer complacency.

“The resellers provide significant cost savings, typically in the area of 25 per cent for similar service, but relatively speaking their share of the market is minuscule,” he says.

Only 13 per cent of Canada’s retail internet subscriptions were spread among the some 550 alternative providers in 2016, according to the Competition Bureau, with 87 per cent at a dozen regional phone and cable companies such as Bell Canada and its affiliates, Telus, Rogers, Shaw, SaskTel, Videotron, Cogeco and Eastlink.

“It’s not like it’s hard to find one, there are hundreds of them. It’s not as if the service is inferior, they are just reselling internet service from Bell, Rogers or Telus networks – so the service is equivalent.”

Burger says that, despite the small market share it holds, VMedia has been able to flourish with the legacy wiring “because we were able to provide services at a significantly lower cost than the incumbents were.”

“And we were still making money, so you can imagine how much the incumbents were making.”

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