Executive Summary

Mr. S. M. files this Complaint to the Competition Bureau under sections 1.1, 76, 78 and 90.1 of the
Competition Act. This complaint refers specifically to the recent near-simultaneous
admission by Shaw and Telus executives that they plan to introduce usage based billing
on their customers in the coming months. This complaint also refers generally to anti-
competitive application of usage based billing by all other incumbent ISPs in the Canadian
internet service market. Mr. S. M. is a concerned citizen who has observed a number of
CRTC proceedings involving internet throttling and usage based billing (UBB) by
incumbent internet service providers in Canada since March 2008, including those leading
to Telecom Decision 2010-802. He has observed these because coordinated restriction of
supply, price fixing, other anti-competitive, collusive, and cartel-like application of billing
practices among dominant firms in the internet service provision sector in Canada
negatively affect S. M.'s ability to choose an ISP that can provide globally competitive
access to the internet. Furthermore the collusive behaviour of the incumbent ISPs have
the effect of degrading the ability of competing firms in the video-on-demand business to
provide him with the full quality of their services, by artificially inflating the cost of said
services to the end user.

Although Shaw management has made a statement denying that they will implement UBB, the very
wording of the denial itself reveals their intention to introduce it. The president of Shaw
claims no decisions have been made yet, but reveals that the key issue they are working
on is where to set the "thresholds" or limits, caps. Caps or thresholds are the cornerstone
of any usage based billing model.

It appears that such action may be made economically possible through the independent and
coordinated abuse of substantial market power by a handful of large firms in the
telecommunications industry. Coordinated efforts may include mutual artificial
constraining of supply of usage capacity, price fixing for overage charges, and tacit
collusion in the placement of usage caps on the various service packages (also called
limits or "thresholds" by incumbent PR departments).

The net result has been to force new entrants to the video-on-demand market to significantly
degrade the quality of their services (Netflix now has a special 'low grade viewing' switch,
designed specifically for Canadians due to the near universal application of UBB among
incumbent ISPs), to impair the ability of new entrants to the video-on-demand market to
compete effectively with incumbents' own video and television offerings, and to artificially
inflate the cost for the end-user of video-on-demand services which compete with the
incumbents' own video-on-demand units.

Incumbent ISPs have further coordinated their efforts by teaming up and collectively attempting to
persuade the CRTC to impose additional levies on highly competitive new entrants such
as Netflix. It appears that the effort may have been meant to discourage new video on
demand entrants to the Canadian market by artificially impairing their ability to compete in
 Canada as well.

Unless halted, the anti-competitive, collusive and cartel-like behaviour of firms in the
telecommunications industry threaten to thwart digital innovation in Canada, and prevent
consumers in Canada from having a quality of internet experience on par with the rest of
the developed world. It should be noted that Canada stands virtually alone in the
industrialized world in having usage caps and punitive overuse charges being adopted by
all incumbent firms in the industry. Extensive research corroborating this is available from
the OECD.

Emerging web-based technologies such as cloud computing are not economically viable in an
environment where individual users are charged two to five dollars per gigabyte uploaded
or downloaded. Without action on the part of the Competition Bureau, Canada risks falling
even further behind as the rest of the world forges ahead in these cutting edge fields.

The imposition of the similar UBB schemes by all major ISPs cannot be considered competitively
neutral as it removes the ability of competing video firms to provide competitive service. In
many parts of Canada, there are only two options for Internet service, a large vertically
integrated incumbent cable company, and a large vertically integrated incumbent
telephone company.

The best way to achieve the stated goal of the Competition Bureau to "ensure that Canadian
businesses and consumers prosper in a competitive and innovative marketplace" is to
ensure that any and all collusive behaviour among Canada's telecom giants is eliminated.
Furthermore, it may be necessary for the Competitoin Bureau to take steps to ensure ISPs
do not use their pricing power to stifle the growth of video-on-demand competitors.
 The nature of the emerging web-based video on demand
industry and the nature of the declining legacy television
broadcast industry
Traditional television subscriptions include a series of channel packages which some consumers
consider disconnected from their viewing interests. disconnected from individual consumer
interests. A consumer may wish only to watch 3 channels: BBC, HBO, and the Movie
Channel, but will be forced to purchase hundreds of others at a cost typically exceeding
$60 per month just to access the channels s/he wants, even if the user has no interest in
any of the other channels. Virtually all channels are packed with commercial breaks; often
for every 2 minutes of content, there is 1 minute of advertisements. The programs the
user wishes to watch can typically be watched only at the time scheduled by TV networks,
or later on if the user has configured a PVR in advance to record at a specific time.
Traditional television subscriptions in Canada typically involve lengthy contracts which
punish users for switching providers or cancelling their television service before all the
years of their term are complete.

Video on demand services such as Netflix offers a subscription service which allows users to watch
a vast range of television programming and film an unlimited number of times, on demand
at any time of day or night, without any commercials, in HD, with no contract, for under $10
per month. It has proved to be quite popular in the United States and has a rapidly
growing subscriber base in Canada. Around nearly 1 million households in Canada
currently have a Netflix subscription. Or 2.5 million people in Canada who may be
accessing Netflix in the home.

Canadian incumbent telecom companies have introduced their own digital video on demand
services, but not at a flat subscription price. Instead they have opted to charge between 5
and 8 dollars per film, which is obviously uncompetitive in the current marketplace.

The entry of Netflix to the Canadian market came after incumbents' launch of pricey video on
demand services. Furthermore, some companies including Bell were in the midst of
becoming yet more vertically integrated by adding Internet Protocol Television to their
offerings, and planning major acquisitions such as CTV.

In response to the entry of Netflix to the Canadian market, incumbent telecommunications

companies in Canada lowered the data transfer limits on consumers internet plans, and
raised the prices of "overage fees" which run between $2 and 5$ per GB. (One HD film
equates to between 4 and 10 GB of data transferred, depending on the film and depending
on the desired resolution).

This appears to have been a concerted and direct attempt to squeeze Netflix, by making Netflix'
innovative, cost effective, flexible and desirable service more costly for consumers.

Further obviating the true intentions of the bandwidth caps (or limits or thresholds- all the same
thing) was the fact that the incumbents' own video on demand services were exempt from
the usage caps, even though a substantial amount of bandwidth is dedicated to their own
 video services.

Incumbents' claims that Internet Protocol Television does not use the internet are false. They do
use a substantial portion of the finite amount of currently available internet bandwidth. So the
incumbents are charging UBB on Netflix video on demand traffic, but no UBB on their own video on
demand traffic. This is blatantly anti-competitive and an affront to the spirit of the competitive
market.

It seems that Incumbent ISPs may be trying to delay the inevitable demise of their once-immensely-
profitable TV broadcasting business model by colluding to squeeze out innovative new
services like Netflix.

In areas of Canada where consumers have only two choices for essential internet services -- a
telco and a cableco -- the concerted squeezing of independent video services through
simultaneous identical UBB practices by the two dominant players is in fact tacit collusion,
and tantamount to cartel behaviour.

Netflix is not the only company ISPs may be trying to squeeze by artificially inflating the cost of
using competing services. Amazon, Apple, Google and Hulu all have successful video on
demand businesses in the United States which are set to expand into Canada.

Netflix is considered by an increasing number of Canadians to be a more convenient, more cost

effective, more innovative, and more desirable service than traditional television. That is a
serious competitive threat to incumbent telecom conglomerates in Canada.
 Common misconceptions of bandwidth and data transfer, and
the myth of the bandwidth hog
To ensure the incentives and behaviours of firms in the telecommunications industry can be
properly monitored, a proper explanation of the transformation taking place in the
television and digital video on demand industries is needed to establish the scope of this
complaint.

Internet usage, that is, information transmitted over a network, is not a scarce resource; information
is infinite. Nobody is "hogging all the bandwidth" as is often heard in the media. Bandwidth
is simply not a consumable; it is a speed of data transmission. Users pay for a certain
speed of transmission, which they cannot exceed due to technical limitations imposed by
ISPs. The costs of having a certain amount bandwidth available remain virtually the same
whether you use that available bandwidth to transmit 1000 gigabytes of information, or you
transmit only 1 gigabyte of information. The marginal cost for the ISP of transmitting one
more gigabyte over the internet been conservatively estimated in a paper by Michael
Geist, as 7 cents per GB, while Reed Hastings has pegged the cost of transmitting one
gigabyte as less than a penny and falling.

To clarify some terms which have been confused by prominent people in the media, senior officials
in government and at the CRTC, and many consumers: Bandwidth is not a consumable; it
is a speed of data transmission. Data transmission is the amount of data transmitted over
a network. The term "usage" is a weasel word which has confused many people, because
it appears to imply that data can be "used up"; it can't.

The scapegoating of so-called "bandwidth hogs" is a non sequitur intended to confuse the
discourse on Internet provision. Bandwidth hogs simply do not exist. By the very nature of
internet service provision, it is a technical impossibility for a user on a functioning network
to exceed his or her allocation of bandwidth. That is, if the user is allocated 10mbps of
bandwidth downward, that user will only be able download at a maximum speed of
10mbps, no matter how much the user wishes or tinkers for faster service. The only way
for that user to obtain a larger allocation of bandwidth is to call the ISP and change to a
faster service plan, likely at a higher price. It is impossible for any user to occupy more
bandwidth than he or she has paid for.

The internet connection inherently includes a usage cap determined by the speed of the
connection. Yet ISPs are trying to set an additional usage threshold above which users
are charged per gigabyte, with a markup somewhere between 5000% and 50,000%
markup over marginal cost. They do this in concert, and with remarkably similar pricing
levels and structures far removed from the true costs of providing the service.

The other problem with the pro-UBB argument is the fact that unused portions of the gigabyte
allowance that consumers are paying for are not carried over to future months. Thus
consumers are penalized for using less than their cap since they lose what they've paid
for, and consumers are penalized for using more than their exact allowance since they are
charged exorbitant per gigabyte fees beyond that monthly limit.
There are those who promote certain statistics showing that Canadians are "among the world's
heaviest internet users." This claim often trotted out by incumbents seeking to defend their
anti-competitive practices, and then repeated in the popular press. However the source of
this claim is a paper which examined time spent online per user per week, not average
quantity of data transferred per user per week. In latter category has not been thoroughly
researched as far as I know, however it beggars belief that with Canada's ubiquitous low
caps and punitive overage charges levied by all the largest firms, Canada could possibly
be on the same level of data usage as the rest of the developed world (where there are
typically much larger, unenforced caps, or often no caps or UBB at all).

Another oft erroneously quoted metric is the "Networked Readiness Index" recently published by
the World Economic Forum which placed Canada somewhat favourably. This is yet
another non-sequitur commonly quoted by self-interested parties seeking to divert
attention from the real issue of anti-competitive pricing and billing schemes. From reading
the Technical Notes and Sources section of the World Economic Forum publication, it is
plainly evident that the Networked Readiness Index is of no relevance to the discussion
due to the irrelevance of most of the component metrics. Examples of components in the
index include total electricity generation of the country, enrolment in tertiary education, and
personal tax rates, and dozens more even less relevant than these. Hardly any of the
components are even remotely related to the topic of UBB, new entrants, competition,
collusion, and cartels in Canada.

Some ISPs have attempted to use the excuse of network congestion to justify introducing UBB. To
this day, no proof has been offered to regulatory bodies that congestion exists, and the
Honourable Minister of Industry Tony Clement is on the record record with a statement to
that effect (proceedings of the Standing Committee on Industry, Science and Innovation).
Any network congestion, if it exists, is a direct result of incumbent ISPs overselling their
services without sufficiently upgrading their infrastructure to accommodate the influx of
customers they have generated with their advertising. service their customers have paid
for in good faith.

The common cycle we see among incumbent ISPs in Canada is aggressive advertising of high
speeds, signing up of new customers, followed by ISPs receiving complaints from new and
existing customers about speeds not being as fast as advertised, incumbents deflecting
blame from themselves and attempting to shift blame to the scapegoat of so-called
"bandwidth hogs" -- who in fact are their own customers who are simply making use of the
bandwidth that they have paid for. Incumbent ISPs then lower their internet use limits (or
"thresholds" in Shaw PRspeak) and raise charges for going above arbitrary monthly limits
on amount of data transferred over the network.

In some cases including April 2011, two or more incumbent ISPs announce massive punitive
charges and restrictions on supply of data transfer capacity at the same time.

Even if we assume that network congestion does exist and is a significant problem, it is only a
problem at certain times of the day. UBB is akin to a car company limiting all drivers to
60km of distance per month and then charging them $3 per km in excess of 60km per
month, as a measure to reduce traffic congestion during rush hour in the downtown cores
of Canada's cities. The person driving a 1000 km at 3 in the morning on a weekend
contributes nothing to congestion, but the person who drives home a much shorter
distance from a downtown office at 5pm on a Thursday certainly does contribute to traffic
congestion. Internet traffic is in a sense similar. The person who regularly downloads
20GB at a time of HD films from itunes at 3am contributes virtually nothing to congestion.
However the person who gets home from school or work at 5pm and immediately goes
checks email and logs on to Facebook for a few minutes contributes significantly to
congestion. Yet under UBB the 3am downloader is charged far more than the rush hour
Facebook and email checker, even though the 3am downloader contributes nothing to
congestion while the rush hour Facebook and email checker is in fact exacerbating the
problem.
 Accuracy of Usage Based Billing
This section is reprinted with minor adaptations from a petition to the Governor in Council submitted
by JF Mezei.

The 2010-255 CRTC decision touches briefly on the accuracy of the usage counting. The CRTC
accepted Bell Canada's statement that while there would be doubly counted packets, this
would represent a very small amount and the Commission judged this to be appropriate.
(paragraphs 41 to 44).

Independent measurements done in 2008 when the throttling was introduced showed a sustained
packet loss rate of between 20 and 25%, requiring that many packets to be retransmitted.
For packets bound to the internet, this means that they are counted by the BAS before
they are dropped by the DPI equipment.

In order to prevent speeds from rising, the DPI equipment must constantly drop packets. This
means that packet drops happens throughout a data transfer using applications that the
ISP has targeted for throttling. Since those applications are used to transfer large files, the
inaccuracy becomes significant.

Furthermore, because of the throttling, there will be 2 different counters which cannot be
reconciled: the user's counter and the ISP's
This means that at the end of the month, any attempt to reconcile usage will fail because usage
counters from users and the ISP will have counted different amounts of traffic. And in the
case of errors with the invoicing, it becomes very difficult to prove an error has occurred.

In an email dated January 7th From: Luigi.Buffone@ic.gc.ca to to a Frank Moulton Jr, the Industry
Canada spokesperson for Weights and Measures indicated the following:

However, these Acts are silent with regards to bandwidth

measuring devices for internet usage billing. Measurement
Canada does not currently regulate devices that use bits
and bytes to measure internet usage, as is also the case
with national legal metrology laboratories in most
industrialized countries.

Should incumbents be allowed to impose a billing paradigm based on usage that is known to be
inaccurate by over 20% in some cases? Considering that its Weights and Measures Act
provides no protection against inaccuracies in data counters, and considering that usage
meters at the end-user, and incumbent ISP will have different totals, there will be no way
to gauge whether the amounts charged by the ISP will be fair and reasonable.
 Conclusion
It is my sincere hope that this complaint will lead to a thorough examination and formal inquiry into
possible anti-competitive practices being used by incumbent telecom companies in
Canada which may seek to:

a) squeeze out efficient new entrants to the video on demand market in Canada by
artificially inflating the costs to those new entrants' customers of using the entrants'
services;

b) protect profit margins and prolong economic viability of legacy businesses such
as traditional television broadcasting; and

c) increase average revenue per user (ARPU) through coordinated punitive usage
fees.