Cable Carriers Joint Comments TNC 2011-77 Mar28-11

Telecom Notice of Consultation CRTC 2011-77/2011-77-1

Review of billing practices for wholesale residential high-speed access services

Comments of

Cogeco Cable Inc., Quebecor Media Inc., on behalf of its affiliate Videotron G.P., and Rogers Communications

Partnership (collectively, the Cable Carriers)

March 28, 2011

Review of billing practices for wholesale residential high-speed access services March 28, 2011 Page 1 of 11

1.0 Introduction and Overview 1. Telecom Notice of Consultation 2011-77 seeks comments on the most appropriate

means of implementing billing practices for wholesale residential high-speed access services that will achieve the following two principles:

a. Ordinary consumers served by Small ISPs should not have to fund the bandwidth used by the heaviest retail internet service consumers; and

b. It is in the best interest of consumers that Small ISPs, which offer competitive alternatives to the incumbent carriers, should continue to do so.1

2. The Cable Carriers support the Commission’s principles of consumer fairness and competition in the market for residential high-speed access services. The Cable Carriers are of the view that the current market conditions and regulatory framework for wholesale services fulfill these principles.

3. The market for residential high-speed access services continues to be highly competitive. As the Commission noted in its letter of March 11, 2011 regarding the scope of the proceeding, “it has forborne from the regulation of retail Internet services on the basis that there is sufficient competition in the retail market [and] no parties provided evidence to justify a re-examination of this forbearance directive.”2

4. The Cable Carriers have responded to competitive market forces by increasing the speed of their services while lowering prices, resulting in greater value for consumers.3 Information filed by the Cable Carriers in the proceeding to follow-up Telecom Regulatory Policy 2010-632 indicates that improvements in service value have continued.

5. The Cable Carriers have invested billions of dollars to provide more advanced services and expand capacity to meet the growing needs of consumers. However, rapid growth in demand can still outstrip available capacity, resulting in network congestion. Congestion on the Cable Carriers’ shared network adversely affects the quality of service experienced by all consumers.

6. The Cable Carriers have implemented measures to minimize the risk of congestion, in the form of internet traffic management practices (ITMPs). Both technical and economic ITMPs are used to varying degrees by the Cable Carriers. Economic ITMPs include volume usage limits and, in some cases, usage-based charges that

1 TNC 2011-77, paragraph 12, sub (i). 2 Commission letter Re: TNC 2011-77, Requests to modify the scope and terms of the proceeding, March 11, 2011, page 2. 3 Cable Carriers’ comments, February 8, 2010, Telecom Notice of Consultation 2009-261, paragraphs 35-40.


apply when consumers exceed their limit (commonly referred to as usage-based billing or UBB).

7. Competition in the market for residential high-speed access services is driven by facilities-based competition. It is facilities-based competitors that provide the incentives for the Cable Carriers to invest in their networks to deliver the most advanced services in the market. The degree of facilities-based competition is increasing with the evolution and growing adoption of wireless broadband services. Small ISPs rely on wholesale access services from the Cable Carriers and other facilities-based carriers to offer competitive alternatives in the market, although their influence remains minimal even after several years.

8. With respect to Small ISPs, the Cable Carriers have wholesale third party internet access (TPIA) tariffs for their residential high-speed access services. The Commission regulates the terms and conditions for TPIA that allow Small ISPs to offer competitive alternatives to consumers, and has approved a number of enhancements to TPIA over the past decade.

9. It has been a consistent principle of TPIA that the customers of wholesale tariffs are accorded equivalent treatment to the end-customers of the Cable Carriers’ retail services, pursuant to section 27(2) of the Telecommunications Act. Since Telecom Order CRTC 2000-789, the Commission has approved volume usage rate restrictions for the Cable Carriers’ TPIA tariff, provided these are applied on the same terms as the Cable Carriers’ own retail internet services. The Commission reiterated this finding in Telecom Decision 2006-77. In that same Decision, the Commission approved Cable Carriers’ TPIA tariffs that provided the Small ISPs with access to the same service speeds (“speed matching”).

10. The Cable Carriers are of the view that UBB applied at the retail and wholesale level respecting residential high-speed access services is consistent with the principles set out in TNC 2011-77. Economic ITMPs such as UBB satisfy the Commission’s principle of consumer fairness. The TPIA tariffs approved by the Commission, including conditions that provide equivalent treatment for Small ISPs, have fostered a competitive market.

11. However, in light of the concerns raised in TNC 2011-77 and elsewhere, the Cable Carriers are proposing alternatives to the current approach to wholesale billing as it relates to UBB in this context. Specifically, the volume usage or quota provisions in the TPIA tariffs could be modified to employ an aggregated usage model. Under an aggregated model, each Small ISP would be assessed based on an average of the usage of their end-users and usage charges would depend on aggregate use over the average quota multiplied by the number of end-users.

12. The remainder of this submission is set out as follows:


• Section 2.0 explains how an economic ITMP such as UBB fulfills the Commission’s consumer fairness principle;

• Section 3.0 explains the application of an economic ITMP such as UBB in a wholesale environment;

• Section 4.0 provides an overview of alternatives to wholesale economic ITMPs.

13. Appendix A provides a summary of statements from regulatory authorities in other jurisdictions that demonstrate the widely accepted view that economic ITMPs can play a positive role in promoting efficient use of high-speed access services. Appendix B provides a summary of statistics on usage of high-speed access services that demonstrate the risk of network congestion at current and forecast usage levels.

2.0 Economic Internet Traffic Management Practices (ITMPs) 14. The Commission’s first principle of fairness for consumers dictates that consumers

who have lower volume use and place fewer demands on the available network capacity should not fund the costs of providing sufficient bandwidth to meet the demands of higher volume users. Economic ITMPs satisfy this principle.

2.1 Regulatory background

15. In Telecom Regulatory Policy 2009-657 (TRP 2009-657), the Commission recognized that Canadian carriers that provide high speed internet access service over their networks have a legitimate right and a responsibility to manage these networks. Network management needs to balance the demands of users and the ability of the carriers to fulfill that demand. In particular, the network needs to be managed to minimize the risk of network congestion and the adverse effects it can have on the quality of service.

16. The Commission established its policy framework for ITMPs in TRP 2009-657. The Commission agreed that the networks of the facilities-based providers experience congestion and recommended that the companies first seek to invest sufficiently to minimize congestion. However, the Commission recognized that “investment alone does not obviate the need for certain ITMPs”.4

17. TRP 2009-657 described two main types of ITMPs – technical and economic.

Technical ITMPs include slowing down a user’s traffic, prioritizing traffic, and detecting heavy users in order to limit their bandwidth.

4 TRP 2009-657, para. 36.


Economic ITMPs include monthly bandwidth capacity limits, where users who exceed a predefined threshold must pay additional money for bandwidth consumed, and time-of-day pricing for bandwidth consumed.5

18. The Commission noted in TRP 2009-657 that some types of technical ITMPs could give rise to concerns respecting discrimination or preference, while “economic ITMPs would generally not be considered unjustly discriminatory”.6 The Commission was supportive of economic ITMPs because they “provide greater transparency” and “match consumer usage with willingness to pay”.7

19. ITMPs of various forms are recognized among regulatory authorities internationally as measures that minimize the risk of congestion. See Appendix A for excerpts from recent statements by regulators in the United States, United Kingdom, France and Europe.

2.2 Economic ITMPs satisfy the Commission’s consumer fairness principle

20. Economic ITMPs provide price signals to end-users that promote an appropriate allocation of the limited capacity available on the network. The price signals permit consumers to purchase a level of service that matches their preferences.

21. The current market allows a consumer who places a high value on accessing applications and content requiring significant bandwidth to select an appropriate service level and associated usage allotment. Conversely, a consumer with a modest usage profile can select a service at a lower price point that corresponds to the lower value assigned to accessing such applications and content. As a result, lower volume users do not fund the higher bandwidth requirements of high volume users.

22. The fact that economic ITMPs satisfy the Commission’s first principle of consumer fairness can be further illustrated by considering two simple pricing schemes: flat rate and usage based.

23. A service that is priced at a flat rate is efficient for both the supplier and consumer when the cost to provide the service is largely fixed and demand is homogeneous. Flat rate pricing creates incentives for consumers to increase use even if they derive little or no additional benefit since they incur no incremental cost associated with that use. The service provider will be able to profitably supply the level of demand generated under a flat rate plan since the increased demand does not increase its

5 TRP 2009-657, footnotes 5 and 6. 6 TRP 2009-657, para. 40. 7Ibid.


costs. This model is more likely to apply when consumer demand can readily be satisfied at the existing level of supply without decreases in quality.

24. If the costs to provide the service vary with the level of demand, and demand levels are not homogeneous, then usage based pricing is more efficient. Usage based pricing signals to consumers they should use only the amount of the service that they need. A consumer who chooses to increase use should derive an increase in value. Consumers who derive greater value from the increased use will be allocated more of the service or product from the available supply in return for which they will be willing to pay more. Consumers who want to use less will enjoy savings, relative to a flat rate pricing model. In economic terms, the price signals an efficient allocation of the limited resource. The supplier will have an incentive to increase supply to serve the growth in demand generated by a group of consumers since the growth in demand generates revenues that recover the additional costs of increasing supply.

2.3 Economic ITMPs applied to high-speed access services

25. Capacity available for internet service is a finite resource at any given time. It is entirely plausible for all capacity to be consumed. If some consumers are using a large volume of capacity, for example, by uploading or seeding multiple peer to peer (P2P) files, then this capacity is not available for other consumers at that time. Time-sensitive applications will be degraded as a result.

26. The costs of providing internet service consist of large fixed costs in the network and costs that are sensitive to changes in demand. As long as demand remains at or below available capacity, costs will remain largely fixed. Cable carriers continuously monitor the capacity used on their networks. When it appears that demand is likely to exceed the available capacity, then additional investment is required.

27. Cable Carriers augment network capacity primarily by splitting nodes. This reduces the number of subscribers that share the available capacity on the last mile portion of the network. Fibre facilities must also be extended to serve the additional nodes.

28. The Cable Carriers have filed extensive costing information as part of the proceeding Follow-up to Telecom Regulatory Policy CRTC 2010-632 (Follow-up to TRP 2010-632) demonstrating that the costs of providing TPIA, and high-speed access more generally, are sensitive to changes in traffic volumes.

29. The provisioning of internet can be contrasted with provisioning traditional linear cable television channels where all channels are broadcast to subscribers simultaneously. The costs of distributing television channels broadcast over the cable network are driven by the number of channels supplied, not the number of consumers who are watching those channels at any given time.

30. The market for high speed internet services is also characterized by a broad range of consumer usage profiles and growth in demand across most of these profiles.


Independent analysis of traffic usage patterns on internet networks indicates that a small percentage of users account for a disproportionately large volume of traffic.

31. Statistics from Sandvine respecting North American fixed access networks indicate that 10 percent of subscribers generated more than 60 percent of traffic in 2010.8 The same analysis found that one half of North America users consumed 4 gigabytes or less of traffic per month, compared to the average usage of 15 gigabytes per month and the highest volume users with consumption in excess of 5 terabytes per month. These statistics clearly demonstrate the wide range of usage profiles.

32. Cisco’s Visual Networking Index (VNI) results also indicate a wide range in the pattern of end-user bandwidth consumption.9 In addition, Cisco’s VNI forecast of Canadian consumer generated internet traffic indicates a compound annual growth rate (CAGR) of 33% over the period 2009 to 2014.10 Shaw noted that Cisco’s forecasts are significantly lower than the growth in traffic that it is currently experiencing.11 The Cable Carriers have provided detailed information on the usage profiles and growth in traffic in their responses to interrogatories filed in confidence with the Commission in Follow-Up to TRP 2010-632.12

33. Appendix B provides further details indicating the extent of the variation in network usage and growth in usage from public sources.

34. The growth in traffic indicates the difficulty that carriers face in trying to augment network capacity sufficient to avoid network congestion. The rapid growth, combined with a wide variation in usage patterns across subscribers, also has serious implications for flat rate pricing.

35. Flat rate pricing encourages increased consumption particularly among the higher volume users. This increases the risk that network congestion will occur which will adversely affect the quality of service. Since the Cable Carriers provision high-speed internet access over shared networks, congestion in one part of the network degrades the quality of service for all other end-users that share the network.

36. A service provider with flat rate prices that is facing network congestion could increase the price in order to limit demand. This would incent some existing subscribers to drop the service and discourage others from subscribing. Consumers

8 Sandvine, Fall 2010 Global Broadband Phenomena Report, page 18; available at http://www.sandvine.com/news/global_broadband_trends.asp. 9 Cisco Visual Networking Index: Usage Study, press release October 25, 2010; available at http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/Cisco_VNI_Usage_WP.html. 10 Cisco VNI Forecast Widget, analysed for Canadian consumer internet traffic; see http://ciscovni.com/vni_forecast/advanced.html 11 Shaw(CRTC)4Feb11-104 filed in response to the follow-up to TRP 2010-632. 12 See Cogeco(CRTC)4Feb11-107, QMI(CRTC)4Feb11-106 and Rogers(CRTC)4Feb11-106 TPIA.


with lower usage patterns derive less value from the service and would be less likely to subscribe at the higher price. Higher volume consumers would likely continue to subscribe and might further increase their usage since they would have an economic incentive to do so in order to gain further value from the service. Network congestion might still occur if the remaining subscribers increase usage sufficient to offset the reductions of departing subscribers. The service provider would not avoid the costs of network congestion, and would experience a net reduction in revenues due to the lost subscribers. Moreover, the lower volume consumers who dropped the service would be worse off. This would not be consistent with the Commission’s consumer fairness principle.

37. One method to avoid network congestion with flat rate pricing is to set a limit on the amount of usage permitted at that price. The service provider can employ technical ITMPs to curtail use beyond that limit. Consumers who exceed the limit experience lower service quality (e.g., speed, bandwidth). Because the service is flat rated, these consumers may not have the option to pay an additional fee to restore their service. This approach could limit the ability of consumers to have full access to the internet.

38. The Cable Carriers have applied technical ITMPs only with respect to upstream traffic. These measures are applied primarily to control the extent to which peer to peer applications consume the limited capacity available on the upstream bandwidth.13 Technical ITMPs that limit capacity for P2P upstream applications improve the quality of service of time-sensitive applications that require upstream bandwidth, such as VoIP and online gaming.

39. Network congestion can also be controlled by applying usage based pricing. Applying a usage based component to the price can supplement or take the place of a technical ITMP. Consumers must choose whether to incur additional costs in return for using more capacity. Higher volume consumers may choose to pay more if they want to increase their usage.

40. Usage based pricing permits consumers to receive a consistent level of service without interference regardless of their usage level. By comparison, a technical ITMP would interfere with the service quality if the consumer’s use exceeded the limit.

41. A common form of usage based billing as an economic ITMP is two part pricing. The first part is flat rated and includes a fixed amount of usage. The second part is usage based pricing that applies to use that exceeds the amount included at the flat rate price. This approach provides consumers with the benefit of predictable billing in return for self-managing their usage within the limit. It also allows usage over that limit in return for additional payment.

13 Further details on technical ITMPs are provided in the responses to Cogeco(CRTC)4Feb11-107, QMI(CRTC)4Feb11-106, and Rogers(CRTC)4Feb11-106, filed in the Follow-Up to TRP 2010-632.


42. In order to be effective as an economic ITMP, the usage based price component needs to be established so as to discourage use above the set limit. The price should incent use in excess of the limit only to the extent that the consumer would gain significant value from that usage. If the price is set substantially below the consumer’s value, it will have little influence on usage. It follows that the price does not necessarily reflect the cost of supplying the network capacity.14

43. The Cable Carriers have applied economic ITMPs in the form of limits on usage for a number of years. In some cases, specific charges for usage in excess of the cap have been applied as well. The experience with UBB has been that the vast majority of consumers do not exceed the cap applied to their associated service tier. Among the small percentage of consumers with higher volume usage, some choose to moderate their use while others switch to a higher tier with higher usage quota to accommodate their usage profile.

44. It has been suggested in some forums that usage-based pricing should be targeted either at certain time periods when traffic volumes are at their peak or in specific locations where the volume of traffic is highest. Such a de-averaged pricing approach is not equitable and may not be as effective in influencing consumer usage.

45. Peak periods can span broad time frames. Information filed in Follow-up to TRP 2010-632 indicated that the peak period can last several hours, starting in the late afternoon and continuing after midnight.15 See also the statistics compiled by Sandvine provided in Appendix B, Chart B3. Consumers may not have the flexibility in their daily schedule to shift their usage away from the peak period. Higher prices in peak periods would penalize consumers that were not able to shift their usage to off-peak periods. There would also be additional significant costs to implement peak period pricing.

46. Usage-based pricing can be effective at moderating congestion in peak periods without necessarily targeting peak periods. Consumers have been found to moderate their use in peak periods in response to non-time sensitive pricing incentives.

47. Consumers unlikely to manage their usage in response to pricing plans that targeted specific geographic locations where the volume of traffic is higher than average, at least in the context of wireline high-speed access services. For example, high volume consumers are not likely to switch residences to a lower volume or less congested neighbourhood. Setting higher prices for services in neighbourhoods characterized by high volume usage would mean consumers in those areas would

14 This relationship is discussed further in the Cable Carriers’ comments filed in response to Telecom Notice of Consultation 2010-803, November 29, 2010, para. 16. 15 See for example the response to Shaw(CRTC)4Feb11-102 TRP 2010-632.


be charged higher prices that may not reflect their own usage profiles. Rather, these consumers would end up paying more because of the usage profiles of their neighbours.

3.0 Economic ITMPs applied to wholesale services

48. The Cable Carriers’ wholesale services are carried on the same underlying network that is used to serve their own retail consumers. As noted previously, the shared nature of the network means that the quality of service available to one end-user depends on the capacity used by all end-users that share that network, both retail and wholesale. Any congestion that occurs will affect both groups of end-users. This needs to be taken into account when determining how to implement an economic ITMP that is effective for end-users, including those served via the Cable Carriers’ TPIA wholesale service.

49. The Commission has established that the Cable Carriers’ TPIA service must provide equivalent treatment to TPIA end-users and their own retail end-users.16 Applying this principle to an economic ITMP enables the Cable Carriers to minimize the risk of network congestion that would degrade the quality of service for all end-users. The pricing structure applied to TPIA needs to ensure that appropriate price signals are delivered to these end-users that will control usage above a critical threshold.

50. A simple example demonstrates why flat rate pricing applied to TPIA would undermine the economic ITMP applied by Cable Carriers to their retail end-users. Assume the wholesale service is offered at a flat rate price per end-user with no usage based price component. The Small ISPs that rely on TPIA will not incur any additional cost per end-user regardless of the usage profile of their end-customers.

51. The Small ISPs will have little incentive to apply UBB pricing plans since their costs are not affected by changes in traffic volumes carried over the Cable Carriers’ last mile network. Instead, the Small ISPs will likely set their retail prices on a flat rate basis. The flat rate retail prices will attract a disproportionate number of higher volume consumers since these consumers benefit the most under such pricing plans, relative to usage-based plans. The higher volume consumers will have no incentive to control their usage under a flat rate plan.

52. The increased usage from the higher volume consumers who use the Small ISPs’ flat rate plans will increase the load on the underlying network of the Cable Carriers, which it turn, will increase the risk of network congestion. The risk that network congestion will occur increases as the Small ISPs increase their number of end-users. Network congestion will affect the end-users of both the Small ISPs and the Cable Carriers. The increased use will ultimately drive increased investments in

16 Telecom Order CRTC 2000-789, para. 8; Telecom Decision CRTC 2006-77, para. 249.


network capacity. Absent a change in the TPIA tariffs, there is no means to recover the increase in costs caused by the higher usage of the Small ISPs’ end-users.

53. This demonstrates why economic ITMPs need to be applied in a similar manner to the retail and wholesale services where both services are provisioned using the same network.

54. Videotron has applied UBB to both its retail and wholesale high-speed access services for a number of years. Videotron described the implications of moving away from this symmetrical treatment in a recent interrogatory response.

It is important to note that Videotron’s TPIA cost model assumes that retail and wholesale end-users have precisely the same usage profile per speed tier. Should a policy change result in wholesale end-users being subject to more relaxed UBB thresholds or lower UBB rates relative to retail end-users, then we would no longer expect wholesale end-users to have the same usage profile as retail end-users. Wholesale end-users would be expected to consume more, and Videotron’s monthly TPIA rates would have to be adjusted in consequence.17

4.0 Alternative Pricing Proposals for Wholesale High-Speed Access

55. The Cable Carriers are of the view that the approach set out in Order 2000-789 and Decision 2006-77 respecting equivalent treatment of wholesale customers relative to retail consumers remains appropriate. The Commission has approved the Cable Carriers’ TPIA tariffs that include the application of similar terms. However, in light of the concerns raised in TNC 2011-77 and elsewhere, the Cable Carriers are proposing alternatives to the current approach to wholesale billing as it relates to UBB in this context.

56. One alternative to the current model is to modify TPIA to an aggregated usage model. An aggregated usage approach was proposed by Commissioner Candace Molnar in her written dissent to Telecom Decision CRTC 2010-255.

57. An aggregated model that is properly designed would provide Small ISPs with incentives to offer retail services that appeal to consumers with a wide range of usage profiles. At the same time, the threshold level at which usage charges should come into effect needs to strike a balance between maintaining an effective ITMP and providing Small ISPs with retail pricing flexibility.

58. An aggregated model would allow each Small ISP to have its usage measured based on the average of the usage of their end-users. It would be in the interests of the Small ISP to offer a range of pricing plans that attract both lower and higher volume consumers. If a Small ISP offers pricing plans that attract a disproportionate

17 QMI(CRTC)4Feb11-106, (e), filed in the follow-up proceeding to TRP 2010-632.


number of higher volume consumers, then it is more likely to exceed the average usage limits and incur additional usage charges under the TPIA tariff. Additional chargers should apply when large volumes of traffic are generated by the end-users of a Small ISP. Otherwise, usage based billing would not be an effective economic ITMP.

59. The Cable Carriers are of the view that Small ISPs would have an appropriate degree of flexibility under an aggregated model. The threshold at which charges would apply to a Small ISP would depend on the average volume of use for all the end-users it served per tier, rather than the usage of each individual end-user. Additional usage charges would be based on the aggregated usage that a Small ISP’s end-users generated in excess of the threshold per tier.

60. The Small ISPs would be able to offer competitive alternatives with prices, usage quotas and/or charges for additional usage that differ from the Cable Carriers’ own retail services. This would be consistent with the second principle enunciated in TNC 2011-77. At the same time, the Small ISPs would have an economic incentive to establish appropriate measures that moderated the overall demand generated by their end-users.

61. Pricing models that would apply usage-based billing to TPIA by time of day would provide less flexibility for competitive alternatives. In addition, time of day pricing would affect some consumers who may be unable to shift their usage to off-peak periods, as noted in Section 2.3. However, an aggregate model applied to TPIA without targeting peak period usage would not preclude the Small ISPs from offering retail services with usage and pricing elements that are targeted at controlling use in peak periods.

62. The Cable Carriers are not in a position to propose specific pricing plans for usage under an aggregated model at this time. However, as a general proposition, the wholesale pricing should reflect retail prices for UBB and not be based on a narrow incremental Phase II cost methodology. The reasons for this were provided in the Cable Carriers’ submissions filed in Telecom Notice of Consultation 2010-803.18

63. The Cable Carriers remain of the view that setting wholesale UBB prices based on a narrow assessment of incremental costs would be detrimental to ensuring that UBB functions as an effective economic ITMP on the shared resources of the cable network. The integrity of economic ITMPs should not be sacrificed simply to artificially promote resale competition.

18 Cable Carriers’ comments TNC 2010-803, November 29, 2010, paragraphs 12 to 16; and December 9, 2010, paragraph 23.

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APPENDIX A

INTERNATIONAL REGULATORY AUTHORITIES VIEWS ON ITMPS

A number of international regulatory authorities have acknowledged the role that economic ITMPs can play in promoting efficient use of the capacity for high speed internet services.

Federal Communications Commission (FCC)

However, prohibiting tiered or usage-based pricing and requiring all subscribers to pay the same amount for broadband service, regardless of the performance or usage of the service, would force lighter end users of the network to subsidize heavier end users. It would also foreclose practices that may appropriately align incentives to encourage efficient use of networks.19

Ofcom

Absent traffic management, there is a risk that congestion may slow down traffic and reduce the quality of service experienced by all consumers. Congestion means that ISPs would either have to invest in further capacity or, if that was not appropriate or efficient, ration consumers’ demand. If ISPs could not respond to congestion by rationing demand it is likely that there would be negative impacts for consumers, at least in the short term. At best, delay-sensitive services would be adversely affected. At worst, all traffic and services could be affected at times. This could also reduce incentives to invest in delay-sensitive content and applications.

Consumers do not all have the same tastes and preferences. Some may be willing to pay to minimise the risk of receiving a low quality service, for instance keen internet gamers. If traffic management was not possible at all, ISPs could not meet the demand of these quality-sensitive consumers. This could mean that some consumers may not be able to receive the internet access service they want (even if they were willing to pay for it).20

L’Autorité de Régulation des Communications Électroniques et des Postes (ARCEP)

For ISPs, fair use policies consist of setting – in the general terms and conditions of sale – “reasonable” limits on the use that end users can make of their access to a data service offering, notably flat rate services. In practice, this can mean

19 FCC, In the Matter of Preserving the Open Internet Broadband Industry Practices, Report and Order, December 21, 2010, para. 72; available at http://www.fcc.gov/Daily_Releases/Daily_Business/2010/db1223/FCC-10-201A1.pdf 20 Ofcom, Traffic Management and ‘net neutrality’, A Discussion Document, June 24, 2010, para. 4.11, 4.12; available at: http://stakeholders.ofcom.org.uk/consultations/net-neutrality/

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APPENDIX A

INTERNATIONAL REGULATORY AUTHORITIES VIEWS ON ITMPS

that, when an end user exceeds this “reasonable” consumption threshold, it could result in him having his access speed reduced, or he may be billed an overage charge on top of his flat fee. This type of practice already exists, particularly on mobile and cable networks, but the way it is applied is generally unclear. It seems neither opportune nor relevant to forbid operators from engaging in this type of practice. To the extent that it appears that 5% or 10% of end users consume more than half the bandwidth on electronic communications networks, it may be preferable in certain cases for ISPs to implement this type of system to ensure that the behaviour of a minority is not detrimental to the quality of service provided to the majority of end users.21

Body of European Regulators for Electronic Communications (BEREC)

The flat rate subscriptions currently provided may in case of high data volume usage at peak hours not cover all the costs of the ISP. The solutions commonly envisaged by operators are either to limit the data volume or to increase the price. Limiting the data volume or throughput rate may either be independent of data type (data volume caps or bandwidth limits) or dependent of data type (e.g. throttling of p2p file sharing). The first method does not constitute a departure from the principle of net neutrality; while the second method presumably does as specific data types receive a different treatment than other traffic. There are many existing models to address an imbalance between price and cost according to the first approach – for instance offering price-differentiated access throughputs (this is generally well accepted and raises no net neutrality concerns). Another concrete illustration of the first method is that some ISPs include a “Fair Usage Policy” clause in their end user contracts, which is often expressed in very general terms but is used to justify the application of the mentioned mechanisms. Operators generally state that fair use policies are intended at preventing some “extreme” profiles of consumption (of a minority of users) to degrade the Internet experience of others.22

21 ARCEP, Internet and network neutrality, Proposals and recommendations, September 2010, page 33; available at: http://www.arcep.fr/uploads/tx_gspublication/net-neutralite-orientations-sept2010-eng.pdf 22 BEREC, BEREC Response to the European Commission’s consultation on the open Internet and net neutrality in Europe, September 30, 2010, page 15; available at http://erg.eu.int/doc/berec/bor_10_42.pdf

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APPENDIX B

NETWORK USAGE

Network capacity is a finite resource, at least in the short term. Investment in the network, such as splitting nodes in the cable plant, can increase capacity over longer time frames. However, the Cable Carriers’ ongoing efforts to increase capacity are being met by increasing traffic volumes that are filling the available capacity. The following statistics demonstrate that growth is expected to continue.

Chart B1, based on Cisco’s VNI data, illustrates the expected growth in usage in Canada, broken down by traffic type.23

CHART B1

82.2 105.2 128.5 156.2 184.5 207.066.479.6

95.8115.5

139.6169.1

103.4

185.2

322.4

427.5

546.9

676.2

0

200

400

600

800

1000

1200

2009 2010 2011 2012 2013 2014

Petabytes

Canada Consumer Internet Traffic Forecast

Web/Data VoIP/Videoconf* Gaming* File Sharing Video

Source: Cisco VNI, 2010

256.3

375.3

553.3

707.1

880.7

1064.1

* VoIP/Videoconferencing and Gaming = 1% of total

23 Cisco VNI Forecast Widget, analysed for Canadian consumer internet traffic; see http://ciscovni.com/vni_forecast/advanced.html


APPENDIX B

NETWORK USAGE

The growth in overall consumer traffic volumes in Canada between 2008 and 2010 are on par with those estimated for the United States and Japan and will exceed those in the United Kingdom, France, Germany and South Korea, according to Cisco VNI statistics. The relative growth rates for Canada and other countries are shown in the following chart.

CHART B224

Statistics from Sandvine, Fall 2010 Global Internet Phenomena Report provide further insights as to the distribution of internet traffic on the North American fixed access connections (as opposed to mobile), both by time of day and by user profile.25

Sandvine’s statistics indicate that network capacity consumption is spread across a relatively broad time period, with the vast majority of subscribers remaining online throughout the day. These factors combine to place considerable pressure on available network capacity. 24

Source: Lemay-Yates Associates Inc., The Performance of Canada’s Consumer Broadband Networks in 2010, July 13, 2010; Report presented to Rogers Communications Inc., available at http://www.lya.com/en/spotlight/documents/FINALLYARogersNetworkPerformanceReportJuly132010.pdf 25 Sandvinde, Fall 2010 Global Internet Phenomena Report, available at: http://www.sandvine.com/news/global_broadband_trends.asp


APPENDIX B

NETWORK USAGE

The following chart indicates that there is only a brief period during the day when traffic volumes are relatively low (blue line in the chart). By midday, traffic volumes have reached 70% of the maximum and exceed 90% by early evening. It is also worth noting that at least 75% of subscribers remain connected even during the off-peak period (red line in the chart).

CHART B3

Internet Use by Time of Day - North America 2010

Sandvine provided statistics on the distribution of traffic volumes disaggregated by downstream and upstream. The statistics indicate that more than 53% of upstream traffic is accounted for by P2P filesharing and this type of traffic exhibits very little variation over the course of the day.

Downstream traffic exhibits more variation, with volumes rising in the latter part of the afternoon and into the evening, not unlike the overall traffic volume. Approximately 45% of downstream traffic is attributed to “real-time entertainment”, with a further 24% classified as web browsing.

It is interesting to note that the peak period for internet traffic spans a much broader time period and is relatively flat when compared to television viewing, another common leisure activity. The flatter usage pattern of internet traffic makes it more challenging to target traffic management practices by peak period.

The profile of internet usage on North American fixed access networks also indicates that the top 10% of end-users in terms of volume generated more than 60% of the total


APPENDIX B

NETWORK USAGE

volume of traffic in a month. At the other end of the usage profile, the 50% of end-users with the lowest volume account for only 5% of the total monthly traffic.

The following chart provides a further breakdown by upstream and downstream traffic use. As this chart indicates, the variation in usage profiles is skewed even more heavily for upstream, with the top 5% accounting for 70% of upstream traffic.

CHART B4

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Traffic Percentile (monthly)

Subscriber Usage by Percentile North America 2010

Upstream DownstreamSource: Sandvine, 2010

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Cable Carriers Joint Comments TNC 2011-77 Mar28-11