More threads by David Baxter PhD

David Baxter PhD

Late Founder

Internet Drama in Canada. (Really.)

By Shira Ovide, New York Times
May 26, 2022

What has been a promising, albeit imperfect, system that increased choices and improved internet service for Canadians is poised to fall apart.

Barring a last-minute government intervention today or Friday, many smaller internet providers in Canada are likely to significantly increase their prices and lose customers or shut down. The dream of more competition leading to better internet service for Canadians is on life support.

What’s happening in Canada reveals why we need smart internet policy to be paired with strong government oversight to have better and more affordable internet for all — and it shows what happens when we lose that.

The U.S. has botched it for years, and that’s one reason America’s internet service stinks. Canada may be a real-world experiment in what happens when muddled government regulation undermines internet policy that has mostly been effective.

The bottom line is that Canadians have something that is relatively novel to Americans: Many people have options to pick a home internet provider that they don’t hate.

That’s because in Canada — similar to many countries including Britain, Australia and Japan — the companies that own internet pipelines are required to rent access to businesses that then sell internet service to homes. Regulators keep a close watch to make sure those rental costs and terms are fair.

Owners of internet infrastructure in Canada and elsewhere don’t like this approach. They typically say that if they must share their infrastructure and the potential profits from it, they have less incentive to improve and expand internet pipelines.

The U.S. in the past 20 years mostly hasn’t worked this way. Big companies like Comcast and Verizon own most of the internet pipelines, and for the most part, there is no obligation to rent access to smaller companies that might want to sell us service.

By and large, mandated and regulated leasing of internet pipelines is one reason that Europeans tend to pay far less for better internet service than we do in America, according to a 2020 analysis by New America, a left-leaning U.S. think tank.

Canada’s internet service still isn’t great. But a 2019 analysis by a government agency found that while there were drawbacks to the country’s rental-access approach, it had been largely effective in making internet service more competitive and in pushing companies to lower costs and to improve their networks and customer service.

The sticking point in Canada is the price that internet pipeline owners charge. Over the past few years, there has been legal and regulatory wrangling over the appropriate costs and terms for big companies to rent their pipelines. Smaller Canadian internet companies say that the infrastructure owners misled regulators about how much it costs to build and maintain networks.

The result, after some flip-flops by government officials, is that the country’s telecom regulator sided with the internet pipeline owners. Unless there is a last-minute change this week, the government is set to impose significantly higher fees for smaller internet providers to lease larger companies’ pipelines. At least one such provider in Canada already sold itself and said it wouldn’t have been able to stay in business with the new rates.

Small internet providers say that Canada is about to break a system that was serving customers well.

“It will mean in no uncertain terms that home internet prices will continue to rise and consumers will suffer,” said Geoff White, executive director of the Competitive Network Operators of Canada, a trade group for smaller telecom service providers. White told me that it took years for the country’s internet system to become more competitive and that “it’s been undone piece by piece by piece.”

He and other critics of Canada’s internet policy said that service providers and customers suffered from years of regulatory limbo over the costs to lease internet pipes. To be sure, figuring out the right price is a complicated analysis in any country. Set prices too low or too high, and the system fails.

It’s worth paying attention to what happens in Canada. Like other essential services, including electricity and health care, great internet service doesn’t happen by accident. It is a choice that demands a sensible mix of effective public policy and the best that capitalism can offer.
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