CityWest Marketing Manager Chad Cunningham told Prince Rupert City Council Monday evening the company has decided to enforce limits on internet plans because the company has faced increasing costs for bandwidth it can no longer afford to absorb.
Globally internet customers are using 340 per cent more bandwidth than they were five years ago.
“The rise in usage has led to a $6.15 increase in our costs for bandwidth per customer per month. During this same period we’ve not raised rates, we’ve absorbed this cost. In fact, the revenue per customer has dropped $3.16 due to discounting we’ve offered for bundling,” Cunningham said, tallying a $9.31 drop per customer per month for the last five years. It isn’t a sustainable trend to maintain, he added.
According to Cunningham, the amount CityWest is billed for bandwidth is higher than other areas.
“We’ve had quotes for bandwidth showing that it would be five times lower if we were to buy it from another City other than Prince Rupert or Terrace,” he said.
Presently the company pays over a million dollars for bandwidth a year. If it could purchase it in Prince George it would be about $250,000 a year. Even less in larger centres, he argued.
“I can only imagine that providers in Vancouver are paying half of that, yet we charge $35 a month just like Shaw and Telus in Vancouver. Obviously our profit and profit margin is significantly less.”
Of equal concern, is a lack of capacity for bandwidth in the region for the future.
“Beyond the economics, we project a shortage of supply coming in the future that would affect our ability to meet demand at any price. That in a nutshell is the driving force behind why we need to make a change,” Cunningham said.
CityWest has looked at four possible options to address the problem.
They include enforcing limits on plans, a rate increase for all customers of $6 a month, bandwidth management or shaping where the company develops rules that manage or restrict access, or curtailing spending by not buying more bandwidth and ultimately, not keeping up with demand.
Cunningham said the first option is the best one.
“There are limits on plans now so all we have to do is enforce them. If we do this, those who go over their plan will be billed or alternatively they could choose to upgrade to a plan that was designed for heavier users,” he said.
It’s a strategy that would offer a way to increase billing for consumers that are using a greater portion of a shared resource. If customers use more bandwidth they drive up costs, so higher billing for usage offers a long-term solution for that trend.
Cunningham admitted the solution helps deal with the problem of costly bandwidth, but doesn’t solve the bigger problem.
“The options we have to deal with are to partner with another company to run a fibre link to Prince George to open up the corridor and take control of our own destiny. From Terrace to Prince George there’s only one provider of bandwidth. The price is high and the supply of bandwidth is low,” he explained.
From Prince George, CityWest would have several providers to choose from, which would lower costs. CityWest will be doing due diligence to look at the possibility of its own fibre link to Prince George.
Another alternative is to lobby the government and the CRTC to lower the wholesale rates for bandwidth in the corridor.
“The internet, we would argue is no longer a luxury. It’s an essential service, particularly in a remote region like ours. We would claim that the current wholesale rates are negatively affecting the consumers in the region and ask the CRTC to step in and regulate a lower price,” Cunningham said.
Cunnningham said CityWest faces customer communication challenges and there have been fears generated over usage based billing because of misinformation.
While the current CRTC proceeding on usage based billing only deals with a narrow definition of wholesale relationships in Canada, it doesn’t cover CityWest’s wholesale relationship with its suppliers and it doesn’t cover any retail pricing, he said.
“The CRTC is on record saying it doesn’t regulate internet plans for pricing. Many consumer groups and government officials believed otherwise and formed opinions based on these false assumptions and decided CityWest was doing something wrong, that the CRTC, they believed had outlawed usage-based billing and that CityWest was going against the CRTC and that other providers had stopped so why would CityWest proceed? The truth is, the company is not breaking any rules and most other providers have limits and are already enforcing them.”
He also said customers need to know how much they use before any limits can be enforced.
“For the record, nobody will be billed for over usage until there’s a way for customers to check their usage. We’re developing a portal so users can check their usage in real time and monitor their own usage.”
Currently seven percent of CityWest’s customers are going over the limit of their internet plan and under proposed changes, those users would go to an alternative internet plan for heavier usage. CityWest will also introduce plans for lighter usage, while average users will pay what they pay now.
Current plans will be grandfathered and new customers coming in could choose the plan that best suits them. It is expected that 93 percent of customers will pay the same or less than they do now under the new changes.
But, said Cunningham, the issue isn’t going away because the problem that’s driving it won’t go away.
“Our biggest challenge is to navigate our way forward without fighting with our customers along the way. This is not a money making scheme that we cooked up, we are not breaking any laws, we’re not defying the regulator or the government. We aren’t doing anything that other internet providers in the country aren’t already doing. What we are doing is looking for a way to deal with a complex problem and doing nothing is not a viable solution.”
Councillor Sheila Gordon-Payne asked why CityWest never enforced the limits in the first place and said she doesn’t see a break coming through on the bills from other internet providers.
Cunningham replied by not enforcing limits, the company had a competitive advantage at the time, but that advantage is no longer sustainable.
“We can no longer offer unlimited internet for $35 a month, but people will get the 75 gigabytes they were promised with their plan,” Cunningham said.
Gordon-Payne also asked what that seven percent of users are doing on the computer.
“Our top person used seven or eight hundred gigabytes in a month. To service that person cost us over $1,000. I wouldn’t know what they are doing, but we have to have a mechanism to charge certain people that are using the resource so much that it’s costing us more,” Cunningham said.
Councillor Anna Ashley asked if online gaming requires a lot of bandwidth and heard “no” it doesn’t.
“That is a common fear that people have that play a lot of games online that they may not be able to do that anymore. Gaming actually doesn’t use a lot of bandwidth. Downloading videos and music uses up a lot of bandwidth in a hurry,” Cunningham told Ashley.
On Monday evening there was a power outage throughout the entire city, but emergency generators allowed for the city council meeting to proceed, although broadcasting abilities were cut off.
Councillor Gordon-Payne encouraged Cunningham to return to council to make the presentation again so that listeners and viewers at home would be able to hear it. His written submission will also be made available on the City’s website.