New Regulations in Canada Threaten Netflix - Caps on Internet Set by Government Body to Raise Prices Stifle and Innovation - USA Next?

written by: Richard Kastelein

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The Canadian Radio-television and Telecommunications Commission (CRTC), has recently passed law that will raise prices for consumers and businesses. A decision last week from the federal telecommunications regulator has now effectively killed unlimited plans – which means Canadian will pay more when they exceed monthly limits, across the board. Consumer consumer advocacy groups say this threatens to drive down innovation. Independent providers were once able to offer connections with no caps placed on the amount of data customers could download in a given month - but under the new regime they are required to charge customers an additional fee for every gigabyte of data they consume that exceeds an arbitrarily preset monthly limit.

Some are saying that Bell and Rogers playing anti-competitive and are terrified that Netflix might compete too effectively with their TV services, hence they are trying to strangle the new competitor by abusing their privileged position in the telecom infrastructure sector by making it prohibitively expensive to the consumer to use the innovative service.

We have covered the issue of media monopolization a couple of times at Appmarket.tv as Canada's lead could be followed by other nations if mergers and concentration of media can successfully squeeze the pipes, charge through the nose and stifle competition by check-mating with powerful lobbyists in Ottawa.

Peter Nowak at OpenMedia.ca has come out with a torrent of protest in a recent piece on the Canadian Government's regulatory body.

1. Smaller and smaller download limits runs contrary to how Canadians are using the internet, which is more and more.

2. With that dichotomy in place, it means we’re inevitably going to be paying multiple times for certain services. Netflix, for example – not only do we pay a monthly bill to access the internet so we can get the service, we also pay a monthly subscription fee to Netflix. With smaller download limits, that means we ultimately have to pay a third time if we watch more than a few movies on it.

3. Given those facts, such services are going to avoid doing business in Canada, or they’re going to be considerably more expensive here, as a recent report found.

4. There are also involuntary services that chew up our bandwidth, such as software updates for computers. Sure, we can decline these, but then Canada is going to a haven for the viruses, etc., that inevitably get through. Nobody wants that.

5. Notwithstanding all of that, low usage caps will also significantly limit the ability of any such Canadian services developing, such as a competitor to Netflix. In other words, low caps limit innovation and stifle new businesses.

The Financial Post in Canada notes:

... that Consumers have already started to be informed of the coming changes, with some about to watch their monthly limits drop from 200GB [gigabytes] or more to around 25GB; almost a 90% decrease in available bandwidth.

Several analysts, observers and academics have argued that the profit margins for those overage fees, which can range from $1 per extra gigabyte to $2.50, are far to high for larger ISPs such as Bell Canada or Rogers Communications to justify. Reed Hastings, chief executive of Internet-based video streaming service Netflix Inc., claimed in a letter to shareholders last week that the cost for an ISP to deliver a single gigabyte of data was “less than a penny and falling.”

“This CRTC decision will limit Canadians’ ability to use services like Netflix or watch the news streamed over the internet,” said Dan McTeague, Liberal Party consumer affairs critic.

This equates to about 25 hours of video viewing online. Never mind streaming Netflix on a Connected TV in HD which could simply add up to about 2 hours a day, before Canadians start racking up a bill. U.S. companies like Verizon and AT&T generally provide several times the amount of bandwidth to customers, allowing them to stream more movies and shows from Netflix's catalogue without additional fees. It is those generous caps that have allowed Netflix to grow rapidly. But it appears that Telcos in Canada are buying up major media assets like CTV and CanWest - but not buying into the idea of Netflix getting on their turf.

In a roundabout criticism, covered in the Vancouver Sun, Netflix CEO Reed Hastings told shareholders in a letter this week that Netflix will work to ensure UBBtype practices are not implemented by U.S. providers.

A "negative issue for Netflix and other Internet video providers would be a move by wired [U. S.] Internet service providers to shift consumers to pay-per-gigabyte models instead of the current unlimited-up-to-a-large-cap approach," he said. "We hope this doesn't happen."

One commenter, Capoman noted at Canada's Globe and Mail:

This was anticompetitive all along. Rogers and Bell are trying to stop the internet from canabalizing their cable/satellite TV offerings, and also stopping competitors from being able to offer better packages then Bell/Rogers essentially eliminating competition. This is not about bandwidth. Bandwidth is cheap.

Another, Aaron Barrett was even more critical:

As soon as the telco giants got into the TV market, they gave up their right to throttle internet services like Netflix. Why? Because they are trying to shape the market place to their advantage. Consumers don't want cable TV, they want uninterrupted programming that they can watch when they want to watch it. Internet TV's, HTML5 and Netflix all changed the TV game over night.

What Bell, rogers and Shaw are doing is criminally manipulating the marketplace to stifle competition from business with better business models. Information must flow freely, and ISP's shouldn't be in the business of charging me a premium because I chose to get my information from sources other than the ones they provide.

I refuse to pay for cable anymore, I prefer Netflix, they give me what I want when I want it. Why should my bill go up because Shaw/Roger are losing profits? They're the ones with the bad business leadership. It isn't for the voting citizen to make up for the losses of bad business acumen.

Bell Canada is also under fire for it's recent purchase of major broadcaster CTV in Canada and the the CRTC gave Shaw Communications Inc. the go-ahead to purchase Canwest Global Communications Corp which reaches almost 100% of Canadians and is complimented by 19 specialty channels including HGTV Canada, Food Network Canada, History Television and Showcase.

Steve Anderson, executive director of the lobby group Openmedia.ca said he's concerned that media is becoming more concentrated, and allowing BCE to purchase CTV could endanger new media competitors such as Netflix, Hulu and AppleTV, which bring content over the Internet directly to computers and televisions.

"Our concern is that they'll discriminate against new media," he said. "They want you to be on their networks, so if you're using something that isn't controlled by the telecom company, you have to pay for use."

Michael Geist, outspoken professor of Internet and e-commerce law at the University of Ottawa, pointed out that when Comcast submitted a bid to buy NBD in the United States, the Federal Communications Commission took pains to ensure that the deal wouldn't crush emerging new media companies such as Hulu and Netflix. But will that last forever? And will Comcast/NBCU have anything to say about it in the future now that they got the nod to marry up? This analyst seems to think that streaming video is under threat in the USA as well.

 

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