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CRTC chairman Jean-Pierre Blais in Gatineau Sept. 5, 2014.Blair Gable/The Globe and Mail

Canada's telecom regulator begins a hearing Monday that is expected to shape the landscape of the country's Internet market and determine whether small players gain access to the latest generation of high-speed services.

The nine-day hearing in Gatineau, Que., is the latest in a series the Canadian Radio-television and Telecommunications Commission has conducted since September. It has attracted less attention than earlier proceedings on television and wireless roaming rates domestic rates for wholesale wireless roaming, but there are significant issues at stake for so-called alternative Internet service providers (ISPs).

Internet services were traditionally dominated by the incumbent telephone and cable companies, but the CRTC opened the market to competition in the 1990s by mandating wholesale access by independent ISPs to certain parts of the incumbents' networks. The commission has revised the system over the years and, after its last major inquiry in 2008, promised another review five years later to revisit the continued need for regulation.

Since that time, Canada's large telephone companies have been upgrading their old copper wires and investing heavily in fibre-optic technology, first bringing it to neighbourhoods (known as fibre to the node) and right to customers' homes in some cases (fibre to the home). Cable companies, which originally were able to deliver faster speeds over their coaxial cables than the telcos could over copper telephone wires, are also spending heavily to upgrade their systems to include fibre.

Perhaps the biggest issue the CRTC will consider at this hearing is whether it should include the latest generation of fibre-based high-speed Internet services in the regulatory regime.

"The whole debate about fibre to the home really boils down to a debate about the obligations of the incumbent telephone and cable companies to make wholesale services available to smaller competitors and enable them to remain competitive," said Jean-François Léger, counsel to the Public Interest Advocacy Centre, a non-profit consumer group. "Our take is that the interests of consumers are best served by a dynamic, contested marketplace."

Although there are more than 500 Internet service providers in Canada, large incumbent telephone and cable companies control the vast majority of the market, with alternative service providers accounting for just 8 per cent of revenue from residential customers in 2013, according to the latest data from the CRTC.

The top five providers – BCE Inc.'s Bell Canada, Rogers Communications Inc., Quebecor Inc., Shaw Communications Inc. and Telus Corp. – together control 75 per cent of revenue. (BCE owns 15 per cent of The Globe and Mail.)

A major point of contention among those who will appear over the next week-and-a-half is whether the market is already sufficiently competitive or the CRTC should intervene further.

The incumbents argue that awarding mandated access to their newest high-speed services will be a disincentive to investment and set Canada's economic progress back.

"High-bandwidth fibre-optic infrastructure is not just a consumer service, it's essential to the digital economy," Telus CEO Joe Natale said, adding, "we're all new entrants in the early days of building our infrastructure and it's going to take billions upon billions of dollars to wire all of Canada."

Mirko Bibic, chief legal and regulatory officer for BCE, also argues the investment the companies are making is in a "brand new" technology. "We build these things from scratch, all the way from the backbone to the home. We're not using any legacy components at all."

"The classic argument from the other side that says, 'Bell had a 130-year head start and got to build its network in a monopoly era,' doesn't hang together at all when you talk about fibre to the home, because it's brand new," Mr. Bibic added.

Rogers' vice-president of regulatory affairs, Ken Engelhart, acknowledged the CRTC is unlikely to scale back regulation entirely, but also argued in favour of exempting next-generation services from mandatory access, at least for the time being. "We are saying we need some sort of transition to a less-intrusive, more market-based wholesale regime," he said.

But those with independent ISPs, such as Primus Telecommunications Canada Inc. CEO Michael Nowlan, argue they can't properly serve customers without access to that technology.

"Today, the competitive market doesn't have access to that fibre to the home and that's where the market is moving," he said. "If you don't give that access to the competitive market, you're back to a duopoly."

"We're not asking for a handout," he added. "There's a whole costing regime. We're paying for these services and there's a profit on it with a cost-plus methodology [of setting the prices]. Given the significance of it, we don't buy the investment argument."

Bill Sandiford, president of the Canadian Network Operators Consortium, an industry group that represents independent ISPs, said he's optimistic about the hearing.

"We think the commission will mandate access to those next-generation fibre-to-the-home networks to the competitive telecom providers," he said, adding. "We hope the commission can see clearly from the record that [scaling back regulation] would just greatly harm competition in the country and ultimately hit consumers in their pocket books."

On the other hand, Jeff Fan, telecom analyst for Scotia Capital Inc., says he does not believe the CRTC will mandate access to fibre-to-the-home technologies, noting "If the return on investing in fibre is affected by regulations, carriers can and likely will slow investment almost immediately."

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SymbolName% changeLast
BCE-N
BCE Inc
-0.15%34.21
BCE-T
BCE Inc
-0.26%46.38
RCI-N
Rogers Communication
-0.19%41.12
T-T
Telus Corp
+0.83%21.77

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