Usage-based billing: words that can elicit strong emotions, especially from heavy users of the internet who signed up for unlimited plans with some of the country's smaller internet service providers.

Usage-based billing for internet access is widespread but the debate over bandwidth limits is not over. (CBC)

Smaller ISPs have their own connections to the internet, but only the big companies have direct connections to people's homes — a part of the network known as "the last mile." So companies like Teksavvy and MTS Allstream rent network access at wholesale prices from companies such as Bell and Rogers in order to create and sell their own retail internet packages to business and consumer customers.

These smaller players don't have the marketing reach of Canada's telecommunications giants, but they have built a business model around offering unlimited internet access plans at lower prices than the big carriers like Bell, Rogers and Telus.

But Bell sparked a country-wide controversy when it proposed charging its wholesale customers according to the same usage-based caps that it had been using to bill its retail internet customers. Any usage over the cap would be hit with a hefty surcharge or "overage" fee of up to $2 per gigabyte. Bell argued this was necessary to make heavy internet users pay their fair share. It said customers of independent ISPs were responsible for a disproportionate amount of congestion on its network.

Timeline

On May 6, 2010, the CRTC approved an application from Bell Canada to bill internet customers, both retail and wholesale, based on how much they download each month.

On Jan. 25, 2011, the CRTC ruled that Bell had to offer its wholesale customers a 15 per cent discount off the usage-based billing rates it charged its retail customers.

This ruling caused an uproar among smaller ISPs and their customers, and was met with a number of petitions calling on the government to reverse the regulator's decision. In February, Prime Minister Stephen Harper requested a review of the decision, with Industry Minister Tony Clement saying the government would intervene if the CRTC did not reverse its decision.

On Feb. 3, the regulator announced it would hold a review of wholesale billing practices and its past decisions to allow Bell to impose usage-based caps on wholesale customers. It solicited comments from the public and held a hearing in Gatineau, Que., in July at which it heard from ISPs and other interested parties.

At that hearing, Bell proposed a model it called "aggregate volume pricing" that would allow independent ISPs to buy pre-paid network access based on a cap on the total amount of internet usage by their customers. Bell proposed charging $200 per terabyte, plus a surcharge of 29.5 cents for each gigabyte over the allotted block.

The Canadian Network Operators Consortium, which represents small ISPs, favours a "95th percentile" model based on peak traffic that would allow ISPs to manage bandwidth congestion with time-of-day pricing.

On Nov. 15, the CRTC rejected Bell's usage-based billing plan, ruling that established providers could either charge the independent ISPs a flat rate or a rate based on the number of users — not based on the total volume of data, as Bell had asked.

What is usage-based billing?

Simply put, it's a system by which your internet bill is based on how much data you upload to and download from the internet.

Usage-based billing was the norm in the early days of the internet, when we got online over the phone, but it was usually tied to online time rather than the amount of data transferred. Plans typically included a certain number of hours of dial-up access. But that changed as people moved to always-on broadband connections.

Ask someone with a vested interest, and they'll say the return to usage-based billing is either a nefarious plot to squeeze every last cent out of the consumer or the only way to make sure that companies are fairly compensated for the billions of dollars they have to invest to make sure their networks are able to offer Canadians the top-notch internet access they deserve.

If you have an unlimited usage plan, usage-based billing may not affect you immediatley — although it could affect the future of your plan. None of the big internet service providers (ISPs) offer unlimited plans. The smaller companies that do are phasing them out, after the CRTC ruled in favour of a Bell application to put usage caps on its wholesale customers.

The CRTC also said Bell would have to provide the smaller companies a 15 per cent discount on its rates. While that might be enough to allow those companies to continue turning a profit, it won't allow them to offer plans with unlimited internet access to heavy online users.

The big players did away with unlimited plans some time ago and now offer a menu of plans with caps from 25 gigabytes to 175 gigabytes or more. For instance, Rogers Extreme Internet plan caps the customer's monthly usage allowance at 80 gigabytes at a cost of $60. Go over that limit and it'll cost an extra $1.50 per gigabyte.

Canadian ISPs charge some of the highest rates in the world for exceeding usage caps, according to the Organization for Economic Co-operation and Development (see chart 4g) .

But aren't we getting world-class internet access?

Speedtest.net — which ranks internet speeds around the world — found that Canada's average download speed of 11.96 Mbps in November 2011 had fallen behind the United States (12.1 Mbps), but was slightly ahead of the 12.78 Mbps average of European Union countries.

Canada was ranked 32nd in the world for download speeds on the Ookla Net Index in November, far behind leaders Lithuania (32.28 Mbps), South Korea (30.36 Mbps), Latvia (26.04 Mbps) and Sweden (25.81 Mbps).

Canada ranked 61st in the world for upload speeds, at a national average of 1.86 Mbps. The leaders were South Korea at 27.64 Mbps, Lithuania at 24.28 Mbps, and Latvia at 15.9 Mbps.

What can I do online with one gigabyte?

You could send/receive 105,000 emails, download more than 200 songs or download 1½ movies.

If your plan is capped at 80 gigabytes per month, you'd be able to download roughly 40 high definition movies or 16,384 songs.

Casual users of the internet may use only a couple of gigabytes a month. But usage can increase rapidly if your smartphone accesses your wireless network at home and you play things like YouTube videos or you watch last night's highlights on your Hockey Night in Canada smartphone app.

You usage will increase exponentially if you download a lot of movies through subscription services like Netflix, which may carry some of the content companies like Rogers and Bell might prefer you bought from them.

Will usage-based billing dramatically change our internet habits?

For heavy users, costs will increase. For the rest of us, maybe not. However, there are concerns that everyone will be using far more bandwidth as the ways we use the internet evolve. If most of the television programs or movies that Canadians watch are downloaded in the future, for example, consumers will quickly surpass caps of 60, 80 and 100 gigabytes a month.

Markus Giesler, an associate professor at York University's Schulich School of Business, says when disruptive pricing strategies are backed by a regulatory body, it is especially frustrating for the consumer. But, he adds, events generally unfold in unforeseen ways.

"Every such decision has unintended consequences. For instance, the one on music downloading had led to an incredible shakeup of the recording industry — and one of the unintended consequences has been the emergence of the iTunes music store and many other kinds of smaller, more online-oriented businesses…. It's not just bad news here. The beauty of all this is that when things get destroyed, new things emerge."