Small companies selling internet services will likely be paying for download speed under a decision announced by Canada’s telecommunications regulator.

The companies, which buy their internet services from larger established providers such as Rogers and Bell, were fighting an application to the CRTC by Bell to charge more to wholesale customers.

The CRTC's decision, announced Tuesday, gives established providers two options for charging independent internet service providers — a flat rate or a rate based on capacity and the number of users.

Bell had asked to be able to charge based on the total volume of internet data used by its wholesale customers. The regulator rejected that model.

The capacity rate model charges based on the speed of the service — meaning the small ISPs will be paying for the size of the pipe, not the amount of data that flows through the pipe. And it means small ISPs will have to pay more to provide faster internet to their customers.

The CRTC requires Bell and Rogers to allow the smaller companies to use their internet infrastructure and regulates the price which they can charge for it.

The regulator initially approved Bell's pitch to charge fees for going over set bandwidth limits, but the Conservative government pushed back soon after the January 2011 announcement.

Prime Minister Stephen Harper favoured a review of the decision, and Clement announced on Twitter that the government was asking the CRTC to take another look.

Clement 'was right'

Konrad von Finckenstein, chair of the CRTC, says the regulator made a mistake in deciding last year to allow Bell to raise its prices for independent service providers.

"Our original decision was clearly not the best one. It was wrong and it was pointed out by a lot of people, including Minister Clement. He was right. We have today fixed it, we have made this new decision," von Finckenstein said.

"The bottom line is that you as a consumer will not face a cap or limitation of use because of anything mandated by the CRTC. Any kind of cap or limit, payment per use, that you will have to pay is because your ISP decides to charge you, not because we mandate it."

Clement responded on Twitter, writing that von Finckenstein's comments were "gratifying."

Another part of the decision will force the small ISPs to plan how much internet they expect to need. If they require more than they'd planned for, they will need to buy more capacity from the established providers.

Part of the rationale for going with a capacity model is that it costs more for the infrastructure to provide faster internet. The infrastructure is much of the cost for providers like Bell and Rogers, who are the only ones who directly reach consumers' homes.

NDP Digital Issues critic Charlie Angus pointed out in a statement that the decision only affects about six per cent of the market, those who buy their services through smaller ISPs. Angus said he'd like to see the government do more to protect consumers from "unfair billing practices and bandwidth caps."

"Allowing big telecom companies to reach into the pockets of struggling families and ask for even more money is just plain wrong," Angus said in the statement.

Steve Anderson, who leads a group that lobbies for cheaper internet and more competition in the industry, says the CRTC took "a clear step in the right direction."

"It's not going to fix the broken telecom system. Canadians before this decision already paid some of the highest prices for the internet in the industrialized world," said Anderson, head of Open Media.

"It shows the power Canadians have when they speak out on something. It shows Canadians can change policy and change politics in this new digital era when everyone has a voice."

Large providers vs. independents

The dispute was between companies, such as Bell and Rogers, which own the cables and other infrastructure, and small internet service providers, which rent network access wholesale from those companies and sell it to customers. The small ISPs often sell internet services at a lower price than the mainstream companies and with no monthly limits on bandwidth.

After the government demanded a review of the CRTC's original decision last winter, the regulator held hearings to examine new proposals and get feedback from consumers, industry groups and internet providers.

The review generated thousands of submissions through an online public consultation and included several days of public hearings in July. The CRTC heard a number of new ideas for how retail internet should be priced:

• Bell made two proposals, the first, which included usage-based caps and overage surcharges, was met with harsh criticism. Its final proposal was that independent ISPs be charged 17.8 cents per gigabyte of usage.
• The Canadian Network Operators Consortium, which represents small ISPs, proposed a "95th percentile model," in which charges would be based on the measured peak network traffic travelling at the point where the independent ISP's network joins the network of wholesale network providers such as Bell.
• MTS Allstream, which buys wholesale network services from companies such as Bell in some areas and rents its network to independent ISPs in other areas, proposed that wholesale providers charge independent ISPs based on the capacity of the link between the wholesaler's network and the independent's network. The price includes the cost of upgrading other parts of the wholesale provider's network to accommodate traffic from the independent ISP for the next 10 years.