Net-service markups huge, study shows

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This article was published 02/04/2011 (5376 days ago), so information in it may no longer be current.

MONTREAL — Last June, Bell customer Wanda Rooney was billed $47,000 for one week’s worth of Internet service because she used her cellular phone as a modem. Hackers broke into Amber Hunter’s Videotron account and she was charged more than $1,000 for months of exceeding her monthly Internet cap.

While those cases are exceptional, Canadians in general have long been complaining about the high cost of Internet services.

A report published at the end of March by Michael Geist, a law professor at University of Ottawa who specializes in Internet and e-commerce, shows Internet services are marked up a staggering 6,000 per cent and rising.

It costs ISPs only about a penny to deliver a gigabyte of data over a high-speed Internet line, and it costs another seven cents a month to provide and maintain the physical infrastructure on a DSL telephone line for a residential customer, according to Geist’s calculations. Since neither Bell nor Videotron has ever made such numbers public, Geist said the cost of about eight cents roughly includes what it costs to build and maintain the network, but may not include all costs.

While telecommunications companies claim high traffic on their networks costs them money, experts disagree.

“The expensive portion is the wires, and the equipment that drives the wires,” said Adrian Byram, the chief technology officer of ISP Radiant Communications, which pays to use infrastructure of large ISPs. “They’re charging an enormous amount of money (for data), and everybody who knows anything in the industry knows that’s completely made up.”

A recent report by the Organisation for Economic Cooperation and Development showed Canadians pay among the highest prices for high-speed Internet in the world at $11.85 per megabit per second, behind only Sweden, Luxembourg, Turkey, Poland and Mexico.

In Britain, which has the second-lowest rates in the OECD survey, Telecom company O2 advertises on its website a charge of 13.50 pounds, or C$21.06, for an Internet service of up to 20 megabits per second with a limit of 20 gigabytes of data per month. Bell charges $62.95 for a 16-megabit-per-section speed, and Videotron’s 15-megabit service costs $65.95 a month.

Isabelle Dessureault, the vice-president of corporate affairs for Videotron, said Canada’s vast territory and lack of large urban centres mean there is a higher cost to install infrastructure here. She said the network must also stand up to the extreme weather conditions, and she denied suggestions that it’s getting cheaper to provide Internet services, saying Videotron must constantly reinvest its profits in order to bolster the network.

“We constantly invest about 90 per cent of our profits into capital expenditures to improve the network, or into research and development,” Dessureault said.

Agustin Diaz-Pines, an OECD telecommunication economist and policy analyst, said he believes the main reason for high prices is the lack of competition in Canada. While he acknowledges that “Canada is a big country with a sparse population (and) providers can face higher costs than if they were in Hong Kong,” he says that if companies can make profits elsewhere by pricing their products at a third of the price offered in Canada, there is surely room for prices to drop in this country.

— Postmedia News