Are download limits anti-competitive?

Legitimate online video services have already been slow in coming to Canada, but because of download limits being imposed by the country's major internet service providers, they may never really get here.

Many of the country's largest ISPs recently did away with unlimited download offerings in favour of consumption-based models, where users are billed extra if they exceed a given cap. The move, they say, is being made in order to cope with ever-growing internet usage and capacity problems, which are requiring continual reinvestment in their networks.

Industry observers, however, say the change is a potential threat to downloadable video services, such as those offered by Microsoft Corp. over Xbox Live and Apple Inc. through iTunes, which are still in their infancies both in the United States and Canada. The market's growth will depend on users buying and downloading plenty of content from these providers something they won't do if they're constrained by caps because they will effectively end up paying twice for the same product, according to analysts.

"We've still got a fair bit of progress to make before it becomes an issue," says Kaan Yigit, president of consulting firm Solutions Research Group. "But does it make the potential economics less attractive to people planning to offer such services? Probably."

In the United States, video download services that allow legitimate rental or purchasing of television episodes and movies are proliferating largely because American ISPs such as AT&T and Verizon are still offering "virtually unlimited" internet plans. Apple on Thursday, for example, beefed up its iTunes offerings by adding full downloadable movies for sale, in addition to rental, on the same day they are released on DVD. Aside from Xbox Live and iTunes, U.S. internet users can also purchase video content from Amazon.com, Tivo, Netflix and a host of smaller players.

Similar services have been slower in coming north, largely because providers have had to negotiate separate internet rights with the content licence holders in Canada. Still, a few have trickled through both Microsoft and Apple began selling video content in December. Microsoft introduced movie rentals through Xbox Live while Apple began selling television episodes shortly thereafter. Tivo, meanwhile, offers a host of free special-interest videos, including some from technology website CNET and satire site The Onion, which can be downloaded and watched on television through the company's set-top box.

Most of the larger Canadian ISPs, including the two biggest Rogers Communications Inc. and Bell Canada Inc. have capped their most popular internet plans at 60 gigabytes.

Caps are plenty for most users, ISPs say

Both companies say 60 GB is plenty for the average user, who downloads about 5 GB a month. Both also maintain that caps have always been in place and enforced against those who have consistently downloaded more than their fair share, with the decision to stop marketing the plans as "unlimited" only recently taking effect.

Bell says 60 GB is enough for 30 high-definition movies at 2 GB each or 168 one-hour television episodes at about 350 MB each.

"If you want to download movies, you can download a mess of them," spokesman Mark Langton says.

'If you want to download movies, you can download a mess of them. Bell spokesman Mark Langton

File sizes offered by Apple and Microsoft differ from Bell's appraisal, however. A one-hour television episode offered over iTunes, which users can keep indefinitely and transfer to their iPod or Apple TV set-top box, is about 500 MB. A user with a 60 GB download cap could therefore download 120 episodes if they did not use their internet connection for anything else. The movies announced on Thursday are slightly larger, at about 1 GB each.

Movies over Xbox Live are even bigger, with standard films coming in at about 2 GB and high-definition versions generally topping 5 GB. Users could thus download only about 10 to 12 HD movies before running into their cap.

If the constraints are a threat to video download services, the providers aren't publicly saying so themselves. Microsoft officials could not be reached for comment while a spokesman for Apple declined to weigh in on the issue.

"Apple doesn't comment on industry developments/topics," said spokesman Simon Atkins in an e-mail.

Amazon.com also declined to say whether it would extend its movie rental service to Canada.

Joshua Danovitz, general manager and vice-president international for Tivo, said the issue of download limits differs in each country. In the United States and Asia, where bandwidth pipes are generally "fat," users have no constraints while other countries including Canada are restricting users to various degrees. The issue is going to come to a head soon as more legal content is piped to the living room through an internet connection.

"As that becomes an expected way to get content legally that you pay for, then the companies that provide the broadband have to respond in a way that is consumer friendly and doesn't alienate them and push them to other service providers," Danovitz said.

ISPs offer rival TV services

Internet experts say the caps in Canada are anti-competitive because the ISPs offer services themselves that rival those from the likes of Microsoft and Apple. While Rogers and Bell both offer video-on-demand services that allow customers to purchase as many movies as they want through their television connection, their internet users are constrained in how much they can buy from third parties by the companies' caps.

"The issue that many of them are starting to confront from an increasingly angry public is that they are charging a certain amount for bandwidth and then making it very difficult for people to use that bandwidth," says Michael Geist an internet and e-commerce law professor at University of Ottawa. "They're trying to have their cake and eat it, too."

Geist says that if ISPs truly wanted a metered service, they would lose money because most people don't use that much bandwidth.

"A truly metered system would see many peoples' bills go down," he says. "Of course, that's not what the [ISPs] want to do."

The ISPs say the caps are necessary to meet growing usage, which is taxing their networks and requiring further investment. The previous billing system, which was based on an all-you-can-eat model, is now outmoded given the continually increasing usage.

"We have to start aligning the costs against the pricing so that the usage is reflected in the price [customers] pay," says Mike Lee, chief strategy officer for Rogers. "This may be one of the few industries where you have fixed pricing on a variable usage product."

Lee also disputes that the caps are anti-competitive, insisting that the limits are "extremely generous" and allow users to download almost as much as they want.

"If you look at what the user is capable of accomplishing within the context of that cap, it really has no impact on what we're doing in regards to our video-on-demand service," he says. "Long gone are the days when you could dictate to a customer which way they had to consume the product."

Lee says Rogers regularly discusses a variety of subjects with Microsoft and Apple, and "they've never raised this as a specific issue."

Vidotron sued over caps

Consumer groups, however, haven't bought the arguments put forward by the ISPs. L'union des consommateurs, a consumer advocacy group in Quebec, last year filed a class action against Montreal-based cable company Vidotron Lte for imposing download limits last summer.

Charles Tanguay, spokesman for the group, said the lawsuit centers on Vidotron allegedly violating contracts it had signed with customers that promised unlimited downloading. A clause in those contracts that allows Vidotron to change its rates whenever it wants should be voided because it effectively lets the company circumvent the rest of the contract.

"We figure that on unlimited plans, capping it is a major change, and it cannot be done even if the clause says the opposite," he says. "We want to force them to respect their signature."

Vidotron says it kept within the letter of the law and gave customers two months' warning that the caps were coming in. Like Rogers and Bell, the company says the caps were necessary because between five to seven per cent of its customers were using more than 80 per cent of its bandwidth, thus slowing service down for everyone.

"We had to do something to protect those customers," says spokeswoman Isabelle Dessureault. "It's a reality that is true for us and is true for everyone."

Dessureault also disputes the notion that Vidotron's download caps are anti-competitive because the company's television network is not faced with the same capacity restraints as its internet network.

'Service providers are also content providers. There will be a fight for technological control of content.' Charles Tanguay, spokesman for L'union des consommateurs

"[Ordering a cable movie] doesn't put any pressure on the network. It's different when you download an hour-and-a-half HD movie on the internet," she says.

The solution, she says, is that content providers have to work with the ISPs to create a new business model. The internet has changed distribution models and created big cost savings for content creators such as movie studios and record labels. Yet conversely, it has increased investment costs for ISPs. Content producers, therefore, should share in some of the ISPs' costs, Dessureault says.

"They have to acknowledge that they have passed from a business model where there were some fees to distribute a product to the consumer, and now they get a savings on these fees," she said. "Now we have to open a discussion where we ask if they will have to contribute to this new distribution system. We think in some part 'yes.'"

Tanguay of the Quebec consumers' union, however, says the issue of whether download limits are anti-competitive is one that will soon explode as more online services become available.

"Service providers are also content providers. There will be a fight for technological control of content," he says. "It's very concerning. It's a very big issue, and it concerns net neutrality."