How Canadians get competitive internet service could significantly evolve over the next few years, potentially for the better. While the battle continues today over wholesale rates and how the CRTC is allowing big companies to overcharge both smaller internet providers who use portions of their networks and therefore Canadians, the industry is in the early days of gearing up for a new system more suited to current technology.

TekSavvy last month flipped the first switch in this move, testing a new “disaggregated” connection system in Toronto. This shift from an “aggregated” method is mired in arcane telecommunications architecture terminology that can cause eyes to glaze over, but it could ultimately decide the competitiveness of broadband services and affect nearly every Canadian’s pocketbook. It’s important to understand.

What is disaggregated broadband service?

Currently, wholesale-based internet providers such as TekSavvy connect to larger companies’ networks through a single location, and from there they deliver service to their own customers. This is known as an aggregated system, because all smaller ISPs’ traffic is carried through that one spot.

A TekSavvy customer in Ottawa or Thunder Bay, Ont., therefore, is likely seeing their traffic flow over a larger company’s network such as Bell to Toronto where it is then picked up by TekSavvy.

Disaggregated broadband is exactly what it sounds like. Rather than connecting customers through a single location, an indie ISP will be able to do so at multiple points, ideally through every central office (CO) or hub in a large carrier’s network.

This way, traffic from that customer in Ottawa or Thunder Bay would route directly to TekSavvy in those locations, rather than in Toronto. Smaller ISPs would then only have to lease the short “last mile” from the big company's CO or hub to the customer’s home. Smaller ISPs would thus control almost the entire connection to the customer.

The disaggregated system requires competitive ISPs to purchase and install network facilities at potentially thousands of nodes across Canada, which requires significant investments by competitors. The up-front cost can be in the tens of millions of dollars.

Why is it happening?

For nearly seven years, CRTC regulations have effectively granted monopolies over ultra-fast fibre across most of Canada to large companies such as Bell. In theory, the disaggregated system will eventually open those services to competitor ISPs and give customers more choice in fibre-to-the-home.

Where and when is it being deployed?

The CRTC has established an interim framework and temporary wholesale rates for disaggregated, but the new system remains under a cloud of regulatory uncertainty. The CRTC’s reversal of planned new wholesale rates for the aggregated system in May last year largely eliminated repayments in the hundreds of millions of dollars indie ISPs were due to receive from larger carriers for years of overpayments.

Those refunds represented the capital that competitor ISPs need to invest in disaggregated network facilities at scale. The CRTC’s reversal also cast doubt on whether proper wholesale rates will be set in the near term.

However, some indie ISPs are already establishing the facilities and installing the gear necessary for disaggregated because fibre broadband represents the future. TekSavvy, for example, this month expects to go live with its first disaggregated test location.

How would smaller internet providers benefit?

Smaller ISPs won’t have to rely on just one larger company to transport its traffic between towns and cities. In a disaggregated scenario, the ISP will be able to shop around between several “backhaul” service providers to move its customers’ traffic around Canada. Even those who choose to stay on the aggregated system will have additional providers to buy transit from, such as TekSavvy, for example.

Just as having several internet providers to choose from usually results in lower prices for consumers because of the inevitable competition, having a number of backhaul providers generally means lower transport costs for the ISP.

How would customers benefit?

Not only would consumers have access to more fibre-to-the-home providers, lower traffic costs for independent ISP can be passed on to customers in the form of lower retail prices. Besides choice and price, customers won’t see any differences in their service otherwise.