Canada's government will block a regulatory ruling that effectively stops small Internet providers from offering unlimited downloads, the industry minister said.

Wading into a long-running industry dispute, Industry Minister Tony Clement sided against the country's big Internet providers in signaling that he would not accept the regulator's decision, issued last week.

The Canadian Radio-television and Telecommunications Commission, or CRTC, ruled that BCE Inc, the parent of Bell Canada, could charge wholesalers that lease bandwidth on its network on the same usage basis it charges its own customers, minus a 15 percent discount.

That would force small carriers to pass along the extra cost and prevent them offering cheap plans to their customers.

CRTC must go back to the drawing board, Clement wrote late on Wednesday on the social networking site Twitter. (!/TonyClement_MP )

The issue has become more urgent for Canadians as online video services such as Netlix become more popular at the expense of satellite and cable providers.

A parliamentary committee considering the CRTC's decision summoned its chairman, Konrad von Finckenstein, to appear at a hearing on Thursday.

The Conservative government overturned a CRTC ruling at least once before. In 2009, it allowed Globalive to launch its Wind Mobile service even though the regulator said the company violated foreign ownership restrictions.

Globalive also runs a phone and Internet company called Yak which offers unlimited Internet.

We're very pleased that the government is stepping in to ensure that competition survives in the Internet market, said Anthony Lacavera, Globalive's chairman, in a statement.


Major providers such as Bell, Shaw Communications and Rogers Communications charge customers extra if they download more than their monthly limits, typically between 20 and 60 gigabytes.

Small providers often offer plans with 200 gigabyte ceilings, or even unlimited use, via bandwidth the big operators are required to lease to them.

Bell, Telus and other big providers say they have spent billions of dollars upgrading their networks and should be able to set prices to ensure a decent return on their investments.

Bell sought to downplay the issue on Thursday, saying the decision won't affect most Canadian Internet customers, only the heaviest users of the third-party ISPs.

It was a good decision by the CRTC as it protects the interests of the vast majority of Internet users -- who simply shouldn't have to subsidize the extraordinarily high Internet usage of some third-party ISP customers, Bell spokesman Mark Langton said by email.

Some 400,000 Canadians buy Internet access from smaller ISPs, and most of them get it via the networks of the incumbent telecom operators.

Cable companies such as Rogers and Shaw have more than 50 percent of the market for high-speed Internet, according to CRTC data. It is more difficult technically for the smaller ISPs to lease space on cable infrastructure.

A typical Internet package with Bell costs C$32 ($31.70) a month for 25 gigabytes. If a user exceeds that amount they are charged C$2 for each additional gigabyte.

By comparison, Verizon's landline Internet plans in the United States are all unlimited, and priced between $30 and $55 based on download speed.

Netflix said its video streaming service, launched in Canada in September, uses between 300 megabytes and 2GB an hour depending on quality, and averages around 1GB an hour.

Canadian Prime Minister Stephen Harper ordered a review of the ruling on Tuesday, a week after the CRTC decision and a day after the opposition Liberals said they would raise the issue in Parliament. The left-leaning New Democratic Party also complained.

The CRTC decision, which followed similar decisions in May and October last year, was due to go into effect on March 1. The government can alter the decision unilaterally, reaffirm it or send it back to the CRTC with specific concerns.

($1 = $0.99 Canadian)

(Additional reporting by Pav Jordan; editing by Peter Galloway)