A controversial decision by Canada's telecommunications regulator that effectively blocked small Internet providers from offering customers unlimited downloads could stifle innovation and harm the economy, Industry Minister Tony Clement said on Tuesday.

Clement, who says he wants to open up the communications market to more competition, has already made it clear he will overrule the Canadian Radio-television and Telecommunications Commission if it does not change its mind.

The CRTC ruled last month that large telecommunications companies such as BCE Inc's Bell 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 Internet service providers to pass along the extra cost to their customers and could push them to abandon plans that offered unlimited bandwidth.

Clement said many new and innovative businesses depended on fair and affordable Internet access.

Without the right competitive pressures, usage-based billing threatens to choke off these types of innovative businesses and the benefits they can bring to Canadian consumers and Canada's digital economy, he told Parliament's industry committee.

Most larger telecom companies typically offer plans capped at 25 to 60 gigabytes, with extra usage charges imposed above that. One downloaded movie can use up 1.25 GB or more.

The regulator's decision on usage-based billing proved very unpopular and the CRTC is currently reexamining its ruling.

Some 500,000 Canadians, or 5 percent of all Internet users, buy access from smaller Internet service providers, whose services mostly run via the networks of the incumbent telecom firms.

Bell, Telus, Shaw Communications, Rogers Communications and other big providers say they spend heavily to upgrade and maintain their networks, and argue pricing should reflect that.

(Reporting by David Ljunggren; editing by Rob Wilson)

Canada