Net Neutrality is the General Rule: CRTC Releases Framework to Assess Differential Pricing

On April 20, the Canadian Radio-television and Telecommunications Commission (CRTC) released Telecom Regulatory Policy CRTC 2016-192, entitled Framework for assessing the differential practices of Internet service providers (the Policy).¹ The Policy, along with three other decisions, comprises the CRTC’s framework for net neutrality in Canada. The approach set out in the Policy mandates that, subject to certain limited exceptions, retail internet service providers (ISPs) should treat all internet traffic equally, without manipulation, preference or discrimination through technical or economic means.

What You Need To Know

• In general, internet traffic cannot be subject to undue preference or unjust discrimination by an ISP. Pricing data differently depending on its source or type raises some of these concerns.
• The CRTC will consider the following factors in determining whether a preference or discrimination is undue or unjust:
• the degree to which data is treated equally, regardless of its source or nature;
• whether an offering that discriminates or gives a preference is exclusive to certain customers or content providers;
• the impact on internet openness and innovation; and
• whether an ISP receives financial compensation or benefit for giving preference to or discriminating against certain internet traffic.
• The first factor, equal treatment of all data, will be most important in the CRTC’s evaluation of whether a proposed offering or practice will be disallowed.
• For example, a plan offered by an ISP which includes traffic not counting toward a data cap at certain times of the day is more likely to be permissible than a plan by which certain content, such as music streaming, will not count toward a data cap.
• The CRTC expects ISPs to compete on price, speed, data caps, geographical coverage and quality of their networks rather than by partnering with content providers.
• ISPs will not need to clear their offerings with CRTC in advance. CRTC intervention will be complaint-driven.

Background

Section 27(2) of the Telecommunications Act provides that "no Canadian carrier shall, in relation to the provision of a telecommunications service or the charging of a rate for it, unjustly discriminate or give an undue or unreasonable preference toward any person, including itself, or subject any person to an undue or unreasonable disadvantage."²

The CRTC convened a hearing following complaints about Videotron’s offer to "zero rate" certain music streaming services. This meant that streaming music from providers that have agreements with Videotron would not count toward the monthly data cap of eligible Videotron subscribers. The purpose of the hearing was to develop a policy on differential data pricing, including zero rating and sponsored data (a practice where a content provider pays the ISP for subscribers’ data usage).

CRTC Decision on Differential Pricing

The CRTC decided that differential pricing practices raise concerns of undue preference or unreasonable disadvantage and may be contrary to section 27(2) of the Telecommunications Act.³ In coming to this conclusion, CRTC found that differential pricing was detrimental to

• competition: because of the cost to an ISP of implementing differential pricing and the difficulty that smaller and less-known content providers will have in accessing ISPs’ differential pricing programs, differential pricing may entrench the market positions of established ISPs and content providers to the detriment of smaller players and consumers;⁴
• innovation: differential pricing is not a new or innovative offering, but a marketing strategy for ISPs that may also stifle innovation that comes from start-up companies with new ideas and disruptive technologies;⁵
• consumer choice: differential pricing steers ISP subscribers toward content chosen by the ISP, resulting in a long-term negative impact on consumer choice as ISPs become gatekeepers of content on the internet;⁶
• access and affordability: the record before the CRTC showed that differential pricing, to the extent that it has been offered in Canada, has been made available only to consumers of high-tier and high-priced plans, and that there was no evidence to suggest that it would improve access or affordability of internet services;⁷ and
• privacy: differential pricing will not work if consumers use Virtual Private Network (VPN) services, which the CRTC recognized as a legitimate tool to protect sensitive information.⁸

Despite the CRTC’s concern about differential pricing in general, the Policy notes that practices that apply equally to all content (such as discounts or zero-rating of all data at certain times of the day) may be allowed if other criteria—such as treating all subscribers equally—are met.⁹

Framework for Assessing Differential Pricing Offers

The CRTC declined to set out strict rules in respect of data neutrality out of a concern that any rules would quickly become outdated because the market evolves so quickly.

Instead, the CRTC adopted a system by which it will review differential pricing practices on the basis of complaints received. In order to guide itself, the industry and the public, the Policy sets out a framework for assessing the types of differential pricing practices that will be permitted. In reviewing those practices, the CRTC will consider the following four criteria:

• agnostic treatment of data: ISP offerings that rate or price data non-agnostically, such as by zero-rating data traffic from certain content providers, are likely to raise concerns and be disallowed;¹⁰
• exclusiveness of the offering: differential pricing practices that are exclusive to subscribers to a particular data plan are likely to raise concerns and be disallowed;¹¹
• impact on internet openness and innovation: the CRTC will review whether the practice creates barriers to entry or impacts innovation and a requirement on content providers to conform to burdensome administrative and technical specifications are likely to raise concerns and be disallowed;¹² and
• financial compensation: sponsored data arrangements, where an ISP receives payment from a content provider in exchange for zero-rating its data, are likely to raise concerns and be disallowed.¹³

The CRTC applied this framework to Videotron’s unlimited music streaming offer in Telecom Decision CRTC 2017-105,¹⁴ and found that Videotron made an exclusive offering to some of its subscribers, but not others; did not treat data agnostically and gave a preference to content providers that were included in the program; negatively affected openness and innovation by making it more difficult for content providers to launch services and get access to customers; and did not charge content providers for zero-rating their data.¹⁵ As a result, the unlimited music streaming offer raised concerns under three of the four factors, and the CRTC determined that it was contrary to section 27(2) of the Telecommunications Act.¹⁶

Net Neutrality in Canada

As noted in the Policy, this is one of four CRTC decisions that comprise the net neutrality framework in Canada.¹⁷ The others are the policies on internet traffic management practices established in 2009,¹⁸ the Mobile TV decision established in 2015,¹⁹ and the Music Streaming Decision that accompanied the Policy.

Reading these decisions together, it is clear that the CRTC’s view is that ISPs should be neutral conduits between a content provider and a subscriber, and not influence the content that their subscribers choose to consume.

However, the CRTC recognizes that there are times when networks cannot be completely neutral. For example, the CRTC has previously acknowledged that, subject to certain restrictions, ISPs can use technical traffic management, such as slowing down—or “throttling”—certain types of data to address temporary network capacity constraints and prevent degradation of the network for other subscribers.²⁰ The Policy is similarly not a blanket ban on differentiated data pricing; for example, time of day differentiation and zero-rated administrative access to a customer’s account information are permitted as long as ISPs do not offer them unduly selectively.

While net neutrality is not a blanket rule, the CRTC is sending a clear message to retail ISPs that it is to be encouraged. Any departure from the principle of net neutrality will need to be justified by an ISP and will be subject to close regulatory scrutiny.

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¹ Telecom Regulatory Policy CRTC 2017-104.

² Telecommunications Act, S.C. 1993, c. 38, s. 27(2).

³ Policy, para. 114.

⁴ Policy, paras. 39-46.

⁵ Policy, paras. 53-59.

⁶ Policy, paras. 65-67.

⁷ Policy, paras. 68-69.

⁸ Policy, para. 78.

⁹ Policy, paras. 82-83, 115.

¹⁰ Policy, para. 126.

¹¹ Ibid.

¹² Ibid.

¹³ Ibid.

¹⁴ Telecom Decision CRTC 2017-105, Complaints against Quebecor Media Inc., Videotron Ltd., and Videotron G.P. alleging undue and unreasonable preference and disadvantage regarding the Unlimited Music program  (“Music Streaming Decision”).

¹⁵ Music Streaming Decision, paras. 48-58.

¹⁶ Music Streaming Decision, para. 60.

¹⁷ Policy, para. 15. Section 27(2) of the Telecommunications Act is also part of the net neutrality framework.

¹⁸ Telecom Regulatory Policy CRTC 2009-657, Review of the Internet traffic management practices of Internet service providers.

¹⁹ Broadcasting and Telecom Decision CRTC 2015-26, Complaint against Bell Mobility Inc. and Quebecor Media Inc., Videotron Ltd. and Videotron G.P. alleging undue and unreasonable preference and disadvantage in regard to the billing practices for their mobile TV services Bell Mobile TV and illico.tv.

²⁰ Telecom Regulatory Policy CRTC 2009-657, para. 36.