Net Neutrality is alive and well in Canada

Despite recent rumblings in the U.S. about the roll-back of net neutrality rules, Canada has clearly decided to take a fundamentally different path.  In a decision issued by the Canadian Radio-television and Telecommunications Commission (the CRTC) on April 20, 2017, Canada has now adopted what was described by the CRTC as a “net neutrality code”.  The code includes the Internet Traffic Management Practices framework that was announced in 2009 in Telecom Regulatory Policy CRTC 2009-657, as well as other policy statements and decisions that have been subsequently issued.

In Telecom Regulatory Policy CRTC 2017-104, the CRTC adopted the latest element of that code by issuing a new policy framework for assessing the “differential pricing practices” of Internet service providers (ISPs).  The term “differential pricing practice” means zero-rating or discounting the retail price charged by an ISP for delivering Internet data traffic.  In issuing the new framework, the CRTC determined that all ISPs should treat data traffic the same.  It believes this will foster consumer choice, innovation and the free exchange of ideas, while allowing ISPs to compete on price, quality of service, speeds, data allowance and better service offerings.

In the press release accompanying the new policy, the Chair of the CRTC, Jean-Pierre Blais, highlighted the importance of a free and open Internet:

A free and open Internet gives everyone a fair chance to innovate and for a vast array of content to be discovered by consumers. A free and open Internet also allows citizens to be informed and engage on issues of public concern without undue or inappropriate interference by those who operate those networks.

The CRTC concluded that differential pricing practices generally raise concerns of undue or unreasonable preference or disadvantage under subsection 27(2) of the Telecommunications Act (the Act).  It did, however, recognize that there may be instances where the preference or disadvantage would not be undue or unreasonable. 

After assessing a variety of proposals to create an ex ante set of rules indicating which specific differential pricing practices would be acceptable and which would not, the CRTC concluded that none of those proposals would be appropriate.  In view of the  rapidly changing nature of the Internet, the CRTC decided that ex ante rules would be difficult to apply because they would need to be continually reconsidered and reviewed as new forms of differential pricing practices emerge that have not been contemplated in this proceeding. 

The CRTC opted for an ex post, complaints-based approach instead.  Under this ex post approach, an analysis would be conducted on a case-by-case basis as to whether a specific differential pricing practice would constitute an undue or unreasonable preference or disadvantage under subsection 27(2) of the Act.  However, given the range of practices that were considered during the proceeding, and the relative nascence of differential pricing practices in the marketplace, the CRTC set out, as part of the new framework, a set of evaluation criteria that would guide ISPs and other stakeholders in determining, in advance, whether a particular pricing practice would breach subsection 27(2) of the Act.  Those criteria are as follows:

• Agnostic treatment of data. Consideration of the extent to which data traffic is priced or rated equally or agnostically by an ISP will be the key factor. Offerings that rate or price data non-agnostically will likely raise concerns.
• Exclusiveness of the offering. This involves consideration of the extent to which a differential pricing practice is exclusive to a particular class or group of subscribers, or to a particular content provider or class or group of content providers. Differential pricing practices that are exclusive to subscribers to a particular data plan are likely to raise concerns.
• Impact on Internet openness and innovation. This involves consideration of the extent to which a differential pricing practice inhibits or compromises the openness of the Internet for Canadians and the choices available to Canadians, such as whether it would create barriers to entry for content providers or affect innovation.
• Whether there is financial compensation involved. This involves consideration of whether a differential pricing practice results in financial compensation or other financial benefits between a content provider and an ISP or third-party sponsor, such as when an ISP receives payment from a content provider in exchange for zero-rating that provider’s data.

The CRTC did recognize that there may be exceptional circumstances that demonstrate clear benefits to the public interest and/or minimal harm associated with a differential pricing practice. For example, if there are privacy-related, technological, administrative, or other factors that would impact its analysis, it is possible that the benefits of allowing a specific differential pricing practice would clearly outweigh any harm.

Under the new policy framework, ISPs could implement differential pricing practices without prior CRTC approval, with an expectation that any practice that is implemented would have to be consistent with the four evaluation criteria noted above.  If the practice results in a complaint, the CRTC would apply these criteria to the specific facts involved to determine whether the differential pricing practice would be permitted under section 27(2) of the Act.

The CRTC will also provide advanced rulings where an ISP is considering implementing a differential pricing practice.  It will consider applications filed by an ISP prior to the implementation of a differential pricing practice, which will enable the ISP to explain how that practice would satisfy the evaluation criteria.

In order to promote compliance with the Act and encourage ISPs to seek advanced rulings, the CRTC also indicated that it will use its powers under section 72.003 of the Act, relating to the imposition of an administrative monetary penalty, if it is determined in response to a complaint that the practice in question violates subsection 27(2) of the Act.