Regulatory Framework for an Open Internet: The Canadian Approach – the Right Way Forward? George N. Addy [email protected] Elisa K. Kearney [email protected] icarus – Fall 2010 Regulatory Framework for an Open Internet: The Canadian Approach – the Right Way Forward? George N. Addy [email protected] Elisa K. Kearney [email protected] Davies Ward Phillips & Vineberg LLP1 Access to the Internet depends on the physical infrastructure over which it operates. Although increasingly becoming a competitive market with the introduction of wireless and satellite technologies for broadband Internet access, in many countries or geographic areas the options available for Internet access may be limited to one or two facilities based carriers and a number of resellers of telecommunications services. For example, in Canada, as in the United States, the “residential broadband market has largely settled into regionalized competition between the incumbent telephone company and local cable provider.”2 The concept of net neutrality embodies the principle that access to the Internet be provided in a neutral manner in that Internet service providers (“ISPs”) do not block, speed up or slow down particular applications or content, and that ISPs do not use infrastructure ownership to favour affiliate offerings, content or applications. Calls for net neutrality regulation are premised on the fear that market competition is insufficient to discipline the 1 George N. Addy is the senior partner leading the Competition and Foreign Investment Review group of Davies Ward Phillips & Vineberg LLP in Toronto, Canada and is also part of the Technology group. Mr. Addy was head of the Canadian Competition Bureau (1993- 1996) and its merger review branch (1989-1993). He left public service to become Executive Vice President and Chief General Counsel at TELUS, Canada’s second largest telecommunications firm. Elisa K. Kearney is a partner in the Competition and Foreign Investment Review and Technology group of Davies Ward Phillips & Vineberg LLP in Toronto, Canada. 2 Consultation paper on Canada’s Digital Economy Strategy, Industry Canada, May 10, 2010 at p. 16 available at http://de-en.gc.ca/en/home/ Broadband access in Canada is primarily split between cable and DSL services; 9% of ISP’s are incumbent telecom companies, 18% are cable companies, 54% are secondary ISP’s (or resellers) who rely on the facilities-based telecom and cable companies for wholesale service and the remaining 19% are utility, telcos, municipalities, etc. See, CRTC Communications Monitoring Report 2009 at p. 214, available at: http://www.crtc.gc.ca/eng/publications/reports/policymonitoring/2009/cmr.htm. - 54 - icarus – Fall 2010 conduct of ISPs and that in an unregulated environment, ISPs will interfere with the freedom of the Internet by controlling when and what an individual user sees and does online. In their article in this edition of Icarus, Lee Selwyn and Helen Golding disagree with the tentative conclusion reached by the U.S. Federal Communications Commission (“FCC”) that “creating the conditions for a competitive and ‘neutral’ Internet can best be accomplished with only a skeletal regulatory framework for broadband Internet access” and propose that “Title II common carrier regulation should be used to create a structural solution for preventing market dominance by facilities-based Internet access providers”. The FCC previously determined that Internet access constitutes an information service and not a telecommunications service subject to Title II common carrier regulation and that it was this classification that befell the FCC in the April 2010 decision by the D.C. Circuit Court of Appeals to overturn the FCC’s decision in the Comcast/BitTorrent case thus hindering the FCC’s efforts to enforce its six net neutrality principles.3 As discussed by Selwyn and Golding in their article, the FCC has proposed to reclassify the transmission component of broadband Internet access as a telecommunications service subject to regulation under Title II and is considering how it should approach re-regulation and forbearance. Selwyn and Golding explain that “the approach the FCC appears to favor restores jurisdiction primarily for the purpose of permitting the FCC to respond, after the fact, to specific instances of unjust rates or undue discrimination with respect to Internet access”. However, Selwyn and Golding argue that “the FCC’s approach does nothing to overcome the ILEC and cable duopoly for broadband Internet access” and call for “a structural approach that creates the conditions for a competitive broadband access market in place of the current duopoly, by requiring that the bottleneck broadband facilities for Internet access be made available, at just and reasonable rates and on a non-discriminatory basis, to any requesting carrier”. The structural solution4 called for by Selwyn and Golding will be familiar to telecommunications lawyers in Canada where the regulatory framework governing telecommunications carriers differs from that in the United States. The Canadian approach to net neutrality regulation is a hybrid approach - resulting from the unique features of Canada’s 3 In re Formal Complaint of Free Press and Public Knowledge Against Comcast Corporation for Secretly Degrading Peer-to-Peer Applications; Broadband Industry Practices Petition of Free Press et al. for Declaratory Ruling that Degrading an Internet Application Violates the FCC’s Internet Policy Statement and Does Not Meet an Exception for “Reasonable Network Management,” 23 FCC Rcd 13028 (2008) , vacated and remanded, Comcast Corp. v. FCC, 600 F.3d 642 (D.C. Cir. 2010). 4 By “structural solution” we understand Selwyn and Golding to mean regulation that creates a competitive market structure by mandating access to bottleneck broadband facilities and not structural separation as the term is sometimes understood to mean in Canada or in U.S. antitrust cases. - 55 - icarus – Fall 2010 telecommunications market – containing elements of ex ante market regulation that affects the structure of the telecommunications market together with ex post enforcement similar to that being considered by the FCC. In this paper, we examine the Canadian approach to net neutrality regulation and consider whether market conduct regulation by Canada’s telecommunication’s regulator when layered on top of the existing market structure regulation is the right approach to preserve the Open Internet. I. Regulatory Approach and Framework Governing ISPs in Canada The Canadian Radio-television and Telecommunications Commission (the “CRTC”) has the authority granted to it by the Telecommunications Act5 to regulate facilities-based carriers.6 In this regard, cable companies regulated by the CRTC as broadcast distribution undertakings under the Broadcasting Act7 that own or operate a transmission facility (as defined in the Telecommunications Act) are “Canadian carriers” when they use their distribution networks to provide non-programming services or when they provide access to others to use their facilities to provide these services.8 The CRTC’s regulatory authority does not however apply directly to non-facilities-based carriers who use tariffed wholesale services, as discussed below, to provide retail services such as retail Internet services (i.e., secondary ISPs or resellers). Pursuant to subsection 34(2) of the Telecommunications Act, the CRTC is required to forbear from regulation where it determines that a telecommunications service provided by a “Canadian carrier” “is or will be subject to competition sufficient to protect the interests of users”. Today, almost all telecommunications markets in Canada have been opened up to competition 5 R.S. 1985, c. C-38. 6 “Canadian carriers” are defined in the Telecommunications Act as a person, including a corporation or unincorporated organization, “who owns or operates a transmission facility to provide telecommunications services to the public for compensation.” A “transmission facility” is defined as “any wire, cable, radio, optical or other electromagnetic system, or any similar technical system, for the transmission of intelligence between network termination points, but does not include any exempt transmission apparatus”. 7 1991, c. 11. 8 See, Telecom Decision CRTC 96-1, 30 January 1996 (Regulation of Broadcasting Distribution Undertakings that Provide Non-Programming Services). Previously, in Telecom Decision 92-10, 11 June, 1992 (Bell Canada v., Rogers Cable TV Ltd.), the CRTC rejected arguments made by Rogers that its telecommunications services were indivisible from its programming services and that the CRTC has previously decided – exercising its mandate under the Broadcasting Act – to forbear from regulating non-programming services offered by cable companies. See, Sunny Handa et all, Communications Law in Canada, LexisNexis at para 4.11. - 56 - icarus – Fall 2010 such that the CRTC has forborne from economic regulation of most telecommunications services.9 However, even where the CRTC has forborne from economic regulation, in some instances the CRTC has continued to exercise certain of its powers under section 24 of the Telecommunications Act, which permits the CRTC to impose conditions on service, and under subsection 27(2), among other subsections, which in relevant part, prohibit unjust discrimination or unreasonable preference. In this regard, the CRTC has repeatedly found the retail Internet services market to be highly competitive and dynamic, characterized by intense rivalry among competitors