Regulatory Framework for an Open : 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 , 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 , 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 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 , 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.

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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.

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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 ( 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.

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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 in terms of aggressive marketing techniques, innovative service offerings and price competition and thus has forborne from regulating rates, quality of service issues or business practices of ISPs as they relate to retail customers.10 However, the CRTC has retained its authority under section 24 of the Telecommunications Act in order to ensure that existing conditions regarding confidential information continue to apply and to retain the power to impose conditions on the offering and provision of retail Internet services as may be necessary in the future. The CRTC also retained its powers under subsections 27(2), 27(3) (except to the extent that that provision refers to powers that are forborne), and 27(4) of the Telecommunications Act to provide an additional safeguard against carriers granting any undue preference.

Regulatory forbearance of ISPs in the retail market in Canada is not based on facilities- based competition. Instead, in Canada, there is a wholesale regulatory framework in place that allows secondary ISPs to pay for the right to use the large cable and telecom carriers’ networks

9 See for example, Telecom Decision CRTC 94-14, 4 August 1994 (Forbearance – Sale of Terminal Equipment by Canadian Carriers); Telecom Decision CRTC 97-19, 18 December 1997 (Forbearance – Regulation of Toll Services Provided by Incumbent Telephone Companies); Telecom Decision CRTC 94-15, 12 August 1994 (Regulation of Wireless Services) as modified by Telecom Decision CRTC 96-14, 23 December 1996 (Regulation of Mobile Wireless Telecommunications Services); Telecom Decision CRTC 97-20, 18 December 1997 (Stentor Resource Centre Inc. – Forbearance from Regulation of Interexchange Private Line Service) and Telecom Decision CRTC 2006-18, 13 April 2006 (Forbearance from Regulating Interexchange Private Line Services on Additional Routes); Telecom Decision CRTC 99-14, 28 September 1999 (Teleglobe Canada Inc. – Forbearance for GlobeaccessTel and Related Matters); Telecom Order CRTC 2000-553, 16 June 2000 (Forbearance granted for telcos’ wide area network services); Telecom Decisions CRTC 2006-15, 6 April 2006 (Forbearance from the regulation of retail local exchange services), Telecom Order CRTC 96-130, 19 February 1996 and Telecom Order CRTC 97-572, 29 April 1997 (forbearance from the regulation of its Datapac etc.).

10 See for example, Telecom Order CRTC 99-592, 25 June 1999 (Forbearance from Retail Internet Services) and Telecom Decision CRTC 98-9, 8 July 1998 (Regulation Under the Telecommunications Act of Certain Telecommunications Services Offered by “Broadcast Carriers”).

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to serve their own retail customers. The CRTC has recognized that “withdrawing mandated access to facilities when forbearance is based on access to those very facilities could pose a serious threat to retail competition in many forborne markets”.11

Initially, secondary ISPs were able to provide dial-up Internet access services using their customers’ telephone service and thus did not need to access the facilities of the telecom carriers on a wholesale basis. However, as technology evolved and dial-up become increasingly irrelevant, in order to ensure that the retail Internet service market remained competitive, the CRTC required that the incumbent local exchange carriers (“ILECs”) and cable carriers make their facilities available as wholesale services.12 Rates payable by secondary ISPs for use of these facilities are determined on the basis of service costs plus a mark-up.

When exercising its regulatory authority, the CRTC is required to have regard to the Order Issuing a Direction to the CRTC on Implementing the Canadian Telecommunications Policy Objectives (the “Policy Direction”)13, which mandates that the CRTC “rely on market forces to the maximum extent feasible and regulate, where there is still a need to do so, in a manner that interferes with market forces to the minimum extent necessary”.14

When relying on regulation, the Policy Direction mandates that the CRTC use measures that, amongst other things:

11 See, Telecom Decision 2008-17, 3 March 2008 (Revised regulatory framework for wholesale services and definition of essential service) at para 22.

12 See for example, Telecom Decision 98-9, 9 July 1998 (Regulation under the Telecommunications Act of Certain Telecommunications Services offered by “Broadcast Carriers”); Telecom Decision 99-8, 6 July 1999 (Regulation Under The Telecommunications Act Of Cable Carriers’ Access Services).

13 Order issuing a Direction to the CRTC on Implementing the Canadian Telecommunications Policy Objectives [hereinafter “Policy Direction”] dated December 14, 2006, made under section 8 of the Telecommunications Act. The Policy Direction, a tool available to the Government through the Telecommunications Act to provide policy guidance to the CRTC on how it should exercise its regulatory mandate, stemmed from a recommendation of the Telecommunications Policy Review Panel, established by the Minister of Industry on April 11, 2005, to conduct a review of Canada’s telecommunications policy and regulatory framework, which found that competition in telecommunications markets has evolved to the point where market forces can be relied upon to achieve many of the telecommunications policy objectives, and the need for regulation should no longer be presumed. Telecommunications Policy Review Panel, Final Report, March 2006, Recommendation 3-1 available at: http://www.telecomreview.ca [hereinafter “Panel Report”].

14 Policy Direction supra note 13.

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i. if they are of an economic nature, neither deter economically efficient competitive entry into the market nor promote economically inefficient entry;

ii. if they are not of an economic nature, to the greatest extent possible, are implemented in a symmetrical and competitively neutral manner; and

iii. if they relate to network interconnection arrangements or regimes for access to networks, buildings, in-building wiring or support structures, ensure the technological and competitive neutrality of those arrangements or regimes, to the greatest extent possible, to enable competition from new technologies and not to artificially favour either Canadian carriers or resellers.

Moreover, the Policy Direction mandated that the CRTC, amongst other things,

with a view to increasing incentives for innovation and investment in and construction of competing telecommunications network facilities, to complete a review of its regulatory framework regarding mandated access to wholesale services, to determine the extent to which mandated access to wholesale services that are not essential services should be phased out and to determine the appropriate pricing of mandated services, which review should take into account the principles of technological and competitive neutrality, the potential for incumbents to exercise market power in the wholesale and retail markets for the service in the absence of mandated access to wholesale services, and the impediments faced by new and existing carriers seeking to develop competing network facilities”.

In late 2006, before the Government issued the Policy Direction, the CRTC initiated a proceeding to review its Regulatory Framework for Wholesale Services.15 The Regulatory Framework for Wholesale Services currently in effect was released in March 2008 and had regard to the guidance in the Policy Direction. There are six categories of wholesale services: essential, conditional essential, conditional mandated non-essential, public good, interconnection, and non-essential subject to phase-out.

The CRTC assigned the ILECs’ aggregated asymmetric digital subscriber lines (“ADSL”) access services and the cable carriers’ third-party Internet access (“TPIA”) services, which include both network access and transport, to the conditional mandated non-essential wholesale service category. Services in this category are those that do not meet the criteria for essential services but continue to be mandated for certain reasons. Changes in the market conditions at a point in the future could however result in it no longer being necessary to mandate any or all of these services. In the case of aggregated ADSL and TPIA services, the CRTC concluded that

15 See, Telecom Public Notice 2006-14, 9 November 2006 (Review of regulatory framework for wholesale services and definition of essential service).

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these services must be mandated because they were the only cost-effective means to provide transport to, and access from, the ILEC’s or cable carriers central premise to the retail customer.

More recently, the CRTC applied the Regulatory Framework for Wholesale Services to determine whether certain high-speed access services provided by ILECs and cable carriers should be mandated. On August 30, 2010, the CRTC determined that ILECs must make their existing Internet access services available to secondary ISPs at speeds that match those offered to their own retail customers.16 Cable companies are already required to provide access to secondary ISPs at speeds that mach that offered to their own retail customers. In compliance with the Policy Direction, in the Speed Matching Decision the CRTC also made the obligations imposed on the ILECs and cable companies more equitable. In keeping with its classification as conditional mandated non-essential services, the CRTC stated that it “will consider the need to phase-out mandated Internet access services when alternatives, such as wireless or satellite Internet services, become more accepted as substitutes”.17

With that simplified background of the Canadian approach to the regulation of ISPs, we move to consider the framework and regulatory approach established by the CRTC in October 2009 for determining whether the Internet traffic management practices (“ITMPs”) of Canada’s ISPs are acceptable (the “Net Neutrality Decision”)18

16 See, Telecom Regulatory Policy CRTC 2010-632, 30 August 2010 (Wholesale high-speed access services proceeding) (the “Speed Matching Decision”). This decision is not a new direction for the CRTC. In various decisions issued in 2006 and 2007 the CRTC required the ILECs and cable carriers to make their services available to competitors at speeds that match the speeds they offer to their own retail Internet service customers. Due to uncertainty at the time surrounding the Regulatory Framework for Wholesale Services, the speed-matching requirement was rescinded for the ILECs, only to be ordered again in 2008 and 2009 (Telecom Decision 2008-117 and Telecom Order 2009-111). However, in March 2009 two of the major ILECs petitioned the Governor in Council for a reversal of the CRTC’s decision. In December 2009, after the CRTC had already initiated the proceeding leading to this decision, the Government in Council directed the CRTC to reconsider its earlier determinations (Order in Council P.C. 2009-2007 (10 December 2009)).

17 Id.

18 See, Telecom Regulatory Policy CRTC 2009-657, 21 October 2009 (Review of the Internet traffic management practices of Internet service providers) at para. 4 available at: http://www.crtc.gc.ca/eng/archive/2009/2009-657.htm.

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II. NET NEUTRALITY REGULATION

The CRTC’s authority to regulate the Internet traffic management practices of Canadian carriers, and the template for the CRTC’s Net Neutrality Decision, is found in section 27, where the regulator has reserved its authority to continue regulatory oversight even with regard to retail Internet services where the CRTC has otherwise forborne from regulation, and section 36 of the Telecommunications Act.19

The relevant provisions are as follows:

Subsection 27(1) - Every rate charged by Canadian carrier for a telecommunications services shall be just and reasonable.

Subsection 27(2) - No Canadian carrier shall, in relation to the provision of a telecommunications service of 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.20

Section 36 - Except where the Commission approves otherwise, a Canadian carrier shall not control the content or influence the meaning or purpose of a telecommunications carried by it for the public.

In this regard, Canada’s telecom legislation already codifies the fifth principle for the open Internet proposed by the FCC, which provides that “subject to reasonable network management, a provider of broadband Internet service must treat lawful content, applications, and services in a non-discriminatory manner.”21

In November 2008, the CRTC initiated a comprehensive review of the ITMPs of ISPs with the intention of developing a transparent regulatory policy that could be applied as cases

19 Members of Parliament have tried to usher in legislative changes to address net neutrality concerns. Two private member’s bills, C-552 and C-555, were tabled in Parliament on May 28, 2008 and June 8, 2008 but both bills died on the Order Paper when Parliament was dissolved in September 2008.

20 Pursuant to subsection 27(4) of the Telecommunications Act, if a complaint is brought, the onus is on the Canadian carrier to establish that any discrimination or preference is not unjust, undue or unreasonable.

21 See, http://www.openinternet.gov/about-the-nprm.html.

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come before it. 22 The CRTC’s primary objective was “to find the proper balance between the users’ interests to explore the net to the fullest, to experiment and to innovate and the legitimate interests of ISPs to protect their networks from congestion.”23 The CRTC clearly was trying to pinpoint the regulatory boundary where intervention would be required to prevent the potential for inappropriate access foreclosure under the guise of network management.

Given the fast pace of Internet innovation and technological development, the CRTC did not lay down any hard and fast rules or even a bright line test of what would constitute reasonable Internet traffic management practices but instead developed a framework that should be applied by ISPs (a framework that will also be applied by the CRTC when analyzing complaints) to determine whether specific ITMPs are in compliance with subsection 27(2) of the Telecommunications Act. The Net Neutrality Decision also set out the CRTC’s approach to the regulation of ITMPs.

Cognizant of arguments that throttling “threatens to reduce incentives to invest in infrastructure capacity” and “encourages carriers to build their business model around managing scarcity, rather than developing more abundant capacity,”24 the CRTC recognized that the best solution to the network congestion problem is continued investment in network infrastructure.

22 This review followed the CRTC’s determination of the complaint filed by the Canadian Association of Internet Providers (“CAIP”), an association of secondary ISPs, with respect to Bell Canada’s slowing down of traffic generation by peer-to-peer file sharing applications. On the particular facts of the CAIP case, the CRTC dismissed the application and ruled that the primary ISPs practices did not violate the Telecommunications Act as the traffic shaping was not unjustly discriminatory, since the traffic shaping applied equally to the primary ISP’s own retail customers as well as the customers of the secondary ISPs and because there was no traffic blocking and any delay experienced by customers did not amount to editorial control or influencing the meaning of their communications. Telecom Decision CRTC 2008-108, 20, November 2008 (The Canadian Association of Internet Providers’ application regarding Bell Canada’s traffic shaping of its wholesale Gateway Access Service).

23 Speech by CRTC Chairman Konrad von Finckenstein, Q.C., Keynote address to the Annual Conference of the International Institute of Communications, , (October 27, 2009) available at: http://www.crtc.gc.ca/eng/com200/2009/s091027.htm. at p. 2.

24 Comments submitted by regarding Part VII Application by Canadian Association of Internet Providers Requesting Certain Orders Directing Bell Canada to Cease and Desist from “Throttling” its Wholesale ADSL Access Services (3 July 2008) at para. 17, available at:

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Nevertheless, the CRTC acknowledged a need for certain ITMPs, favouring economic ITMPs given their transparency to technical ITMPs.25

With the exception of ITMPs that affect content, the CRTC will only get involved in evaluating an ISP’s traffic management practices in the retail market on an ex post basis if and when the use of an ITMP (whether economic or technical) triggers an unjust discrimination or undue preference complaint pursuant to section 27 of the Telecommunications Act. The ex-post regulatory approach taken by the CRTC to ITMPs in the retail market is consistent with its earlier adoption of regulatory forbearance in this sector.

The situation in the wholesale market is more complicated. Consistent with ongoing regulation in the wholesale market, a primarily ex ante regulatory approach, which generally aims to address concerns with market structure, has been adopted with respect to ITMPs in the wholesale market. Since economic ITMPs in the wholesale market are based on CRTC approved wholesale rates, prior rate approval for economic ITMPs imposed at the wholesale level will be evaluated using traditional principles for rate approvals.

Technical ITMPs, so long as they do not block or degrade content, can be imposed by a primary ISP without prior approval from the CRTC provided there is no undue preference or unjust discrimination; any complaints as to undue preference or unjust discrimination will be dealt with on an ex post basis. However, technical ITMPs that are more restrictive to secondary ISPs than to a primary ISPs’ own retail customers clearly raise concerns of unjust discrimination and therefore will be subject to ex ante scrutiny. The CRTC will only grant its approval if the terms of the framework described below are met and there is no other workable and reasonable solution.

A primary ISP will always need the CRTC’s prior approval for any ITMP in either the retail or wholesale market that affects content. Section 36 of the Telecommunications Act prohibits a Canadian carrier from controlling content except where the CRTC approves otherwise. Accordingly, ex ante approval from the CRTC is required before an ISP can implement a practice that would (i) block the delivery of content to an end-user or (ii) slow down time-sensitive traffic (e.g. videoconferencing or VOIP) to the extent that the content is degraded.26 According to the

25 An economic ITMP is one that manages traffic through monetary costs and incentives, for example, charging higher rates for greater usage, or offering discounts during off- peak hours. A technical ITMP manages traffic through technological means, for example, throttling triggered by deep-packet inspection or prioritizing traffic from a specific service or application.

26 For example, an ISP that delays traffic by implementing will be considered to have blocked access to content if time-sensitive audio or video traffic is degraded noticeably.

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CRTC Chairman, “it is hard to imagine a case where [the CRTC] will approve such actions; truly, it would be a most exceptional case”.27

The framework developed by the CRTC to be followed by ISPs to determine whether specific ITMPs are in compliance with the Telecommunications Act is as follows:

In assessing a particular ITMP or responding to a complaint regarding an ITMP it has implemented, an ISP shall “[d]escribe the ITMP being employed, as well as the need for it and its purpose and effect, and identify whether or not the ITMP results in discrimination or preference.”

In the case of an ITMP that results in any degree of discrimination or preference, an ISP shall:

1. demonstrate that the ITMP is designed to address the need and achieve the purpose and effect in question, and nothing else;

2. establish that the ITMP results in discrimination or preference as little as reasonably possible;

3. demonstrate that any harm to a secondary ISP, end-user, or any other person is as little as reasonably possible; and

4. explain why, in the case of a technical ITMP, network investment or economic approaches alone would not reasonably address the need and effectively achieve the same purpose as the ITMP.

The CRTC’s Net Neutrality Decision addresses the fact that the CRTC does not have the authority to regulate secondary ISPs by directing all primary ISPs, as a condition of providing wholesale services, to include in their service contracts and other arrangements with secondary ISPs, the obligation that the latter abide by the non-discrimination/no undue preference provision with regard to any ITMPs employed. Similarly, at the time of the Net Neutrality decision the CRTC had forborne from regulating wireless data services.28 As the Net Neutrality proceeding was not the appropriate vehicle for re-examining forbearance regarding mobile wireless data services, the CRTC simply stated that it expected ISPs using mobile wireless data services to offer Internet access services in accordance with the determinations of the Net

27 Speaking Notes, CRTC Chairman, Konrad von Finckenstein, Q.C., Federal Communications Commission Workshop on Consumers, Transparency and the Open Internet, Washington, D.C. (January 19, 2009) available at: http://www.crtc.gc.ca/eng/com200/2010/s100119.htm.

28 Supra note 9 - Telecom Decision 94-15 as refined in Telecom Decision 96-14.

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Neutrality Decision.29 In January 2010, the CRTC initiated a review of the existing forbearance framework for the offering and provision of wireless data services and in June determined that the offering and provision by Canadian carriers of mobile wireless data services shall be subject to the Commission’s powers and duties under section 24 and subsections 27(2), 27(3), and 27(4) of the Telecommunications Act.30 In light of this decision, the CRTC further declared that the Net Neutrality framework would apply to the use of mobile wireless data services to provide Internet access.

As information is vital to allow consumers make informed decisions, The CRTC has also mandated disclosure requirements of ITMPs. ISPs are expected to continue the practice of disclosing pricing information related to economic ITMPs and are required to clearly and prominently disclose on their websites information related to technical ITMPs, including a full explanation describing the practice, why it has been introduced and how it will affect the user. ISPs must give retail customers 30 days notice before implementing ITMPs. Wholesale customers are entitled to 60 days notice, because such measures may require the secondary ISPs to change their own systems and inform their own retail customers. These requirements are consistent with the sixth principle for the open Internet proposed by the FCC.31

III. COMMENT AND ANALYSIS

Opponents of net neutrality regulation argue that the competitive market will guard against market misconduct. In colloquial terms, customers will vote with their feet. For example, Alexander Adeyinka argues that from a competition law perspective the ability for consumers of content and applications to switch from one ISP to the other “provides certainty that neither is likely to behave downstream in a manner that impedes competition in the upstream content and applications market”.32 Opponents of net neutrality regulation also argue that antitrust laws of general application can be relied upon to keep the market in check. In a 2007 Report on Broadband Connectivity Competition, policy staff at the U.S. Federal Trade Commission (“FTC”) concluded that they were sceptical about the need for rules given the ability of antitrust enforcement to ensure competition in broadband Internet markets.33

29 Supra note 18 at paras. 115 and 116.

30 See, Telecom Decision CRTC 2010-445, 30 June 2010 (Modifications to forbearance framework for mobile wireless data services).

31 See, http://www.openinternet.gov/about-the-nprm.html.

32 Alexander J. Adeyinka, Avoiding “dog in the manger” regulation - a nuanced approach to net neutrality in Canada, Ottawa Law Review (December 22, 2008), at p. 29.

33 See, Broadband Connectivity Competition Policy, FTC Staff Report, June 2007 available at http://www.ftc.gov/reports/broadband/v070000report.pdf.

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However, more recently, before the FCC in its workshop on Consumer Transparency and the Open Internet, FTC Chairman Leibowitz remarked that he believed that staff were overly confident about the ability of antitrust law to deal with net neutrality-based concerns.34

Net neutrality advocates believe that “[n]otwithstanding the existence of competition in the high speed Internet access market, net neutrality regulation is required as a guarantee that ISPs will not behave in the access market in manners that can impede competition, innovation and investment in the Internet content and applications market.”35 It has also been argued that despite competition, “consumers may in fact be incapable of voting with their feet due to information failure.”36 If consumers are not aware that blocking or degradation is the result of behaviour of the access provider rather than the content provider, they will be inclined to blame the content provider. It may also not be clear to the consumer whether the source of the degradation is a secondary ISP or caused by the primary ISP. “In short, inaccurate information could impede consumers’ ability to rationally exercise their choice even where there is competition.”37

It is interesting, although perhaps academic, to consider whether sector specific ex post regulation, which typically addresses concerns of market conduct and aims to redress proven misconduct in a market, of the traffic management practices of ISPs is necessary to preserve the neutrality of the Internet in Canada given the wholesale regulatory framework in place that is intended to preserve a competitive market.

There is jurisdictional overlap between the Competition Bureau, which enforces the Competition Act, framework legislation of general application, and CRTC with respect to reviewing anticompetitive conduct in the Canadian telecommunications sector. That said, the appropriate role for competition law in regulated or quasi-regulated industries in Canada is frequently a matter of strong debate, and one that isn’t limited to the question of ex-ante versus ex-post intervention.

The authority of the CRTC under the Telecommunications Act and Broadcasting Act and that of the Competition Bureau under the Competition Act is described in a document entitled the CRTC/Competition Bureau Interface Agreement (the “Interface”), issued in May 2007. So far this is the only formalized recognition of the overlap and attempt to provide jurisdictional clarity. It provides that where the CRTC has forborne from regulation in whole or in part, the

34 Remarks by Jon Leibowitz, Chairman Federal Trade Commission, FCC Workshop: Consumer, Transparency and the Open Internet, Washington, D.C., January 19, 2010 at p. 4.

35 Adeyinka supra note 32 at p. 4.

36 Barbara Van Schewick in Adeyinka supra note 32 at p. 31.

37 Adeyinka supra note 32 at p. 31.

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Competition Act would apply to the activities exempted from regulation (e.g. the provision of retail Internet access) until such time as the CRTC exercises its authority to review, rescind or vary its exemption or forbearance orders and decisions. The approach to questions of jurisdiction described in the Interface is consistent with the common law doctrine known as the “regulated conduct defence”38 and the Competition Bureau’s Technical Bulletin on Regulated Conduct, which provides that the Competition Bureau may not seek a remedy in respect of conduct that is regulated pursuant to a federal law, provided the regulator has exercised its regulatory authority in respect of the conduct in question.39 Predictably, this jurisdictional overlap has produced an uneasy relationship between the Competition Bureau and CRTC in matters arising in the telecommunications sector. Unfortunately and perhaps unavoidably given the reluctance of regulators to cede jurisdiction, the Interface document is very high level and provides limited predictability to those trying to determine who ultimately has carriage of issues in this area.

The Competition Bureau has authority under the Competition Act to address market misconduct by ISPs including cases of abuse of dominance brought under section 79 of the Competition Act before the Competition Tribunal for determination.40 It is however questionable whether the Competition Bureau has the enforcement tools necessary to address net neutrality concerns in the retail market. To succeed in an abuse of dominance complaint under section 79

38 Summarized briefly, the courts have held that the regulated conduct defence will apply to immunize “regulated” conduct from scrutiny under the Competition Act when four main criteria are satisfied: (1) there is validly enacted legislation regulating the conduct at issue; (2) the conduct is directed or authorized by that legislation (although it is still unsettled as to the degree of authorization that must exist); (3) the authority to regulate has been exercised; and (4) the regulatory scheme has not been hindered or frustrated by the conduct.

39 See, Competition Bureau, Technical Bulletin on “Regulated” Conduct, (Ottawa, Industry Canada, 2006) available at: www.competitionbureau.gc.ca. The regulated conduct defence is analogous to the “state action doctrine” developed by the United States Supreme Court to permit state governments and certain private actors to demonstrate that antitrust liability is barred by the operation of a state regulatory scheme. See Parker v. Brown, 317 U.S. 341 (1943) and California Liquor Dealers Association v. Midcal Aluminium, Inc., 445 U.S. 97 (1980). That doctrine operates to immunize certain regulated conduct from federal antitrust review where such conduct is engaged in pursuant to “clearly articulated” state policy and is “actively supervised” by the state.

40 The Competition Tribunal is a specialised administrative body established pursuant to the Competition Tribunal Act, R.S.C. 1985, c. 19 (2nd supp). Broadly speaking, its mandate is to adjudicate applications brought under the Act’s civil ‘reviewable practices’ provisions. These include matters such as abuse of dominance, mergers, certain types of distribution practices (e.g., exclusive dealing and tied selling) and, as of March 12, 2010, agreements among competitors that do not involve a per se criminal offence but that substantially prevent or lessen competition.

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of the Competition Act, three essential elements must be found to exist by the Competition Tribunal:

1. one or more persons substantially or completely control, throughout Canada or any area thereof, a class or species of business;

2. that person or these persons have engaged or are engaging in a practice of anti- competitive acts; and

3. the practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market.

The jurisprudence under section 79 has held that for market behaviour to be considered anti-competitive, it must be intended to have a negative effect on a competitor that is exclusionary, disciplinary, or predatory.41 Accordingly, while the abuse of dominance provisions of the Competition Act may successfully be invoked where the traffic management practices of an ISP have a negative effect on a competing ISP, there is no authority in the legislation for the abuse of dominance provisions to be invoked where the traffic management practices of an ISP have a negative effect on an applications provider (unless the ISP is vertically integrated and is favouring its affiliated applications).42

Moreover, for conduct to amount to an abuse of dominance in antitrust terms, the practice must also be having or be likely to have the effect of preventing or lessening competition substantially in a market. Given the competitiveness and market structure of the Internet, it may be difficult to assert that the throttling of a particular application is having or is likely to have the effect of preventing or lessening competition substantially in a market.

Accordingly, the only circumstances where the abuse of dominance provision could be invoked to address the implementation of anti-competitive ITMPs is in the wholesale market, which appears squarely within the jurisdiction of the CRTC and thus beyond the jurisdiction of the Competition Bureau, or where an ISP is vertically integrated and is using ITMPs to favour its affiliated applications.

It should be noted that there is yet another layer of possible regulation in Canada that may be invoked, if required, to address net neutrality concerns. Broadcasting companies are

41 Competition Bureau, Draft Updated Enforcement Guidelines on the Abuse of Dominance Provisions (Ottawa, Industry Canada, January 2009) available at: www.competitionbureau.gc.ca.

42 In contrast, although section 27 of the Telecommunications Act has typically been relied on to date by competing telecommunications carriers, there is nothing in the provision limiting who can bring a complaint to the CRTC alleging that it has been subject to an undue preference or undue disadvantage.

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subject to the regulatory authority of the CRTC under the Broadcasting Act. To date, the CRTC has forborne from regulating “new media broadcasting undertakings,” defined to include all undertakings that provide broadcasting services either delivered and accessed over the Internet or delivered using point-to-point technology and received by way of mobile devices.43 The legal question of whether ISPs should be considered “broadcasting undertakings” and regulated under the Broadcasting Act when they provide access to broadcasting through the Internet was referred to the Federal Court of Appeal (“FCA”) in June 2009. On July 7, 2010, the FCA held that “[r]etail ISPs do not carry on, in whole or in part, “broadcasting undertakings” subject to the Broadcasting Act when, in their role as ISPs, they provide access through the Internet to “broadcasting” requested by end-users.” However, importantly, the FCA’s conclusion was “based on the content-neutral role of ISPs and would have to be reassessed if this role should change.” It is conceivable that should vertically integrated ISPs begin to engage in traffic management practices that favor their affiliated undertakings, ISPs may also find themselves regulated as broadcasting undertakings. If this were to happen, the role for competition law would be further diminished.

IV. CONCLUSION

In issuing the Net Neutrality decision, the CRTC has tried to reduce the regulatory uncertainty and opportunity for regulatory capture that exists in a country like Canada with multiple layers of regulation, by providing guidance to the industry about the types of ITMPs that will be acceptable.

Given that the Competition Bureau may not have the enforcement tools or expertise necessary to address all instances of possible market misconduct engaged in by ISPs in the retail Internet service market, we agree that ex post market conduct regulation by the CRTC is the right approach to preserve the Open Internet. However, the CRTC is lacking an important tool that the Competition Bureau has at its disposal. From the viewpoint of deterrence, a benefit of having ITMPs subject to review by the Competition Bureau is that the Competition Bureau, unlike the CRTC, has the ability to assess administrative monetary penalties (“AMPs”) for conduct violating the abuse of dominance provisions. Recent statements by Leonard Katz, Vice-Chairman of the CRTC suggest that concurrent jurisdiction is not the regulatory approach envisioned by the telecommunications regulator. Katz, invoking a recommendation of the Telecommunications Policy Review Panel to grant the CRTC authority to assess AMPs, argued that as “[t]he Commission is moving away from the old ex ante regulatory approach where players had to seek our approval before taking action in the marketplace….. More and more….. we get involved only if someone fails to comply with the rules we’ve put in place. However, we have few options if someone breaks the rules. With AMPs authority, we would have a

43 See, Broadcasting Order CRTC 2009-660, 22 October 2009 (Amendments to the Exemption order for new media broadcasting undertakings (Appendix A to Public Notice CRTC 1999- 197); Revocation of the Exemption order for mobile television broadcasting undertakings).

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meaningful and targeted tool that would increase compliance with regulatory conditions and serve as a real deterrent against anti-competitive behaviour.”

Perhaps it is time for the Government of Canada to act on one of the other recommendations of the Telecommunications Policy Review Panel which would, if adopted, fundamentally impact the jurisdiction of the CRTC and Competition Bureau with respect to telecom matters. The Panel recommended that “[c]ontrol of anticompetitive conduct in telecommunications service markets should be guided by competition law principles, suitably modified to take into account the specific features of the telecommunications service industry”.44 However, the Panel found the Competition Tribunal to be ill-suited to review competitive issues in the telecommunications industry because it lacks investigative powers and sectoral expertise, and its court-like process is too lengthy. Accordingly, the Panel recommended that a new Telecommunications Competition Tribunal should be established operating as a type of “joint panel” of the CRTC and the Competition Bureau to address competition issues in the telecommunications sector including, amongst other things, complaints of anti-competitive conduct in all telecommunications markets, other than the terminal equipment market.45 Unless such an initiative is linked to a broader politically relevant agenda such as designing Canada’s digital economic strategy, it is unlikely that regulatory machinery changes like the one proposed by the Panel will receive any attention.

44 Panel Report supra note 13 at Recommendation 3-14.

45 Id. at Recommendation 4-1.

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