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A Nuanced Approach to Net Neutrality in Canada

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A Nuanced Approach to Net Neutrality in Canada Avoiding "Dog in the Manger" Regulation - A Nuanced Approach to Net Neutrality in Canada BY ALEXANDER J. ADEYINKA* This paper argues that most forms of net neutral- L'article soutient que les formes de neutralit6 des ity proposals seek a regulatory guarantee in an r~seaux proposees exigent dans l'ensemble des already competitive market, but there is no clear garanties r~glementaires dans un march6 d~jA fort evidence that the prescriptive rules that they pro- concurrentiel, mais que rien ne d~montre que les pose yield significant benefit over and beyond r~gles de prescription enoncees s averent vrai- what market forces produce in both the access and ment plus avantageuses que les forces actuelles du the content and applications sides of the Internet march6, tant sur le plan de l'acc~s que du con- market. The paper argues that Canada's tenu et des applications Internet. L'argument est Td1ctmvncatim-s At, in particular Sections 27 fait que la Li surlestd/&na nicatioscanadienne, and 36 and the case-by-case approach taken by the en particulier les articles 27 et 36 et leur applica- 2008 CanLIIDocs 57 Canadian Radio-television and Telecommunica- tion cas par cas privil~gi~e par le Conseil de la tions Commission (CRTC) is* their application, radiodiffusion et des t~lcommunications canadi- provides a sound framework to address net neu- ennes (CRTC) offre un plan efficace de gestion trality concerns without any need for new pre- des probl~mes de neutralit6 des r~seaux et qu'il scriptive ex ante rules. Based on Canada's n'y a pas lieu de pr~voir de nouvelles r~gles ex commitment to minimal interference in the ante. Le Canada s'6tant engag6 A intervenir le telecommunications sector, it is argued that the moins possible dans le secteur des tlkcommuni- standard for evaluating ISPs' behaviour under cations, en vertu des articles 27 et 36, il est Sections 27 and 36 is whether such behaviour will allgu6 que la norme applicable pour 6valuer le substantially impede competition in the content comportement des fournisseurs d'acc~s Internet and applications market. The paper argues that (FAI) est l'entrave importante A la concurrence most forms of net neutrality proposals will fail this cr6e par ce comportement sur le march6 des competitive outcome test. In order to remain rel- contenus et des applications. II est sugg& que Ia evant as a public policy ideal in an already com- plupart des formes de neutralit6 des reseaux pro- petitive environment, "net neutrality" should be pos~es ne sauraient r~pondre A ce crit re de la redefined more narrowly outside its overly broad concurrence. Afim de constituer un principe de regulatory guarantee box to complement, not politique publique valable dans un milieu d~jA undermine, market forces. Such a complementa- concurrentiel, la « neutralit6 des r~seaux >> ryrole can be found potentially in cases where devrait 6tre dAfmie de fa~on plus 6troite, en ere is information failure or asymmetry with dehors du grand plan r~glementaire des respect to ISP network management practices vis- garanties, de fagon A complter et non A jouer au -vis consumers. Viewing net neutrality as net- detriment des forces du march6. Une telle com- work management transparency complements the pl~mentarit6 serait possible IAo6s les consomma- competitive outcome framework of the Policy trices et les consommateurs se heurtent A un Direction and sections 27 and 36 of the manque d'information ou A une asym6trie dans TdoaiamnicatiensActin that the more transparent les pratiques de gestion des r~seaux des FAI. Voir a network management practice is to downstream la neutralit6 des r~seaux comme un moyen d'as- access consumers, the less likely it is to have sig- surer une gestion transparente des r~seaux ajoute nificant negative effect on competition upstream A 'orientation politique ainsi qu'aux dispositions in the Internet content and applications market. des articles 27 et 36 dela Li surles td&nunca- tanset sert l'int~r~t de la concurrence, car plus la pratique de gestion des r~seaux est claire pour les consommatrices et les consommateurs qui sont en bout de ligne, moins grands sont les risques d'effets n~gatifs aux &chelons sup~rieurs du march6 du contenu et des applications Internet. Alexander J. Adeyinka is a Toronto-based telecommunications regulatory lawyer. He has done extensive busi- ness and academic work in Canadian and International telecommunications law, policy and regulation. All opinions expressed in this paper are strictly those of the author and are not attributable in any manner or form to his employers or their affiliated businesses. OTTAWA LAW REVIEW REVUE DE DROIT D'OTTAWA 40:1 40:1 Table of Contents 3 I. INTRODUCTION 7 II. NET NEUTRALITY AND CANADA'STELECOMMUNICATIONS REGULATION POLICY 7 A. The Government's Policy for Economic Regulation in the Telecommunications Sector 11 B. Normative Goals of Net Neutrality Regulation 17 C. Evaluating Net Neutrality Proposals Under the Policy Direction and Canada's Telecommunications Regulatory Framework 17 1. The Purpose of Net Neutrality Regulations 18 (a) Blocking, Degrading,Interfering with Content and Applications 18 (b) Discriminatory Network Management Practices 19 (c) Access Tiering or Price DiscriminationAmong Content 2008 CanLIIDocs 57 Applications Providers 20 (d) DiscriminatoryPricing of Consumer Access Service 23 2. Defining the Relevant Marketfor Competitive Outcome Analysis 27 (a) The High Speed Internet Access Market 32 (b) The Internet Content and Applications Market 36 3. The Benefits and Costs of Regulatory Guarantee:Innovation and Investments Within and at the Edges of the Network 41 III. TOWARDS A LIGHTER, FOCUSED, LESS INTRUSIVE NET NEUTRALITY POLICY 41 A. Regulatory Guarantee vs. Other Measures to Reduce Downstream Competitive Risks 46 B. Redefining Net Neutrality as Transparency in Network Management Practices 48 1. Free Press v. Comcast -The FCC's Relapse into Regulatory Guarantee 53 2. CAIP v. Bell Canada - The CRTC's Competitive Outcome Approach 63 3. Anti -competitive Incentive Under the Competitive Outcome Approach 64 4. The Competitive Outcome Approach and Transparency of Network Management Practices 69 IV. CONCLUSION Avoiding "Dog in the Manger" Regulation - A Nuanced Approach to Net Neutrality in Canada BY ALEXANDER J. ADEYINKA I. INTRODUCTION The discussion in this paper proceeds in two parts. In Part I, the paper reviews vari- 2008 CanLIIDocs 57 ous forms of net neutrality regulation proposals against Canada's telecommunications policy and regulatory framework.' Like the US, there is currently no Canadian legis- lation or regulation that codifies a detailed ex ante "net neutrality" set of rules.' However, the objectives specified in Section 7 of the TelaoanxnatirsAct are broad enough to be interpreted as mandating a policy that advances competition, innova- I. In addition to the rules described in this paper, proponents seek several new rules against wireless carriers, including the obligation to permit consumers to use their own handsets, establishing standardized platforms and interfaces for wireless content and applications, and imposing consumer disclosure rules on wireless car- riers. The seminal intellectual work on this new development is a provocative paper by Professor Tim Wu of Columbia Law School in which he cited several vertical restraints that he alleged wireless carriers impose on content/applications developers aswell as end-user consumers. Wu identified four areas of concerns that justify the application of a net neutrality regulation to wireless carriers: (i) discriminatory broadband access practices; (ii) control of network attachments; (iii) excessive control and burden on content/applications entry in the wireless applications market; and (iv) "dummying" down of product design and features. Tim Wu, "Wireless Carterfnod' online: (2007) 1 International Journal of Communication 389 <http://ijoc.org/>. For a critique of Wu's paper, see RobertW Hahn, Robert E. Litan & Hal J. Singer, "The Economics of'Wireless Net Neutrality'" (2007) 3 Journal of Competition Law and Economics 399; and also George S. Ford, Thomas M. Koutsky & Lawrence J. Spiwak, "Wireless Net Neutrality: From Carter/cieto Cable Boxes" (2007) 17 Phoenix Center Policy Bulletin No. 17, online: Phoenix Center for Advanced Legal & Economic Public Policy Studies <http://www.phoenix-center.org/>.This paper will not discuss wireless net neutrality issues, although the same analytical approach can be used and the conclusions will most likely be the same. 2. In general, exanteregulatory regimes tend to set detailed and precise rules which a regulated entity must comply with before it makes any business decisions in the regulated field. In the area of telecommunications regulation, the classical examples were regulations under the Te/emnrnunicatins Act, S.C. 1993, c. 38, as am. by S.C. 2005, c. 50 requiring carriers to obtain prior tariff approvals before providing a regulated service to customers or changing the price or conditions of offering an existing service. In contrast, expot regulatory regimes generally tend to set broad requirements and then evaluate the conduct of the regulated entity only in the event of a complaint and primarily in light of the impact of the conduct on competition. Reliance on competition principles under the Cyetition Act, R.S.C. 1985, c. C-34 is a classic example of expost regula- tion. For the purpose of this paper, any attempt to prescribe what constitutes "net neutral" behaviour (including detailed prescriptions for what constitutes "reasonable
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