Canada and the United States are quickly becoming a tale of two countries. Canada has moved to strengthen network neutrality while the US is set to eradicate it.
Network neutrality is the basic principle that ISPs must treat every packet that flows through the networks equally. With proper network neutrality regulations, there is no such thing as so-called “fast lanes”. A fast lane is the concept that ISPs prioritize packets over others. In addition, there is no such thing as ISPs charging customers to access content that competes with the ISPs own services.
Without network neutrality, advocates fear that ISPs can set up their own services. Those services would be given a so-called “zero rating”. A zero rating means that accessing and using a service won’t count towards bandwidth caps. In theory, ISPs can give their own services a zero rating, but if you access competing services, the data would count towards your data cap.
That’s what makes the latest moves in Canada and the US so interesting. In the US, the FCC (Federal Communications Commission) is beginning the process to dismantle network neutrality regulations. Meanwhile, Canada’s CRTC (Canadian Radio-television and Telecommunications Commission) has made a ruling that significantly strengthens network neutrality.
Canada Bans Zero Rating
Earlier this month, the CRTC has made a ruling against Quebec ISP Videotron. In the case, Videotron created a music service called “Unlimied Music”. This service was made for Videotron subscribers. If a user used this service to listen to music, the data would not count towards their users data cap. Some say that this is anti-competitive. The CRTC seemingly agreed. From Engadget:
In its ruling, the watchdog said the scheme created an “undue and unreasonable disadvantage” for services that weren’t included, such as internet radio stations. It argued the plan was also unfair to Videotron subscribers who were ineligible for the scheme, as well as customers who are eligible but prefer other services. “Rather than offering its subscribers selected content at different data-usage prices, Internet-service providers should be offering more data at lower prices,” Jean-Pierre Blais, chairman of the CRTC said in a statement.
Videotron said it was “disappointed” in the regulator’s decision, and felt the scheme was necessary to set itself apart in the market. It will now study the decision, which “directs” the carrier to fall in line with the Telecommunications Act by July 19th, 2017. Videotron says customers who use Unlimited Music can continue doing so “until further notice.”
CRTC’s ruling isn’t a blanket ban on zero-rating. As Bloomberg reports, it could have ramifications for larger telecom companies such as Telus and Rogers Communications, however. Alongside the Videotron decision, the regulator has published a “framework” for assessing “differential pricing practices,” or zero-rating. Precise rules, it says, would quickly become outdated due to the fast-paced nature of the industry. Instead, it hopes a rigorous set of criteria, including “the impact on internet openness and innovation,” will be enough to judge companies on a case-by-case basis.
This will certainly be seen as fantastic news for advocates of network neutrality. In fact,Michael Geist commented that network neutrality is alive and well:
In sum, this is a huge win for net neutrality in Canada as the CRTC was ultimately guided by its longstanding principle that telecom regulation should restrict the ability of ISPs to determine winners and losers through their power as the Internet’s gatekeepers. When combined with the the ITMP framework and the decisions involving Bell Mobile TV and Videotron, the CRTC has crafted a reasonable, pro-net neutrality framework that provides carriers with guidance and users – whether innovative businesses or consumers – with assurances that net neutrality is the law of the land. As a complaints-based mechanism there is considerable onus placed on consumers to monitor to practices and to seek enforcement, but the right framework is in place for long-term benefits to innovation and consumers.
US Dismantles Network Neutrality
Meanwhile, in the US, the FCC is moving to dismantle network neutrality altogether. FCC chairman Ajit Pai announced that a vote will happen next month that a vote will take place on the matter. The vote will decide on whether to remove Title II of network neutrality. From Ars Technica:
Earlier today, Pai shared with his fellow commissioners a plan to “reverse the mistake of Title II and return to the light-touch regulatory framework that served our nation so well during the Clinton administration, Bush administration, and the first six years of the Obama administration,” he said.
Pai’s net neutrality rollback targets the FCC’s February 2015 reclassification of fixed and mobile Internet providers as common carriers under Title II of the Communications Act. Title II provides the regulatory authority the FCC used to prohibit ISPs from blocking or throttling traffic and from giving priority to Web services in exchange for payment. The FCC used Title II to impose the net neutrality rules after a previous court decision struck down rules issued without the step of reclassifying ISPs as common carriers.
Pai said he will seek public comment about the blocking, throttling, and paid prioritization rules, but the act of eliminating the Title II classification of ISPs would also eliminate those rules. Going forward, he said, he wants broadband to be classified as a lightly regulated “Title I information service.”
The Potential Consequences
From the perspective of an online innovator, these two moves will change a fair bit. In basic economic sense, there will be a net push and pull effect.
If you want to create an online service, you’ll want to build it in a country that has as many advantages as possible. If you were to set up shop in the US, you’ll know that potential customers will have their data counted towards their monthly caps when they use your services. Their ISP, meanwhile, might have a competing service where the data that is used won’t count towards the customers cap. It is basically an anti-competitive situation.
Instead, you might be more motivated to set up shop in Canada where there is an actual free market. If your service is innovative and competes well against other ISPs, then you might be able to claim a piece of market share. There are no zero rating market barriers in place to fight against. As a result, you’ll be given an incentive to set up shop in Canada instead.
In sum, there is a push and pull effect that this environment creates. Innovation has a push effect to get out of the US and a pull effect to take root in Canada. In the market, this isn’t the only effect that is in play of course. The US commands a much larger market strictly based on population. Still, the additional incentive is still present.
The raising of market barriers in the US and breaking down of market barriers is not lost on the US. As is the Trump style, officials are simply saying what the opposite of the truth is and declaring it as fact with no evidence. From the Huffington Post:
An advisor to President Donald Trump has criticized Canada’s telecom watchdog for declaring that ISPs can’t favour traffic from one source over traffic from another source.
“Sorry Canada, now you’re in the class with backward India,” tweeted Roslyn Layton, whom Trump hired as part of the transition team for the Federal Communications Commission (FCC), the U.S.’s telecom regulator.
In a submission to the CRTC last fall, Layton argued that net neutrality is being pushed by an international lobby, and that net neutrality rules could harm innovation in Canadian mobile products.
She doubled down on this argument in a tweet asserting that the U.S. will dominate innovation, thanks to the Canadian ruling.
Layton offered no evidence to bolster her claim that network neutrality harms innovation.
It’s unclear if the US has any plans to try and reverse the CRTC decision. One might ask if that is even possible. One possibility might be through the up and coming NAFTA re-negotiations. Of course, the question is, why would the US want to bring that up in the first place? Well, anything is possible with the erratic president who already basically declared a trade war with Canada through the forestry and dairy sectors. Who knows?
In the mean time, it will certainly be fascinating to watch what impact these moves will have for innovation. Will the polar opposite rules between the two countries have an impact on innovation? Only time will tell.