CRTC effectively bans most zero-rating in differential pricing decision

As the CRTC banned most forms of differential pricing practices Thursday — including declaring that telecoms can’t pick and chose Internet content to zero-rate and ordering Quebecor Inc.’s Videotron to stop offering its Unlimited Music service — Chairman Jean-Pierre Blais suggested the move levels the playing field between small and large telecoms and content providers and their customers. While noting that though there were Unlimited Music subscribers who may have been benefitting from the company’s zero-rated service, there were many others who didn’t, Blais said in a phone interview, either because they didn’t have an eligible package or weren’t necessarily interested in music. “The edge innovators that didn’t have the financial means or the patience to go through the lengthy process to be recognized in Videotron’s program” were also being brushed aside, Blais noted, since Unlimited Music “clearly favoured large, well-established brands,” such as Apple Inc., Spotify AB, and Alphabet Inc.’s Google Play. “In fact, Videotron was coat tailing on well-known brands and the innovation of others,” Blais said. Thursday’s decision caps a proceeding that formally began in the summer of 2015 when Videotron introduced its Unlimited Music service. A pair of undue preference complaints quickly followed the launch and last spring, the CRTC said it would review differential pricing practices, such as zero-rating and sponsoring data, on a broader scale, and would base its decision on the undue preference question on that overall study. Though the CRTC stopped short of an outright ban on differential pricing practices (DPPs), it said it would only allow them within a very narrow framework that generally prohibits most activity already in the marketplace, including the Unlimited Music service. Under the new framework, which will be administered on a complaint basis, the CRTC will consider a number of factors in deciding whether a DPP is allowed. It will give most weight to whether offerings are data-agnostic, or treated equally regardless of type. That means zero-rating specific services or categories — such as a number of music streaming services, for example — won’t be allowed. Offerings will be also be evaluated on whether they are “exclusive to certain customers or certain content providers,” if they have an “impact on Internet openness and innovation”— such as whether they create barriers to market entry — and “whether there is financial compensation involved,” such as a content provider paying an ISP to zero-rate its traffic. Account management tools are explicitly allowed, and the decision said time-of-day pricing could theoretically be allowed as well. However, such offerings would have to be available to all subscribers, not only those who subscribe to a certain service tier, for example. In its decision, the CRTC reiterated that differential pricing practices not only tend to favour popular and well-established content providers, but they tend to be the domain of large telecoms, given that the necessary investments can cost millions and the fact that no small ISPs have such offerings in the market. “In the long term, this negative impact could extend or entrench the already favourable market positions of large, established ISPs and content providers, and could prevent or limit competitive activity by smaller players, which would be detrimental to consumers,” the decision said. Videotron’s zero-rated service was only available to higher-tier subscribers, it noted. Matt Stein, spokesman for the Canadian Networks Operators Consortium (CNOC), said in a phone interview that the fact the decision removes the economic incentives from the larger companies, which may have more bargaining power, “pushes it more towards that pure innovation and packaging and pricing and bundling and denies a large provider the opportunity to use the economic incentives that only they could acquire to create those zero-rated packages.” Stein, who is also CEO of Distributel Communications Ltd., said the group was satisfied with Thursday’s decision. During the review, CNOC advocated for differential pricing practices to be allowed, but with CRTC regulation. He noted that some CNOC members already offer a form of zero-rating, as some “have capped plans but don’t count towards the cap after a certain hour. That’s a version of time-of-day pricing. I think we’ll continue to see more of that.” He added that he expects companies “will introduce new options into the market based on this very soon.” Videotron’s Unlimited Music does not fit the prescribed framework, the CRTC said in its decision, because the offering isn’t data agnostic, the service is exclusive only to some customers, and it “could have a negative impact on Internet openness and consumer choice” because it involves an ISP favouring some content over other content. Videotron will have 90 days to comply. Among other arguments, the CRTC said that while Videotron claimed the program was open to all services, it only includes “a small fraction of all the similar music services that exist on the Internet,” and it is “unclear how smaller, less established providers are supposed to find out about the program.” In a press release Thursday, Videotron said it was “disappointed” and that it will determine “how to proceed” over the coming days, though it will continue to maintain the service until further notice. In a research note, RBC Capital Markets analyst Drew McReynolds said that though it was unclear how much Unlimited Music contributed to Videotron’s growth in wireless subscribers, he doesn’t think bringing the service in line with the CRTC’s rules will be “overly material” for the company. Given that there were few such offerings in the market, he said the decision is largely neutral for Canadian telecoms in general. “Bigger picture, this decision clearly puts a bigger onus on Canadian ISPs to continuously establish network advantages (i.e., speed, capacity, security, reliability, availability etc.) in order to differentiate ISP services, "decommoditize" the pipe and maintain a degree of pricing power,” McReynolds wrote. At the time of its launch, Videotron said its service was dissimilar to its and BCE Inc.’s zero-rated mobile-TV offerings, as it wasn’t favouring its platform over others. Those mobile-TV services were banned following a complaint by telecom researcher Ben Klass, as the CRTC ruled in January 2015 that Bell and Videotron could not exempt content from their broadcast services from data charges. Bell unsuccessfully appealed the ruling in the Federal Court of Appeal, which ruled in June that the company wasn’t “engaging the policy objectives” of the Broadcasting Act with the mobile service. In response to the decision Thursday, Bell spokesman Marc Choma said in an email: “We see today’s decision as consistent with the way Bell already operates.” Klass said in a phone interview that the CRTC “got it right every step of the way” since he first brought the issue up to the commission three-and-a-half years ago. He said while the CRTC has been tackling the issue of zero-rating case by case, it has now dealt with it “on a principled basis.” “It’s a success for them,” Klass said. “It feels good to have had a small part in it.” John Lawford, executive director of the Public Interest Advocacy Centre (PIAC), which filed one of the undue preference complaints against Unlimited Music in 2015, said in a phone interview that the CRTC’s decision was a win and “absolutely” what the organization was asking for. “We asked that they not discriminate on the basis of content and the commission set up a test that’s pretty hard to get through if you’re trying to discriminate on content.” Under the new framework, Lawford said he doesn’t see how Videotron will be able to restructure its Unlimited Music service to meet the necessary criteria. “I don’t think there’s any way they can bring it back. So, it’s dead.” During the proceeding — which included a week-long public hearing and a consultation via Reddit — most Canadian major telecoms and some U.S. companies such as Facebook Inc. and AT&T Inc., supported differential pricing. As an outlier, Rogers Communications Inc. found itself on the side of net neutrality advocates, arguing in its intervention the practice should ultimately not be allowed since it would let ISPs “exercise a gatekeeping function would enable these carriers to erect barriers to competition among the various providers of content and applications, solely based on the whims and machinations of the carrier.” It praised the decision Thursday, with spokesman Andrew Garas writing in an emailed statement that it is a “good decision for consumers and for open and fair access to the Internet,” and that the company is “glad that Internet providers won’t be allowed to act as gatekeepers and give privileged access to a select few.” While Rogers cited Heritage Canada’s pronounced support for net neutrality as part of the basis for its opposition, Bell went with another federal department to confirm its position, saying that DPPs are “examples of innovations in the telecommunications industry,” citing the Innovation, Science and Economic Development minister’s Innovation Agenda. In its decision, the CRTC disagreed, writing that differential pricing practices are a marketing tool, not innovation, given that “they do not involve making new, improved, or different products, services, or technologies available to consumers,” and instead “occupy resources that could otherwise be directed toward network innovation and investment by ISPs.” It also said that any short-term benefits of differential pricing practices “would be greatly outweighed by the negative long-term impacts on consumer choice if ISPs were to act as gatekeepers of content through their use of such practices.” Other jurisdictions have already tackled, or are in the process of examining, the issue. In the European Union, the Body of European Regulators for Electronic Communications (BEREC) has taken an “it depends” approach to zero rating, according to its website. Among the criteria national regulatory authorities have to take into account when deciding whether to permit the practice is the scale, effects on the end users (both commercial and consumer). In the United States, the new head of the Federal Communications Commission, Ajit Pai, cancelled ongoing investigations into zero-rating in February, saying “free-data plans have proven to be popular among consumers, particularly low-income Americans, and have enhanced competition in the wireless marketplace.” In a press release, Internet advocacy group OpenMedia said that the CRTC decision Thursday shows that “Canada continues to be a global leader on net neutrality.” “With the U.S. having just backed away from its own investigation into zero-rating, and the future of its net neutrality rules hanging in the balance, Canada looks like an increasingly attractive place to foster innovation online,” the group said in a press release. Academic Roslyn Layton, who appeared at the hearing, said in an email she was “saddened” by the decision, which “makes Canada an outlier amongst North American nations and developed countries in misguided net neutrality rules.” She said that the “U.S. has confirmed that differential pricing is pro-competitive and especially helpful to the poor and disadvantaged who are enabled to enjoy broadband at lower prices. The E.U. net neutrality guidelines, while imperfect, are also more permissive of zero rating. Like Canada’s net neutrality rules in general, this new framework is normative and not based in verifiable, quantitative evidence.” She added that “the CRTC claims to be serving Canadians, but asymmetric regulation only serves regulators and their preferred constituents. Consumers are best served by a minimum of distortion and discrimination in regulation. This framework clearly misses the mark.” Lawford said it will be interesting to see how the decision stands up to scrutiny from other countries and regulatory bodies that are examining the issue. He noted that the difference between Canada and other jurisdictions is its legislation, citing Sec. 27(2) of the Telecommunications Act that says no providers shall “unjustly discriminate or give an undue or unreasonable preference toward any person, including itself, or subject any person to an undue or unreasonable disadvantage.” The Canadian regulator also has also issued “a very strong number of decisions … on what unjust discrimination is and they said this is just the newest flavour of unjust discrimination,” Lawford said. In a press release, Blais said that “rather than offering its subscribers selected content at different data usage prices, Internet service providers should be offering more data at lower prices. That way, subscribers can choose for themselves what content they want to consume.” However, the decision didn’t include any measures regarding data caps, instead opting to “continue to closely monitor the retail prices and data caps for both wireless and fixed-line Internet services.” It added the commission expects ISPs to offer data plans that “continue to meet evolving consumer expectations with respect to price, speed, and capacity.” OpenMedia, which during the hearing called on the CRTC to use it as an opportunity to examine the issue of data caps in general, said in its press release that “that while the CRTC could have gone further, today’s ruling is still a very positive step in the right direction.” In the interview, Blais said the differential pricing decision can’t be looked at in isolation as a means to incent providers to loosen data limitations, but rather as part of a package that includes decisions such as the basic telecom services objective as well as mandated wholesale access to fibre-to-the home facilities and wireless networks. “All that, taken together, should hopefully ensure that true competition will occur in Canada and lower reliance on data caps,” Blais said. While speaking at Harvard University Tuesday, Blais indicated that Thursday’s decision would complete the record on net neutrality policy in Canada, adding to 2009’s Internet traffic management practices (ITMP) framework and the mobile TV decision. Blais said he ranked the differential pricing decision among the top three he’s had a hand in as chairman of the CRTC, setting it alongside December’s basic telecom services decision and the mobile-TV ruling that “set a tone for a different relationship we would have with the regulated entities.” His five-year term ends in June, but Blais would not comment on whether he would be serving a second one. He said the basic principle underscoring the decision is that “in Canada, because of its importance, the Internet is and must remain open and net neutral.” “When you look forward as to the importance of broadband to social and economic objectives of Canadian society, it’s fundamental because it will allow consumer choice, true innovation, the free exchange of ideas that support democratic life in this country and provides for a free marketplace for innovative services on the edge,” Blais added. “And frankly, it also supports the free flow of cultural expression and ideas for years ahead.” — With reporting by Charelle Evelyn at cevelyn@thewirereport.ca and reporting and editing by Anja Karadeglija at akarad@thewirereport.ca

CRTC effectively bans most zero-rating in differential pricing decision

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CRTC effectively bans most zero-rating in differential pricing decision

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