Net neutrality threatened: The issues summarized

December 21st, 2017

On December 14, 2017, the Federal Communications Commission (FCC), the U.S. equivalent of our CRTC (Canadian Radio-television and Telecommunications Commission), voted to repeal a number of regulations adopted in 2015 to protect what is commonly called “net neutrality”. The purpose of net neutrality is to safeguard equal access to any content posted online so as not to favour users with the means to pay more to see their content placed in a privileged position. The Internet has become the platform of choice for the exchange and sharing of ideas, and net neutrality advocates speak about a real attack on freedom of speech on the web that could have a tangible commercial impact on businesses that depend on the Internet and bandwidth for their commercial activities.

Legal Basis

The FCC’s decision primarily dealt with an issue of legal definition. Since 2015, U.S. Internet service providers have been classified as telecommunication service providers, a classification that placed them under the jurisdiction of the FCC, in the same way, for example, as cell phone companies. Being so classified, these providers were prohibited from slowing down the download speed (throttling) or limiting bandwidth for businesses or consumers that refused to pay a surcharge.

After the December 14 decision, these same providers are now classified as information service providers that no longer fall within the FCC’s jurisdiction and can do as they see fit with respect to rates. These providers can now charge potentially excessive or arbitrary rates to provide privileged access to the Internet system, thereby creating an unfair advantage (some would say) for those actors with the means to pay. This practice could eventually create a higher barrier to the entry of Canadian tech start-ups, start-ups or SMEs that want to sell services on the U.S. market. One might even question whether a small actor offering a new streaming service that competes with the online commercial and streaming giants would be able to establish itself in a world where it would be faced with an exorbitant surcharge.

The Situation in Canada

In stark contrast to those of the FCC, decisions by the CRTC, which enjoys greater independence, are not dictated by guidelines from the political parties in power. As a result, the CRTC has repeatedly reaffirmed its commitment to net neutrality in press releases and by finally establishing a differential pricing framework that now governs Canadian Internet service providers. The framework defines the concept of differential pricing as “when the same or similar products or services are offered to customers at different prices”, and sets out the evaluation criteria to use to determine whether differential pricing does indeed constitute an undue or unreasonable preference or disadvantage pursuant to subsection 27(2) of the Telecommunications Act (hereinafter the “Act”). An example of this type of practice is zero-rating pricing, which can occur “when an Internet provider exempts data from a particular application from a monthly mobile data plan.”

It will be interesting to monitor future CRTC decisions to see whether the regulator confirms its commitment to fighting all forms of differential pricing. Note that the CRTC appears to be adopting an ex post approach to the situation. Consequently, a Canadian business that believes it is prejudiced by a Canadian Internet service provider must therefore file a complaint with the CRTC. Subsection 27(4) of the Act provides that the burden then falls on the provider to establish that the preference or disadvantage is not undue or unreasonable.

There is nevertheless hope for net neutrality in the United States. It is very likely that the FCC decision will be challenged in U.S. federal court and that it will suspend the decision. Furthermore, a bipartisan majority of Congress is currently opposed to repealing net neutrality and legislation may be introduced to withdraw certain powers from the FCC. The US situation should be closely followed to see how it evolves. As for the situation in Canada, it would appear that lawmakers have decided to defend the concept of net neutrality. The extent to which this policy can remain intact in the face of continuously increasing competitive pressure from our neighbours to the south remains to be seen.