The CRTC today released the final chapter (for now) in its net neutrality governance framework, creating policy that establishes strong safeguards against net neutrality violations and severely restricts the ability for providers to engage in zero rating practices. When combined with the federal government’s clear support for net neutrality, the Canadian framework is now one of the strongest in the world, providing guidance for the providers and appropriate protections for users and innovative services.

The Commission established its first net neutrality policy response in 2009 with the Internet traffic management practices. The rules restrict content blocking or slowdowns and require ISPs to disclose how they manage their networks. The issue expanded into zero rating in 2013 when Ben Klass, a graduate student in telecommunications, filed a complaint with the CRTC over Bell’s approach to its Mobile TV product. In January 2015, the CRTC released its decision in the case, siding with Klass. The Commission expressed concern that the service “may end up inhibiting the introduction and growth of other mobile TV services accessed over the Internet, which reduces innovation and consumer choice.”

Today’s decision largely completes the process by providing a framework for examining future zero rating or differential pricing cases (and rejecting Videotron’s music service plan in an accompanying decision). The ruling opens by examining whether differential pricing (of which zero rating is a form) raises concerns regarding preferences or disadvantages.  The Commission concludes that it often does:

differential pricing practices, generally speaking, result in (a) a preference toward certain subscribers over others, (b) a preference toward certain content providers over others, (c) a disadvantage to subscribers who are not eligible for, or interested in, a differential pricing practice offering, and (d) a disadvantage to content providers that are not eligible for, or included in, an offering.

The impact is significant as the Commission notes that it can affect competition, innovation, consumer choice, access and affordability as well as privacy in a section of the decision that comprehensively makes the case for the harms associated with zero rating. For example, with respect to competition, the CRTC states:

The Commission considers that competition in the retail Internet access services sector is best served, and the telecommunications policy objectives set out in the Act are best achieved, when ISPs compete and differentiate their services based on their networks and the attributes of the services on those networks, such as price, speed, volume, coverage, and the quality of their networks.

The Commission also believes that differential pricing practices that favour particular services, technology, or content would generally negatively affect innovation.  On consumer choice, the CRTC is mindful of what consumer groups and pro-net neutrality advocates have warned:

The Commission considers 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

Moreover, given that differential pricing is typically offered for higher tier services, it finds that there was no evidence that it meaningfully increases access.  Interestingly, the Commission also expresses support for the use of VPNs and is reluctant to embrace policies that might discourage their use. The decision states:

The Commission would be concerned, however, if differential pricing practices affected the use of VPNs. The Commission recognizes that VPNs are a legitimate tool to protect sensitive information, as recommended by security firms. While the Commission does not find differential pricing practices to have a direct negative impact on privacy per se, it is concerned that their adoption could discourage the use of VPNs and thus compromise the privacy and/or security of consumers.

Given the concerns and harms associated with zero rating, how to address the issue?

The CRTC rejects category style approaches advocated by some groups, concluding that they would not solve the concerns.  It also rejected calls from some cultural groups for preferences for Canadian content, noting:

Given all the drawbacks and limitations of using differential pricing practices as a way to support and promote Canadian programming, the Commission considers that any benefits to the Canadian broadcasting system would generally not be sufficient to justify the preference, discrimination, and/or disadvantage created by such practices.

Instead, the CRTC has established a framework that bears considerable similarity to its 2009 ITMP approach.  It will allow for a complaints-based mechanism that can lead to an evaluation of whether the differential pricing is compliant with the law.  Given that the Commission rejected many of the proposed categories and exceptions, this will be a difficult standard to meet and there is now considerable guidance for providers.

The evaluation criteria involves four key issues: agnostic treatment of data, exclusiveness of the offering, impact on Internet openness and innovation, and whether financial compensation is involved.  Agnostic treatment is viewed as the most important, though none are determinative. The Commission will also consider exceptional circumstances, which allow for public interest considerations, and a minimal harm analysis (which effectively expands the criteria to six possible grounds).  The details on the four main criteria:

The agnostic treatment of data. The Commission will consider the extent to which data traffic is priced or rated equally or agnostically by an ISP with regard to its customers’ retail Internet access services, while having regard to the amount of data involved. Offerings that rate or price data non-agnostically, such as by zero-rating data traffic from certain content providers (including affiliated entities), are likely to raise concerns under subsection 27(2). Differential pricing practices that treat data traffic agnostically (e.g. time-of-day offerings) are not likely to raise the same level of concern.

The exclusiveness of the offering. The Commission will consider the extent to which a differential pricing practice is exclusive to a particular class or group of subscribers, or to a particular content provider or class or group of content providers, while also having regard to the number of subscribers or content providers affected. For example, differential pricing practices that are exclusive to subscribers to a particular data plan are likely to raise concerns under subsection 27(2).

The impact on Internet openness and innovation. The Commission will consider the extent to which a differential pricing practice inhibits or compromises the openness of the Internet for Canadians and the choices available to Canadians. In particular, this analysis will consider (a) whether a differential pricing practice affects the ability of content providers or innovators to enter the market by creating barriers to entry, and (b) the extent to which a differential pricing practice affects innovation. For example, differential pricing practices that require content providers to conform to administrative and technical requirements that are burdensome, costly, or time-consuming to meet are likely to raise concerns under subsection 27(2). Differential pricing practices that favour large, established content providers over smaller ones and new entrants are also likely to raise concerns.

Whether there is financial compensation involved. The Commission will consider whether a differential pricing practice results in financial compensation or other financial benefits between a content provider and an ISP or third-party sponsor (including affiliated entities), having regard to the amount of compensation involved and the extent of the financial interest with any affiliated entity. For example, sponsored data arrangements, where an ISP receives payment from a content provider in exchange for zero-rating the data traffic to and from that provider, are likely to raise concerns under subsection 27(2).

The Commission expects all provides to follow these guidelines and – like the ITMP regime – will investigate complaints. Given that Commission rejects the Videotron service, has already rejected the Bell Mobile TV service, and rejects many compromise proposals that were raised during the hearing, it is clear that the bar for approval of a zero rating or differential pricing plan is very high.  Time of day differences are permitted as are plans that treat data in an agnostic manner.  In other words, the CRTC goes back to first net neutrality/common carriage principles of treating data equally.

It is worth noting that the CRTC decision also addresses the issue of data caps, declining to ban the practice and merely monitor the situation for now. Several groups (and many Canadians) had asked the Commission to address the practice.

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.