Opinion

Turning Down The Heat On Net Neutrality: A View From Our Northern Neighbor

Who would have predicted that net neutrality would instigate such a heated public debate? From activists invading the personal home of the FCC Chairman, to bots flooding the FCC’s comments system, to a day of action organized by Internet conglomerates, the debate over net neutrality is more acrimonious than ever.

An outsider’s dispassionate outlook might help cooler heads prevail. To turn down the heat, we would be wise to consider the regulatory perspective of our northern neighbor. In what follows, I outline three lessons from the Canadian Radio-Television and Telecommunications Commission (CRTC) in its efforts to govern the Internet.

Banning differential pricing has perverse consequences.

This past April, the CRTC announced that zero-rating, the practice of exempting particular content or applications from an Internet user’s data allowance, was illegal. According to the agency, zero-rating conferred an unreasonable disadvantage on non-exempt content, and violated the principle that all Internet content should be treated agnostically.

However, the CRTC found itself in a pickle as a result of the decision. Worried about the influx of Netflix and Hulu into Canada, and inspired by remarks by AEI’s Roslyn Layton, industry players petitioned the CRTC to make an exception for services that promoted Canadian programming. Allowing zero-rating for Canadian content would protect companies from Internet-based competition and further the CRTC’s cultural mandate.

But such an exemption would also undermine net neutrality’s premise—that broadband providers are dumb pipes, barred from exercising editorial discretion over network content. Thus, the CRTC remained categorical and rejected calls to immunize Canadian content from the zero-rating decision.

Granted, Americans are unlikely to feel strongly about Canadian cultural protection, and FCC Chairman Ajit Pai quashed an inquiry into the legality of zero-rating. Nevertheless, it is easy to imagine similar perverse consequences resulting from the Title II order’s parallel ban on paid-prioritization, which prohibits agreements for faster transmission of content.

Under the ban, it would be illegal for a broadband provider to expedite traffic to a low-income children’s literacy site; prioritize an employment resource for disadvantaged minorities; or allow an abused women’s telehealth service to bypass movie-streaming congestion.

Canadian content purveyors are not the sole losers due to a hardline net neutrality approach. Bright-line rules for Internet traffic foreclose opportunities for underprivileged communities and perpetuate the digital divide.

It is okay to admit that the silos of yesteryear are inappropriate for the Internet age.

Despite convergence in communications industries, US law maintains anachronistic categories of regulation, with separate regimes for broadcast, telephone, and cable. Different rules apply depending on mode of transmission, creating artificial winners and losers in the same industry.

The Canadian regime invokes similar outdated categories. Broadcasters are subject to unique rules, involving Canadian content quotas, subscriber disclosure, and mandatory fund contributions. With competitors like Netflix and Google penetrating Canada, broadcasters complained that the CRTC’s broadcast-specific rules created unfair disadvantages for Canadian media.

In determining how to cope with the flood of Internet video, the CRTC considered subjecting Netflix and Google to the same obligations as entities regulated under the Broadcasting Act. However, the agency recognized that it was institutionally ill-suited to craft ex ante rules for such a dynamic video marketplace. In a brave act of regulatory humility, it not only declined to regulate Netflix and Google under the Broadcasting Act, but also eased existing regulatory burdens for broadcasters.

The FCC would be prudent to follow Canada’s example and reject anachronistic telephone monopoly rules for the dynamic Internet. In addition to significantly reducing broadband investment, Title II stymies the ability of broadband providers to compete with edge providers like Google, Amazon, and Facebook, who are not subject to the same burdens, despite being arguably more powerful Internet gatekeepers.

The FCC should rely on forbearance at its peril.

The FCC partially admitted the inappropriateness of applying telephone monopoly rules to broadband when it forbore from applying vast sections of Title II. One of the sections which it declined to apply to broadband was § 251, which requires incumbent local telephone companies to share their facilities with competitors on a wholesale basis.

To predict what would happen if a future FCC were to reverse the decision to forbear from § 251’s “unbundling” requirements, one need only look to the CRTC’s mandatory wholesale access regime, which was expanded to include high-speed fiber-to-the-home networks in 2015. That decision gave a windfall to broadband resellers who made no investment in the underlying infrastructure and will decrease investment in the networks by hundreds of millions of dollars.

To the extent that the FCC wants to promote broadband investment—particularly for rural communities—it should learn from Canada’s experience and foreclose the possibility of a future FCC reversing unbundling forbearance.

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Canada’s approach to the new communications marketplace teaches us to steer clear of bright-line rules and regulatory relics. The cost of restricting innovation is too high. The Internet arose in a light-touch environment and regulators should stay “cool” under the pressure to subject it to government’s heavy hand.

Arielle Roth is a Legal Fellow with the Hudson Institute’s Center for the Economics of the Internet. She is originally from Montreal, Canada.