Internet Freedom Commentary: Why the CRTC’s zero-rating decision was the right thing to do

(This article originally appeared on Cartt.ca on May 4, 2017)

MUCH INK ALREADY HAS been spilled over the CRTC’s decision to disallow Vidéotron’s “Unlimited Music” offer (and effectively most similar “differential pricing”) because it was unjustly discriminatory. More will be said, even opposite this column, by Canada’s biggest telcos.

Why the sturm und drang over a regulatory decision that effectively preserves the prior status quo? Quite simply, it is money. There is huge money to be made operating a network in a discriminatory manner. One can charge those not just at the receiving end but at the sending end. One can design pricing to match consumer and producer willingness to pay. One can achieve mutually beneficial advertising and other benefits between the service that is favoured and the network owner.

Money, money, money. And all on top of what you already earn from just running a network. Sweet.

Critics of the CRTC decision say that discriminatory pricing is simply rational economic behaviour on the part of the telco. Such pricing is allowed in other fields and indeed is a textbook example, in economics, of rational pricing. This is a logic so perfect, one Trump-transition leader says, that consumers are actually missing out on considerable economic benefits. As noted by the CRTC in answer to our complaint about Vidéotron, however, this is untrue.

Advantageous offers are consistently made instead to the well-heeled, or most desired demographic. There will never be an offer to low-volume, low-income consumers, who will indirectly subsidize the advantages of the few, the proud, the rich.

Yet what lets me take this seemingly socialist position? Why has the CRTC acted “irrationally” according to the critics? The answer is quite simply: it’s the law.

The Telecommunications Act, in black and white, says that there shall be no unjust discrimination nor undue preference allowed to the telcos: not in relation to any other competitor, nor between customers, nor even between those affected by their actions. There is an unbroken line of CRTC and court rulings upholding them from Challenge Communications to the Zero-Rating decision that all have said, “thou shalt not discriminate simply to make money”. In other words, not only does law trump economics, there is a special section of our telecommunications law that specifically says not to do what Vidéotron did. All the CRTC did, therefore, was uphold the law; in doing so, they simply wrote the latest chapter in the book of prohibiting unjust discrimination.

The law has been called an ass, and unclear, and unknowable, but here it is crystal clear. It has been so for over 700 years. The principle underlying our unjust discrimination law is “common carriage” and it is deliberately at odds with “pure” economics for several reasons. First, the law quickly understood that operation of an essential service, like cartage, or today telecommunications, is relied upon by all of the public and so should treat them all as equals. Why? Because the network function of the service is quickly undermined by “special deals” favouring certain customers. It leads network operators to choose inefficient transmission methods. It incents them to cover up slow service that is the consequence of making more resources available to the favoured customers. It makes them, eventually, not be of service to society at all, but only to themselves and thus to destroy their own essence.

Favouritism also means that the economic activity enabled by the network service is limited. Only those making a deal with the network operator get their product to market. Consumers only get a limited palette of choice and cannot use their demand to drive the market. It is here that the unjust discrimination principle intersects with more recent expressions of the concept coming from the engineering side, the so-called “net neutrality” arguments. Net neutrality emphasizes this loss of “edge innovation” and provides compelling arguments for rules very like common carriage non-discrimination. After all, would the telcos now let a new Netflix come online if they could nip it in the bud? You can bet they wouldn’t. And you can no longer Netflix and chill.

So until Canadian law is changed, all of this discussion of economics and telecom is misplaced. What is being proposed is against the law.

John Lawford is Executive Director and General Counsel of the Public Interest Advocacy Centre (PIAC).

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