Regulation of VoIP
For years, computer users have used their Internet service to implement a type of voice telephone service. Typically, it was a poor substitute for traditional voice telephone service. The quality of voice over internet protocol, or VoIP, calls was unreliable, making the connection between callers cumbersome. As a result, the primary application of VoIP was as a niche service for those seeking a substitute for expensive overseas calling.
Recently, however, Internet telephony has come of age. Quality is much improved. Operators have begun to offer much more convenient service, including the ability to call to, and be called from, the general public switched network. And more of the public has installed high speed Internet connections that are more suitable to achieving better quality VoIP service.
Regulators around the world have begun to take increased notice of VoIP, and the CRTC is no exception. During 2004, the CRTC held a comprehensive proceeding to examine VoIP service and the regulatory issues it raises. The proceeding generated a great deal of interest, with more than 30 participants.
The CRTC kicked off the proceeding by issuing Telecom Public Notice CRTC 2004-2 in April, 2004. In it, the Commission set forth an interim regime for VoIP operators that largely applied existing regulatory categories to VoIP services:
• The incumbent telephone companies, or ILECs, were required to treat VoIP like any other voice service. Most importantly, they were required to obtain regulatory approval of the rates, terms and conditions of their VoIP offerings.
• The competitive local exchange carriers, or "CLECs", were not subject to rate regulation for VoIP service, but they will continue to be subject to a variety of regulatory obligations, such as the requirement to offer 911 service.
• Independent VoIP suppliers, categorized by the Commission as resellers, were subject to yet fewer regulatory requirements.
The local telephone business has remained dominated by the incumbent operators notwithstanding the CRTC’s rulings in 1997 that were intended to open that sector to competitive entry. An underlying theme, therefore, of many participants in the VoIP proceeding was that VoIP can open up local telephone service to meaningful competition. From this common theme, however, the participants draw different conclusions. To the incumbent telephone companies, the spectre of meaningful local competition points to a diminished need for regulatory oversight of their highly regulated local services. By contrast, to the new entrants, the opportunity for meaningful local competition points to the need for regulatory vigilance to ensure that the incumbents do not undermine new competitive entry.
As the proceeding progressed, the CRTC’s regulatory treatment of the ILECs’ VoIP offerings became an increasing point of contention. The ILECs called for much diminished regulatory supervision in order that they can compete on a level playing field with the many competitors beginning to offer VoIP services, especially the cable companies. The competitors, however, pointed to the ILECs’ continued dominance of the voice telephony business and urged that not only should there be no reduction in the regulatory requirements at this time, but in some cases additional restrictions were warranted.
Another controversial issue concerned whether the ILECs and cable companies, as the primary providers of high speed internet service, were in a position to favour their own VoIP offerings and discriminate against the services of competitors that rely on these high speed services as the conduit for their own services. The ILEC and the cable companies generally opposed any special rules, with competitors generally favouring them.
One particularly vexing issue concerned 911 emergency service. With traditional telephone service, a 911 call is directed to a specialized call centre. When the operator answers the emergency call, he or she simultaneously receives a display of the calling number and the address of the telephone making the call (except in the case of a cellular call). This feature enables the operator to dispatch emergency services in circumstances where the caller cannot identify the location.
Because VoIP service can be installed on any high speed Internet service, the customer can relocate the service fairly easily and the service provider will have no record of the new address. As well, customers can be assigned telephone numbers with area codes that are different than the usual area code in a particular city. What this means is that the location identification of a 911 call from a VoIP telephone can be unreliable or non-existent.
The CRTC will have to balance its clear desire for effective 911 service with its desire to foster competitive entry into the local telephone services business. If the CRTC imposes comprehensive 911 obligations on VoIP service providers, it will impede development of the service. On the other hand, if the CRTC imposes an overly permissive regulatory regime, it runs the risk of public outcry if ineffective 911 service results in tragedy.
The CRTC is not expected to issue a decision until the second quarter of 2005. When issued, the decision will set important ground rules for the future of telephony in Canada.
Access by Third-Party Internet Providers to Cable Company Facilities
On November 2, 2004, the CRTC issued Telecom Decision CRTC 2004-69, setting out the terms, rates and conditions for third-party Internet access by Internet service providers, or "ISPs," to serve customers over the cable networks of major incumbent cable companies (i.e. Cogeco Cable Canada Inc., Rogers Communications Inc., Shaw Communications Inc., and Vidéotron ltée). This is but one skirmish in a battle between the cable companies and ISPs that has waged for seven years, and countinues today.
The battle began in earnest when the CRTC released a decision in 1998 mandating access to the facilities of the major incumbent cable companies to enable third-party ISPs to offer competitive high speed Internet services. The principle seemed straight-forward, but implementation has proved to be anything but.
Shortly after the 1998 ruling, the CRTC, in Telecom Decision CRTC 99-11, required the major incumbent cable companies to resell Internet cable modem services at a discount of 25% from the lowest retail Internet service rate charged by the cable companies to a cable customer in its service area during any one-month period. This formulaic approach was intended to be interim while more precise pricing was developed.
Then, on August 21, 2000, the CRTC issued Order 2000-789 approving the terms and per end-user rates to be charged to ISPs for access to certain cable company facilities. However, while Order 200-789 addressed some of the implementation issues, it did not address the term, rates or conditions for interconnection and access service. The latter was the subject of Telecom Decision CRTC 2004-69.
The battle is not yet over. The interconnection and service charge rates and terms in Telecom Decision CRTC 2004-6 are only interim in nature. The CRTC commenced a new proceeding to consider the appropriate level of mark-up regarding third-party Internet access and the CRTC has directed Cogeco, Rogers, Shaw and Vidéotron to file supplementary justification to support the level of mark-up over costs appropriate for third-party Internet access interconnection and service charge rates.
Review of Telemarketing Rules and Proposed Do-Not-Call Legislation
After a prolonged gestation period, Canadians may finally catch up to the United States, which has already taken popular measures to reduce unwanted telemarketing calls.
In March 2001 the Commission issued Public Notice 2001-34, initiating a review of the current rules that apply to telemarketers. After a lengthy deliberation, the CRTC issued Telecom Decision CRTC 2004-35, which introduced significant revisions to the CRTC’s telemarketing rules. The Commission implemented changes to the regulation of telemarketers, including specific identification procedures, constraints on the use of predictive dialling devices and mandatory reinforcement of do not call lists for all telemarketers. The tracking and reporting of complaints and the establishment of an awareness program for both consumers and telemarketers were also contemplated. Many of these revisions proved quite controversial.
In August 2004 the Canadian Marketing Association submitted an application to the Commission to review and vary Decision 2004-35. With the exception of the requirement that telecommunications service providers track and report complaint statistics, the Commission approved the application in September 2004. The result was a stay of all the revisions to the telemarketing rules, pending further review. Until this further review is completed, the pre-revision CRTC telemarketing rules remain in force.
One of the most important issues before the CRTC was the establishment of a national "Do-Not-Call" list. In Decision 2004-35, the Commission stated that it "[believes] that there is considerable merit in the establishment of a national do not call list." However, the Commission also stated that "…implementing a national do not call list in Canada without appropriate start-up funding and without effective fining power for enforcement would be counter-productive. The Commission recognizes that there is a need for significant enforcement power, such as the power to impose [administrative monetary penalties], which is not available to the Commission under current legislation."
The federal government seemed receptive to the CRTC’s request. On December 13, 2004, Bill C-37, An Act to amend the Telecommunications Act, was tabled for first reading in the House of Commons. If passed, the Telecommunications Act would be amended to empower the Commission to administer databases for the purpose of its powers under section 41, namely the power to prohibit or regulate the use by any person of the telecommunications facilities of a Canadian carrier for the provision of unsolicited nuisance telecommunications. The Act would also be amended to establish an administrative monetary penalty for the contravention of prohibitions or requirements of the Commission under section 41. Under this proposed legislation, individual telemarketers who call people on a "Do-Not-Call" list could be fined up to $1,500 for each offending call, and corporations face a $15,000 fine for each unwanted call.
The proposed legislation will go through public hearings and discussions in parliamentary committees before it becomes law, and is subject to amendment. This process could take up to a year or even longer. However, if enacted, the "Do-Not-Call" list will likely be popular with consumers. A similar "Do-Not-Call" list established in the United States has attracted about 65 million American households since its establishment in June 2003.
Multi-Channel Subscription Radio Services Hearings
Is satellite radio coming to Canada? In July 2004 the CRTC issued Broadcasting Notice of Public Hearing CRTC 2004-6 calling for the examination of applications for licences to carry on multi-channel subscription radio services in Canada. Hearings were held during November 1-4, 2004 and focused on the three applications submitted by Canadian Satellite Radio Incorporated ("CSR"), Sirius Canada and CHUM Limited ("CHUM").
The CSR application was submitted in partnership with U.S.-based XM Satellite Radio Inc. If approved, its service will be offered at a basic monthly fee of about $12.99 for about 120 channels.
The Sirius Canada application was submitted by a consortium of the CBC, U.S.-based SIRIUS Satellite Radio and Standard Radio Inc. It would be offered at a basic monthly fee of $12.95 for about 120 channels.
The CHUM application was submitted in partnership with Astral Media Radio. The CHUM application proposed a service offering 50 channels, all of which are to be produced in Canada. The proposed basic monthly fee would be $9.95.
The CRTC posed questions and sought comments relating to Canadian content, Canadian talent development, the accountability of potential licensees, the competitiveness of the market for subscription radio services, the impact of satellite radio service on other audio services, the class of licence to be issued and the authorization of over-the-air transmitters.
Both the CSR and Sirius Canada applications propose services delivered by satellite and terrestrial transmitters, while the CHUM application proposes a service delivered solely by terrestrial transmitters.
Both the CSR and Sirius Canada applications involve partnerships with large U.S. satellite radio firms. Their applications call for the use of U.S. satellites to distribute the services and the provision of a substantial amount of U.S. programming.
CHUM's application offered the most Canadian content. However, in contrast to CSR and Sirius Canada which will offer service Canada-wide, CHUM’s proposal only contemplates provision of the service to large population centres using a yet unproven technology.
The applicants will have to wait until Spring 2005 for the CRTC’s decision.
Incentives For English-language Canadian Television Drama
On November 29, 2004, a year and a half after releasing three reports on the state of Canadian and international drama, the CRTC issued final details of an incentive program to support Canadian English-language drama. The CRTC adopted this incentive program in order to increase the amount of original English-language Canadian television broadcast on Canadian television and to encourage greater viewing and higher expenditures on such programs.
The following is a brief summary of the incentives:
1. Incentives to increase the production and broadcast of Canadian drama: Broadcasters will earn the right to broadcast between 30 seconds and 8 minutes of additional advertising for each hour of original Canadian drama they broadcast. The exact amount of additional advertising is dependant upon such factors as the level of Canadian participation in the production, the budget required to produce the drama, the time of broadcast, and the source of the funding.
2. Incentive to increase viewing of Canadian drama: If broadcasters increase their audience share for Canadian drama by a pre-determined amount, they will be entitled to increase the total additional amount of advertising they broadcast by 25%.
3. Incentive to increase expenditures on the production of Canadian drama: If broadcasters increase their spending on Canadian drama by a pre-determined amount, they will be able to increase the additional amount of advertising they broadcast by another 25%.
The incentive program does not stipulate a limit on the number of "reward" advertising minutes a broadcaster can earn under the incentive program. However, under the program, broadcasters may not air more than 14 minutes of advertising in any given hour (up from 12 minutes of advertising during any given hour as permitted by subsection 11(1) of the Television Broadcasting Regulations, 1987).
While all conventional television licensees are eligible to participate in the incentive program, none are obligated to do so and some licensees must meet special conditions in order to qualify for the advertising increase. For example, concerns that increased advertising incentives for all conventional television licensees on an equal basis could have some negative impact on the advertising revenues of smaller conventional and specialty services prompted the CRTC to limit the application of the incentive program for larger conventional television licensees to qualifying Canadian drama in excess of 26 hours.
An incentive program designed to fulfill the CRTC’s objectives with respect to French-language Canadian television drama will be released in separate public notice to be issued in the near future.
Non-Canadian Third-Language Broadcasting Services
In December 2004, the CRTC introduced a new policy for assessing requests to add non-Canadian third-language services for distribution by cable companies and other broadcasting distribution undertakings. Under the new policy, requests to add non-Canadian, general interest, third-language services to the digital lists will generally be approved by the CRTC.
The new policy stems from decisions released in three public notices by the CRTC on July 15, 2004, (Broadcasting Public Notice CRTC 2004-50, 2004-51 and 2004-52) in which the CRTC authorized the addition of nine (including Arabic-language service, Al Jazeera), and denied the addition of six (including Italian-language service, RAI), non-Canadian third-language services to the CRTC’s digital lists. These rulings were criticized by many parties, who argued that ethnic communities are underserved and consumers are being forced to turn to unauthorized third-language satellite services to access ethnic programming.
In the early 1980s, the CRTC determined that it would not be in the interest of the Canadian broadcasting system to allow the carriage of non-Canadian specialty programming services which, in the Commission's opinion, could be considered either totally or partially competitive with Canadian discretionary services. The July 2004 decisions to add or to deny the addition of the various services to the digital lists in July 2004 were based, in part, on this "competitiveness test." However, the CRTC recognized that it needed to review its earlier policy in order to find ways to improve access to such services while continuing to foster Canadian ethnic and third-language services.
The results of the review were delivered on December 16, 2004 in Broadcasting Public Notice CRTC 2004-96. The most significant change to the policy is the discontinuation of the "competitiveness test" in determining whether or not to add non-Canadian, general interest, third-language services to the digital lists. Under the new policy, a non-Canadian, general interest, third-language service that provides at least 90% of its programming in languages other than English or French will be added to the digital lists, so long as the service offers programming from a broad spectrum of program genres and categories. However, the addition of non-Canadian niche and English and French programming services to the digital lists will continue to be assessed on a case-by-case basis, under the Commission’s existing competitiveness test.
The December 2004 notice also sets out new distribution and linkage requirements. The CRTC introduced these new requirements in order to address the concern that the addition of a non-Canadian, general interest, third-language service may have a negative impact on existing services operating in the same language or languages.
As regards analog services, subscribers wishing to purchase any non-Canadian, general interest, third-language service that offers 40% or more of its programming in either Cantonese, Mandarin, Italian, Spanish, Greek or Hindi will also have to purchase the corresponding third-language Canadian analog service. However, subscribers will not be required to purchase the non-Canadian service in order to receive the corresponding Canadian service.
As regards Category 2 services, if a cable company or other broadcasting distribution undertaking (BDU) wishes to offer a non-Canadian, general interest, third-language service that offers 40% or more of its programming in a language (a principal language) that is also the principal language of one or more launched, general interest, third-language Category 2 services, then the BDU must also distribute at least one third-language, general interest, Category 2 service in the same principal language and must also make the two available on a packaged basis. Under this requirement, subscribers would have the option of choosing to receive the non-Canadian service, a Canadian Category 2 service providing programming in the same principal language as the non-Canadian service, or the non-Canadian service in a package with at least one Canadian Category 2 service in the same principal language, as selected by the BDU. The subscriber would not have to subscribe to the Category 2 service in order to receive the non-Canadian service, or vice versa.
Non-Canadian, third-language services will continue to be required to confirm that they possess all necessary rights for the distribution of their programming in Canada and that these rights are non-preferential and non-exclusive. The CRTC puts a fine point on this issue by emphasizing that should complaints arise about the manner in which a non-Canadian service on the digital lists makes rights available to a Canadian service, and if, following an appropriate process, the service were found to be exercising preferential or exclusive rights, the Commission would consider its removal from the list.
Non-Renewal of CHOI-FM Quebec Licence
In a decision released on July 13, 2004, (Broadcasting Decision CRTC 2004-271), the CRTC denied an application by Genex Communications Inc. ("Genex") to renew Quebec City radio station CHOI-FM’s licence and required CHOI-FM to cease broadcasting by August 31, 2004.
The CRTC’s decision to deny the renewal of CHOI-FM’s licence was the last step in a series of disciplinary measures taken by the CRTC since Genex acquired CHOI-FM in 1997. In 2002 Genex was called to a public hearing because of numerous complaints relating to concerns with CHOI-FM’s spoken word programming, among other things. The CRTC invited the licensee to show cause at the hearing why a mandatory order requiring the licensee to comply with the Regulations should not be issued.
The result of the 2002 hearing was the issuance of a two-year licence renewal (as opposed to a full term of seven years) due to CHOI-FM’s "repeated failure to comply with the Regulations regarding, among other things, abusive comment… and the condition of its licence related to sex-role portrayal." In addition, CHOI-FM’s licence was made subject to specific conditions, including adherence to the CHOI-FM Code of Ethics and the creation of an advisory committee to advise CHOI-FM on regulatory matters.
Between September 1, 2002 (the start of the two-year licence renewal) and January 2004, the CRTC received 45 complaints about the content of CHOI-FM’s programming. These complaints led the CRTC to hold a public hearing in February 2004 at which Genex was asked to "show cause why a mandatory order requiring the licensee to comply with the CHOI-FM Code of Ethics should not be issued." In its decision not to renew CHOI FM’s licence, the CRTC stated that "in view of the licensee’s inflexible behaviour, its lack of acceptance of its responsibilities and the lack of any demonstrated commitment to rectify the situation, the Commission cannot reasonably conclude that Genex will comply with the Act, the Regulations and its Code of Ethics if its licence is renewed."
This is not the end of the story, however. On August 26, 2004 Genex was granted leave to appeal the CRTC’s decision not to renew CHOI-FM’s licence. The Federal Court of Appeal also approved an application to stay the CRTC’s decision and any enforcement by the CRTC of the call for applications for a new broadcasting licensee to replace CHOI-FM. The court also stipulated that CHOI-FM’s current licence will remain in effect, thereby allowing CHOI-FM to remain in operation, until the appeal is heard—expected in March 2005.
The decision has ignited much controversy and has brought to the fore the issues of freedom of expression and the CRTC’s jurisdiction to revoke or to refuse to renew a licence. Among other issues, the Federal Court of Appeal will consider whether the CRTC has the power to act as a censor of the content of radio programs and whether the CRTC’s decision is inconsistent with Section 2(b) of the Canadian Charter of Rights and Freedoms, relating to freedom of expression.