Island Linux Bits and Bytes of Technology

The examination of the proposed Bell acquisition of Astral Communications took place last week in Montreal with the Canadian Radio-television and Telecommunications Commission hearing from a wide range of supporters and opponents of a deal that only last year was rejected as contrary to the public interest.  

As Bell and Astral sought to defend their plan, a familiar enemy emerged - Netflix. What does a U.S.-based Internet video service with roughly two million Canadian subscribers have to do with a mega-merger of Bell and Astral?  

My weekly technology law column (Toronto Star version, homepage version) notes that for the past few years, it has become standard operating procedure at CRTC hearings to ominously point to the Netflix threat. When Internet providers tried to defend usage based billing practices that led to expensive bills and some of the world's most restrictive data caps, they pointed to the bandwidth threat posed by Netflix. When cultural groups sought to overturn years of CRTC policy that takes a hands-off approach to Internet regulation, they argued that Netflix was a threat that needed to be addressed. So when Bell and Astral seek to merge, they naturally raise the need to respond to Netflix.


This is an age-old strategy that seems to resurface every decade. In the 1980s, it was the effort to keep large U.S. specialty channels such as ESPN and MTV out of the market that led to the creation of TSN and MuchMusic. In the 1990s, the U.S. satellite television providers were branded the "death stars" and kept out of the market to allow for Canadian entries. In the 2000s, it was U.S. satellite radio services that were denied entry until acquiescing to minimum Canadian content requirements.

In this decade, it is the Internet's turn as over-the-top video services such as Netflix are viewed as threats to established Canadian broadcasters, broadcast distributors, and content creators.

To date, the CRTC has largely skirted the issue by pointing to studies that suggest that Netflix and other over-the-top video providers have only had a minimal impact on the consumer market. But that won't last. Whether Netflix or the myriad of other online video services - from YouTube's forthcoming subscription services to the National Film Board's documentary film Netflix competitor (scheduled to launch in 2014) to sports leagues offering season packages for Internet distribution to film studios launching their own services - the online distribution model is only going to increase in popularity.

Rather than claiming limited impact, the CRTC should embrace the trend by concluding that the services are a boon to both consumers and content creators consistent with its policy mandate that does not require regulatory change or protection for established Canadian broadcasters.  

For consumers, the benefits are obvious with more choice, greater convenience, and lower prices.

Creators also benefit from the proliferation of these services by virtue of the heightened competition for their content. In years past, the competitive landscape in Canada was limited to a handful of broadcasting organizations. The entry of new competitors means there will be a larger ecosystem of distributors, intermediaries, and original producers all vying for enough content to make a compelling offering to consumers.

The established players unsurprisingly view the new entrants as a threat since they offer competitive content at a fraction of the price of a typical cable or satellite bill, increase acquisition costs, and free consumers from being locked into a small number of service providers.

Broadcasters and some content creator groups may be comfortable with a highly regulated system that provides a steady stream of revenue, but the new environment creates a more competitive landscape and the promise of increased demand for new creative works. Viewed in that light, the shift toward a robust online video market should be welcomed by the CRTC with open arms, not viewed warily as a threat in need of regulatory intervention.

Last month, the University of Ottawa Press published The Copyright Pentalogy: How the Supreme Court of Canada Shook the Foundations of Canadian Copyright Law, an effort by many of Canada's leading copyright scholars to begin the process of examining the long-term implications of the copyright pentalogy. As I've noted in previous posts, the book is available for purchase and is also available as a free download under a Creative Commons licence. The book can be downloaded in its entirety or each of the 14 chapters can be downloaded individually.

The book includes two articles on technological neutrality, whose inclusion as a foundational principle  of Canadian copyright was a landmark aspect of the copyright pentalogy.  The message from the Court is clear: copyright law should not stand in the way of technological progress and potentially impede the opportunities for greater access afforded by the Internet through the imposition of  additional fees or restrictive rules that create extra user costs. Viewed in this light, technological neutrality as a principle within Canadian copyright may have the same dramatic effects on the law as the articulation of users’ rights did in 2004.


Carys Craig opens the technological neutrality part with a critical assessment of the significance of the principle and its potential to guide future development of copyright law and policy in Canada. Craig's chapter examines the various meanings that can be attached to technological neutrality, as a principle of both regulation and statutory interpretation. Craig offers a strong endorsement of technological neutrality as a guiding principle for Canadian copyright, arguing that its justification can be found in the oft-referenced need for balance in copyright. Her chapter emphasizes the importance of thinking of technological neutrality in a functional sense with the goal of shaping copyright norms that treat technologies in a roughly equivalent fashion in order to preserve the copyright balance in the digital environment.

Greg Hagen's discussion of technological neutrality considers its potential application to contentious copyright policy issues. For example, Hagen argues that the principle of technological neutrality  can be used to create new exceptions to the prohibition on circumventing technological protection measures (TPMs, often referred to as "digital locks") and to strike down some prohibitions (which make user rights subject to not circumventing a TPM) on the basis of a conflict with the rule of law. Hagen notes that anti-circumvention legislation favours incumbents over new market rivals, raising concerns about whether such rules meet the technological neutrality principle articulated by the Court. Indeed, Hagen suggests that courts should be empowered to establish new exceptions to the anti-circumvention rules in order to preserve technological neutrality.

As the future of the proposed Canada - European Union Trade Agreement becomes increasingly uncertain - the EU has been unwilling to compromise on the remaining contentious issues leaving the Canadian government with a deal that offers limited benefits and significant costs - the Trans-Pacific Partnership Agreement (TPP) is likely to emerge as the government's new top trade priority.

The TPP has rapidly become of the world's most significant trade negotiations, with participants that include the United States, Australia, Mexico, Malaysia, New Zealand, Vietnam, Japan, and Canada. There is a veil of secrecy associated with the TPP, however, as participants are required to sign a confidentiality agreement as a condition of entry into the talks.  Despite those efforts, there have been occasional leaks of draft text that indicate the deal could require major changes to Canadian rules on investment, intellectual property, cultural protection, procurement, and agriculture.

My weekly technology law column (Toronto Star version, homepage version) notes the Canadian government has adopted several measures to guard against leaks by departmental officials. According to documents obtained under the Access to Information Act, a November 2012 email to government officials noted that their access to TPP texts was conditioned on "Secret" level clearance, an acknowledgement that all texts are watermarked and can be traced back to the source, and confirmation that no sharing within government is permitted without prior approval.

While the government tries to stop potential leaks, the newly obtained government documents reveal that the Department of Foreign Affairs and International Trade has established a secret insider group with some companies and industry associations granted access to consultations as well as opportunities to learn more about the agreement and Canada's negotiating position.

Those documents indicate that the first secret industry consultation occurred weeks before Canada was formally included in the TPP negotiations in a November 2012 consultation with telecommunications providers. All participants were required to sign non-disclosure agreements.

Soon after, the circle of insiders expanded with the formation of a TPP Consultation Group created as part of the trade talks in New Zealand in December 2012. Representatives from groups and companies such as Bombardier, the Canadian Manufactures and Exporters, Canadian Agri-Food Trade Alliance, and the Canadian Steel Producers Association all signed a confidentiality and non-disclosure agreement that granted access to "certain sensitive information of the Department concerning or related to the TPP negotiations." 

This is not the first time DFAIT has tried to establish a secret insiders group that is granted preferential access to proposed treaty information not otherwise available to the public. During the Anti-Counterfeiting Trade Agreement negotiations, the department planned for a similar insider group - called a Trade Advisory Group - that initially included representatives from the music, movie, software, and pharmaceutical industries.  The plan was scuttled only after the department's intention became public.

While the need for business insight as part of trade talks is understandable, the two-tier approach raises serious concerns about the lack of transparency associated with Canada's global trade strategy. As the Canada - EU Trade Agreement has begun to founder, Canadian officials have become increasingly tight-lipped about the specific concerns associated with the agreement.  By contrast, European officials regularly update both elected officials and the general public. In fact, Europe has become the primary source for information about where Canada stands in the negotiations.

The creation of a secret TPP insider group suggests that the government is shying away from public consultation and scrutiny of an agreement that could have a transformative effect on dozens of sectors. With TPP negotiations set resume in Lima, Peru in less than two weeks, Canada should be increasing efforts to gain public confidence in the talks by adopting a more transparent approach.

Industry Minister Christian Paradis appeared before the Standing Committee on Industry, Science and Technology last week and was asked what he thought Canadians would say about wireless pricing. Paradis instead indicated what he would tell them:

I would tell them that when we compare with our peers, we are in the middle-average, we dropped down by almost 20% and this is a work in progress. We will continue. We are dedicated to have a fourth player and we will do whatever we can in terms of policy to achieve this. Frankly, so far time gave us reason.

If this is a work-in-progress, is the government prepared to do more?  Apparently it is, as Paradis also told the committee:

When you talk about the roaming and the tower sharing, we announced broader measures, and if we have to intervene more we will.  

Last week the University of Ottawa Press published The Copyright Pentalogy: How the Supreme Court of Canada Shook the Foundations of Canadian Copyright Law, an effort by many of Canada's leading copyright scholars to begin the process of examining the long-term implications of the copyright pentalogy. The book is available for purchase and is also available as a free download under a Creative Commons licence. The book can be downloaded in its entirety or each of the 14 chapters can be downloaded individually.

The first section of the book features three chapters focused on important administrative law questions about the standard of review as well as an attempt to place the Supreme Court's copyright jurisprudence within a larger context. With all five cases originating with the Copyright Board of Canada, the interplay between the Copyright Board and Canada’s appellate courts is at issue throughout the five cases, with two decisions - Rogers Communications Inc. v Society of Composers, Authors and Music Publishers of Canada and Alberta (Education) both specifically discussing standard of review issues.

Graham Reynolds provides a powerful endorsement of the Court’s decisions in his chapter, Of Reasonableness, Fairness and the Public Interest: Judicial Review of Copyright Decisions in Canada's Copyright Pentalogy. He argues that by failing to adopt a broad, liberal approach to fair dealing in Alberta(Education), the Copyright Board fell outside the range of acceptable outcomes. Therefore, as a matter of law, it was not open to the Copyright Board to reach the decision it did.  Given that conclusion, Reynolds maintains that Abella J applied a reasonableness standard of review in a manner consistent with prior cases.

The implications of Reynolds’ chapter extend to future fair dealing cases, as he notes that "one conclusion that we can draw from Alberta (Education) is that fairness (in the context of fair dealing) is not as discretionary a concept as it appears to be. Alberta (Education) and Bell clarify that the purpose of the Copyright Act requires a broad, liberal approach to fairness. By implication, then, fairness is not broad and open-ended; rather, it is infused with certain expectations with respect to the way in which it is to be applied (namely, in a large and liberal manner)."

Paul Daly is more critical of the administrative law implications of the decisions in his chapter, Courts and Copyright: Some Thoughts on Standard of Review, warning that there is a risk of confusion for lower courts. Daly is particularly critical of the Court’s refusal to accord deference to the Copyright Board. He argues that the Copyright Board is far more than a rate setting tribunal. Rather, it is the body "best positioned to identify and develop the underlying principles of the Act."

Daly's chapter also considers the administrative law implications of the decisions beyond intellectual property. He notes that lawyers are likely to try to extend the administrative law findings beyond intellectual property and, in so doing, will undermine the principle of deference in administrative law decisions.

Margaret Ann Wilkinson attempts to place the copyright pentalogy within the broader context of the Court’s jurisprudence in her chapter, The Context of the Supreme Court's Copyright Cases. She notes that copyright has assumed an increasingly important role within the Court’s docket, yet there has been relatively little scholarly attention paid to how copyright fits within the larger jurisprudence of the Court.

Wilkinson’s study brings together the copyright pentalogy and the five other copyright cases rendered over the past decade: Théberge (2002), CCH (2004), the Tariff 22 decision (2004), Robertson (2006), and the Toblerone decision (2007). Wilkinson traces the judges participating in these decisions, noting that there has been a steady evolution of which judges have participated.  Further, there are no discernable patterns among the common and civil law judges.  Wilkinson identifies the most active Supreme Court justices on copyright, with Abella J having written or co-written reasons for all but one copyright-related case since she joined the Court in 2004.

Copyright cases typically only reach the Supreme Court of Canada once every few years, ensuring that each case is carefully parsed and analyzed. As readers of this blog know, on July 12, 2012, the Supreme Court issued rulings on five copyright cases in a single day, an unprecedented tally that shook the very foundations of copyright law in Canada.  In fact, with the decisions coming just weeks after the Canadian government passed long-awaited copyright reform legislation, Canadian copyright law experienced a seismic shift that will take years to sort out.

I am delighted to report that this week the University of Ottawa Press published The Copyright Pentalogy: How the Supreme Court of Canada Shook the Foundations of Canadian Copyright Law, an effort by many of Canada's leading copyright scholars to begin the process of examining the long-term implications of the copyright pentalogy. The book is available for purchase and is also available as a free download under a Creative Commons licence. The book can be downloaded in its entirety or each of the 14 chapters can be downloaded individually. This is the first of a new collection from the UOP on law, technology and society (I am pleased to serve as the collection editor) that will be part of the UOP's open access collection.

This book features fourteen articles on copyright written by independent scholars from coast to coast. The diversity of contributors provides a rich view the copyright pentalogy, with analysis of the standard of review of copyright decisions, fair dealing, technological neutrality, the scope of copyright law, and the implications of the decisions for copyright collective management.

While I am honoured to have served as editor (and to contribute my own work on the shift from fair dealing to fair use in Canada), each contributor was granted total freedom to address whatever aspects of the decisions they saw fit.  There was no editorial attempt to prescribe a particular outcome or perspective. Indeed, the contributors differ in their views of the decisions and their support for the Court’s analysis and conclusions.
 
Contributions are grouped into five parts.  Part one features three chapters on standard of review and the courts.  Part two examines the fair dealing implications of the copyright pentalogy, with five chapters on the evolution of fair dealing and its likely interpretation in the years ahead.  Part three contains two chapters on technological neutrality, which the Court established as a foundational principle of copyright law. The scope of copyright is assessed in part four with two chapters that canvass the exclusive rights under the copyright and the establishment of new "right" associated with user generated content. Part five features two chapters on copyright collective management and its future in the aftermath of the Court’s decisions. I'll be writing more about the individual contributions in the days ahead and will provide more information on the plans for a conference on the copyright pentalogy being planned for the fall.

As Canadians focused last week on the aftermath of the Boston Marathon bombing and the RCMP arrests of two men accused of plotting to attack Via Rail, the largest sustained series of privacy breaches in Canadian history was uncovered but attracted only limited attention.  Canadians have faced high profile data breaches in the past - Winners/HomeSense and the CIBC were both at the centre of serious breaches several years ago - but last week, the federal government revealed that it may represent the biggest risk to the privacy of millions of Canadians as some government departments have suffered breaches virtually every 48 hours.

The revelations came as a result of questions from NDP MP Charlie Angus, who sought information on data, information or privacy breaches in all government departments from 2002 to 2012.  The resulting documentation is stunning in its breadth.

My weekly technology column (Toronto Star version, homepage version) notes that virtually every major government department has sustained breaches, with the majority occurring over the past five years (many did not retain records dating back to 2002). In numerous instances, the Privacy Commissioner of Canada was not advised of the breach.

Some of the most vulnerable departments are those that host the most sensitive information. For example, Citizenship and Immigration Canada suffered 161 breaches in 2012 - more than three per week - affecting hundreds of people. The department only disclosed the breaches to the Privacy Commissioner of Canada on five occasions.

Human Resources and Skills Development Canada famously suffered a massive breach last year - 588,384 individuals were affected - but less well known is that the department has had thousands of other breaches over the past few years. In 2007, a breach affected 28,651 people, yet the Privacy Commissioner of Canada was not informed and the department is unsure of whether the breach resulted in criminal activity.

Virtually no department has been immune to security breaches with nearly 100,000 individuals affected by breaches at Agriculture and Agri-Food Canada since 2008, almost 5,000 individuals hit at Fisheries Canada with no reporting to the Privacy Commissioner of Canada, and just under 200 breaches at the RCMP affecting an unknown number of people.

If a similar situation occurred involving a major Canadian bank, retailer, or telecom company, there would be an immediate outcry for tougher rules on mandatory disclosure of security breaches. Yet the federal government plays by different rules, with no liability and no legal requirements to disclose the breaches.

Successive federal privacy commissioners have urged the government to reform the badly outdated Privacy Act to at least hold government to the same privacy standard that it expects from the private sector. But those calls for reform have been repeatedly ignored.

Most recently, Privacy Commissioner of Canada Jennifer Stoddart identified twelve seemingly uncontroversial reforms, including strengthening annual reporting requirements by government departments, introducing a provision for proper security safeguards for the protection of personal information, and creating legislated security breach notification requirements. None of the recommendations have been implemented.

In fact, Canadian privacy failures dot the legislative landscape. Bill C-12, the Canadian private sector privacy bill intended to implement reforms that date back to hearings conducted in 2006 lies dormant in the House of Commons. A review of the private sector privacy law that was required by law in 2011 has seemingly been forgotten. Anti-spam legislation passed in 2010 and touted as a key part of the government's cybercrime strategy is stuck as Industry Minister Christian Paradis dithers on the applicable regulations.

No institution has greater access to the personal information of Canadians than the federal government. The public entrusts it to keep their information secure and to take all appropriate action should a security breach occur. The latest revelations indicate that the failure to live up to that trust is spread across virtually all government departments and to the political leaders that have failed to introduce much-needed legislative privacy safeguards. 

The Copyright Board of Canada has released a decision in which it admits to palpable error that resulted in a hugely inflated tariff. The case involved a tariff for SODRAC for reproduction of music works in cinematographic works for private use of for theatrical exhibition.  The Canadian Association of Film Distributors and Exporters had proposed a tiered tariff approach of a maximum of 2 cents per copy containing 30 minutes of music or more (less music would result in a lower tariff). The Copyright Board mistakenly established a tariff of three cents per copy, mistakenly treating three tiers as three cents. As the Board now notes:

CAFDE was seeking a rate of 2 cents per DVD copy containing over 30 minutes of SODRAC music; the Board's interpretation leads to royalties that are 15 times higher or even more.

While SODRAC argued that the Board could not correct its error, the Board concluded that it could noting that this resulted in palpable error. Moreover, since the erroneous Board decision actually resulted in higher tariffs than those even requested by SODRAC, it also concluded that procedural fairness was breached. The Board has now suspended the tariff and advised that will issue a new decision in the future.

Jesse Brown had an interesting post  yesterday that raised concerns about the prospect that the government might use mounting fears over cyber-bullying to re-start their failed lawful access legislation. While it is important to remain vigilant about the possibility of the re-emergence of Internet surveillance legislation, I think a more important signal suggests the bill really is dead (at least until after the 2015 election).

First, Bill C-30 actually did include a provision that could arguably be used to help address cyber-bullying. It wasn't the provisions involving privacy and surveillance, but rather the expansion of a Criminal Code provision on harassment. Section 372(3) currently provides:

Every one who, without lawful excuse and with intent to harass any person, makes or causes to be made repeated telephone calls to that person is guilty of an offence punishable on summary conviction.

The limitation to harassing phone calls would seemingly exclude instances of cyber-bullying. Bill C-30 would have made provision technology neutral:

Everyone commits an offence who, without lawful excuse and with intent to harass a person, repeatedly communicates, or causes repeated communications to be made, with them by a means of telecommunication.

It is therefore possible that we could see this provision re-surface without bringing back the surveillance provisions that raised concern across the country.

More notably, the government recently dropped lawful access from its national cyber-security strategy. The 2010 Cyber-Security Strategy telegraphed the intent to bring forward lawful access legislation with a commitment to introduce a bill:

• Requiring Internet service providers to maintain intercept capable systems, so that law enforcement agencies can execute judicially authorized interceptions;
• Requiring Internet service providers to provide police with basic customer identification data, as this information is essential to combatting online crimes that occur in real time, such as child sexual abuse
  

Yet earlier this month, the government released its Action Plan 2010-2015 for the Cyber-Security Strategy.  It removed all references related to lawful access including the commitment to legislation involving Internet service providers. Given that the document originates with Public Safety - the most ardent supporter of lawful access within the government - the removal of surveillance language provides a strong signal that it is not part of the legislative plan for the foreseeable future.

This week's CRTC mandatory distribution hearing has placed the spotlight on a fascinating disconnect between the Commission and the Canadian broadcast community. Despite months of telegraphing its intent to promote consumer choice over broadcaster revenues, the first two days of the hearing have featured repeated presentations from groups who have not gotten the message. CRTC Chair Jean-Pierre Blais could not have been clearer in a speech last October:

In our decision, we noted that consumers increasingly expect to be in control of what they watch. It makes sense that consumers and the distributors who serve them should have more flexibility in packaging choices. While we acknowledged the value of predictable revenues to the programming services, we decided that the days of guaranteed wholesale rates are over. Programming services cannot expect to remain completely insulated from the growing demand for greater choice by Canadians.

He followed that up in March by telling the production community that it "will need to compete, just like any other sector."

Despite the messaging, many of the groups seeking mandatory distribution evidently don't get it.

I wrote yesterday about the parade of failed broadcaster business models hoping to hit the jackpot with mandatory carriage, but it was an exchange between Commissioner Molnar and Sun News that best illustrates the disconnect:

Molnar: I just want you to tell me right now why you think it is fair and equitable that every Canadian cable subscriber should pay for you today.

Teneycke: Well, I think the simplest answer is I think it's the law in the sense that the Broadcast Act itself which is why we're here, it's why the CRTC exists, it's why the CBC exists and sort of the foundational core of all the rules around broadcasting and to have the privilege to have access to Canadians' homes and who is going to be distributing and who isn't.

Wrong answer. Despite some suggestions that the Broadcasting Act obligates the CRTC to order mandatory distribution for some channels, the provision in the law is very general. It merely states that the Commission may "require any licensee who is authorized to carry on a distribution undertaking to carry, on such terms and conditions as the Commission deems appropriate, programming services specified by the Commission."

It is therefore the CRTC that interprets the law and it falls to the applicants to demonstrate why their proposals fall within that interpretation. As Blais emphasized at the start of the hearing, the CRTC has set a very high threshold, providing yet another signal that broadcasters should not be relying on regulatory mandates:

Given its exceptional nature, the CRTC has set the bar very high for obtaining a mandatory distribution order on digital basic service pursuant to section 9(1)h). The CRTC’s policy requires that a service seeking such an order must clearly demonstrate its exceptional nature and that it achieves important public policy objectives under the Act.

Each applicant must therefore demonstrate, with supporting evidence, that its service:

• meets a real and exceptional need within the broadcasting system
• contributes in an exceptional manner to Canadian expression
• contributes in an exceptional manner to all the objectives of the digital basic service and specifically contributes to one or more objectives of the Act, and
• makes exceptional commitments to original, first-run Canadian programming in terms of exhibition and expenditures.

All four of these requirements must be met. Broadcasters have largely emphasized the fourth criteria, citing their commitment to Canadian content. Yet the CRTC requires far more. In a world of almost unlimited choice available through the broadcasting system and from unregulated Internet-distributed voices, it is worth asking whether any service can meet the standard of contributing in an exceptional manner to Canadian expression. The very definition of exceptional is to be the exception, uncommon or extraordinary. Given the ready availability of programming alternatives, few broadcasters will ever meet this standard.

The Sun News response was reminiscent of Bell's attitude in the Bell-Astral hearing, where the Commission was focused on the public interest and Bell paid scant attention to the issue. The Commission rejected the Bell deal and I suspect it will similarly reject the new proposals it has heard thus far (the big question will be about Starlight, the proposed Canadian movie channel that is better suited as an Internet-based Netflix competitor).

Indeed, the entire process feels dated as if a decade of disruptive technologies from YouTube to Netflix never happened. As I noted yesterday, the CRTC can and should use the high standard it has set within the law to put an end to the steady procession of poorly developed broadcast proposals that depend upon regulatory mandates for their very survival.

The Standing Committee on Access to Information, Privacy, and Ethics has released its study on privacy and social media. The report includes recommendations for new Privacy Commissioner guidelines. The NDP supplemented those recommendations with nine additional legislative proposals that include mandatory security breach disclosure, order making power for the Privacy Commissioner of Canada, and the inclusion of privacy issues as part of a national digital economy strategy.

The CRTC kicked off its two week broadcast hearing on mandatory distribution yesterday with a steady stream of proposals hoping to hit the jackpot by winning mandatory distribution (and guaranteed millions) from cable and satellite distributors. I've written (here and here) about why mandatory distribution should be dropped altogether, but yesterday's hearing provided the best evidence yet. CRTC Chair Jean-Pierre Blais started the hearing by making it clear that the Commission would establish a very high threshold - consistent with the Act - before forcing any Canadians to pay for channels they may not want. Over the course of the day, no one came close to meeting even a low threshold.

As the hearing veered from proposals backed by studies suggesting consumers weren't interested in their product to claims that broadcaster costs were "totally retarded", it became apparent that the mandatory distribution process is a last gasp for many failed, failing or never started broadcast proposals. The Commission heard from channels that broadcast distributors won't carry, that advertisers won't support, that few subscribers pay for, and that don't have any content (user generated content was the answer for two such proposals leading one Commissioner to ask why people wouldn't just watch YouTube). Even the Sun News Network, the headliner of the day, acknowledged that its complaints about undue preference by other distributors would not meet the legal standard, that it is already available to 70% of cable subscribers, and that Videotron, which shares the same parent company, has not placed the channel on basic service, even though it is seeking an order from the CRTC requiring everyone else to do so.  

No one wanted to acknowledge they could try competing in the marketplace for subscribers or could launch an unregulated over-the-top Internet-based service. Instead, the preferred model is to have the CRTC require millions of Canadians to pay for their service through mandatory distribution. All of this leads to a broadcast catch-22.  If consumers want your service, there is seemingly no need for mandatory distribution since there is the prospect for marketplace success.  If consumers don't want your service, forcing them to pay for it is rightly viewed as unfair (no matter what the Broadcasting Act might say about encouraging Canadian content).

The CRTC should use this hearing to put an end to this bad version of Regulatory Dragon's Den (with consumers' money at stake). For the new proposals, it should affirm that broadcasters need to convince consumers, not commissioners, that they have something worth buying. For broadcasters seeking renewal of mandatory carriage, it should send a message that the gravy train is over by rejecting price increases and limiting any renewal to three more years with notice that no further extensions will be granted. If the service is a necessary public service, the government should support it. If not, the market should decide. Either way, by the time Blais' term concludes in 2017, the CRTC should be out of the business of being the last hope for uncompetitive broadcast business models.

The federal government has responded to a question from MP Charlie Angus on privacy and security breaches by revealing that there have been thousands of breaches over the past decade. The stunning response acknowledges over 3,000 breaches that have affected over a million Canadians.

Last month, Jean-Pierre Blais, the chair of the Canadian Radio-television and Telecommunications Commission, delivered a much-discussed speech at the Canadian Media Production Association's annual conference. The CMPA is Canada's leading organization for the production of Canadian film and television programming and Blais' message was intended to both congratulate and challenge the industry.

On the congratulatory side, Blais noted the Canadian film and television production had a record year in 2012, growing by over $500 million over the prior year, by far the highest total and fastest growth in over a decade. Canadian television production led the way, increasing 21.3 per cent in 2011/12, for a ten-year high of just under $2.6 billion. Most of the increase was due to English-language programming, with fiction production growing by over 41 per cent.

Blais' challenge came in several forms, but my weekly technology law column (Toronto Star version, homepage version) notes the comment that attracted the most attention was his remark that "under my watch, you will not see a protectionist. I'm a promotionist." Most observers took the comment to mean that the CRTC will not focus on mechanisms such as Canadian content requirements and foreign restrictions as a means to advance Canadian culture.  Rather, with billions being spent on the creation of Canadian programming, it is better to concentrate on marketing and promotion of those works.

Yet there was a second comment that garnered less attention, but that may ultimately prove more important. After encouraging the industry to become more innovative and entrepreneurial, Blais warned "you will need to compete, just like any other sector."

That may sound unremarkable, but to an industry that has often focused on creating rather than competing, it represents a potential sea change.  

For example, most of the funding for the record amount of Canadian English-language television programming came from taxpayers and broadcasters, not the original producers of the content. According to Profile 2012, an annual report on the state of the industry, only ten per cent came from private funding such as production companies and private investors. Canadian distributors covered 18 per cent of the total costs, with foreign distributors kicking in an additional nine per cent.  

That still represents less than half of the total financing costs for Canadian English-language television programming. Federal and provincial tax credits provided the largest chunk of funding, covering 29 per cent of the cost, while broadcaster licence fees constituted another 25 per cent. The Canada Media Fund, which is jointly funded by the taxpayers and cable and satellite providers, covered the remaining ten per cent.

The notion of competing in the market should take centre stage this week as the CRTC conducts its hearing on whether Canadians who subscribe to cable and satellite television packages should be required to pay for channels such as Sun News Network and Starlight, a proposed all-Canadian movie channel. The regulatory process has been likened to winning the lottery, since channels selected for mandatory carriage are guaranteed millions in revenue regardless of whether Canadians watch or even want the channel.

The best approach would be to scrap the mandatory carriage rules altogether.  Instead, the Commission could require cable and satellite companies to offer all licensed channels to their customers. That would enable consumers to decide what they want to pay for and assuage broadcaster concerns that some distributors may withhold access to their programming altogether. 

That shift in approach would represent a significant change in Canadian broadcast policy, effectively establishing a framework that requires the industry to compete for subscribers. As CRTC Chair Blais would say, just like any other sector. 

Rogers Communications held its quarterly results call yesterday, leading to a question on its expectation with regard to an Industry Canada decision on its proposed acquisition of spectrum from Shaw. Industry Minister Christian Paradis has signalled his concern with the proposal. Perhaps hoping for a delay in the decision, Rogers indicated that it does not expect Industry Canada to decide until roughly September 2014 (or well after the spectrum auction later this year). According to Ken Engelhart:

The 5-year limitation period for Shaw to sell the spectrum to an incumbent does not come up until September of 2014. So I don't expect a decision from Industry Canada until September of 2014 or thereabouts. Obviously, it's very useful spectrum for us to provide LTE services, so if we're not allowed to buy it, we'll need to figure something else there.

When asked in a follow-up whether there wouldn't be some clarification of that prior to the spectrum auction, Engelhart responded that he did not expect that to happen.

Last October, the CRTC announced that it was taking action against two India-based companies for violating Canada's do-not-call list. The action against Pecon Software Limited was particularly noteworthy, as the Commission ordered a stop to the violations and payment of $495,000. Andrea Rosen, the CRTC's Chief Compliance and Enforcement Officer was quoted as saying that "foreign-based telemarketers have been put on notice that they must comply with our rules when calling Canadians."

The tough talk was welcome, but months later, the CRTC has struggled to get Pecon Software to pay up. Liberal MP Lawrence MacAulay asked the government to provide an update on the action and Canadian Heritage Minister James Moore provided the following update to the House of Commons on Friday:


Mr. Speaker, with respect to (a), the fine of $495,000 to Pecon Software Ltd., the Canadian Radio-television and Telecommunications Commission, CRTC, issued a notice of violation on October 2, 2012. In order to comply with international service requirements, the CRTC filed the documents with the Indian government’s Ministry of Law and Justice, the central authority for extrajudicial service of documents. The CRTC cannot proceed with these matters legally until Pecon Software Ltd. has been legally served. According to the Convention for Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, the Indian central authority is required to provide the CRTC with an affidavit attesting to the fact that they have legally served the documents to Pecon Software Ltd. The documents were received by the central authority in India on October 5, 2012.

The CRTC is now working with the Canadian High Commission in India to facilitate communications with the ministry and ensure the service of documents. Once the Indian ministry has attested to the fact that the documents have been served, Pecon Software Ltd. will have 30 days to pay the penalty or file representations with the CRTC.

In other words, more than six months after the CRTC filed the necessary documents in India, it is still not clear whether the company has even been served with them. That isn't the CRTC's fault, but it does illustrate the challenge of enforcing the do-not-call list against foreign telemarketers which may involve more bark than bite.

The debate over the state of wireless competition in Canada continues to rage. Last week, I appeared on CBC's The Current, as part of a 30 minute segment devoted to the wireless industry. The issue was also discussed during Question Period at the House of Commons, with Industry Minister Christian Paradis focusing on competition and consumers:

We want to enhance competition and investment in this country, and this is why we adopted this policy back in 2008 for the AWS spectrum. Let me say that the price went down by an average of 11% since then, and we will continue this way with the 700 megahertz spectrum. We launched consultation with the industry to make sure that we enhance competition and provide better choice and better rates for our consumers.

OpenMedia has an interesting post that takes a close look at the claim that the large Canadian geography is responsible for high cell phone prices. The post notes that coverage actually focuses on as little as 20 percent of the country.

The issue of spectrum transfers has generated considerable attention over the past few weeks as Industry Canada prepares to unveil a transfer policy in response to the proposed sale of spectrum by Shaw to Rogers. Industry Minister Christian Paradis has made it clear that he is uncomfortable with the proposed sale, acknowledging that the intent of the 2008 spectrum auction set aside was not to have the spectrum end up in the hands of incumbents. While the incumbents and their supporters are raising the concerns about market uncertainty and potential lawsuits, the reality is that the government's policy on the Canadian wireless market has been clear since 2007.  Despite the efforts of the CWTA and the incumbents to convince politicians and the public that Canada is a competitive market, the government believes more competition is needed.

The Conservatives' policy on wireless competition solidified in 2007, when Prime Minister Harper shuffled then-Industry Minister Maxime Bernier (who most believed was opposed to government intervention in the form of a set-aside or other measures) with Jim Prentice. Within months, Prentice unveiled the government's policy with the headline "Government Opts for More Competition in the Wireless Sector."  In case there was any lingering doubt about where the government stood, the release noted:

Recent studies comparing international pricing of wireless services show Canadian consumers and businesses pay more for many of these services than people in other countries. These services are key to strengthening the competitiveness of Canadian business.


In the years that followed, the government continued to support measures for greater competition - backing the Wind Mobile entry despite concerns about foreign financing ("The policy of our government is to encourage choice and competition in wireless and Internet markets. Ours was the government that set aside spectrum during the 2008 auction to allow new entrants to compete. New entrants mean more competition, lower prices and better quality services for Canadians.") and later relaxing foreign ownership restrictions for the smaller players in the telecommunications market ("the goals remain steadfastly the same: increased innovation, increased competition, better service and better prices for consumers").  More recently, it announced the next spectrum auction rules with caps on spectrum ownership designed to limit the ability of the incumbents to control all the newly issued spectrum.

Despite these measures, the policies have had only limited success. Prices have declined only modestly and the vision of robust competition from a strong fourth carrier remains a distant hope (though the situation may be better in Quebec with a stronger fourth carrier and more aggressive provincial regulation). Moreover, there is a sense that the new entrants may throw in the towel, cashing out to the incumbents and leaving Canada with higher prices and further reduced competition.

The responses to the recent consultation on spectrum transfer makes it clear that half-measures will no longer work.  Past efforts have included set-asides without fully addressing roaming and tower sharing; foreign investment without fully opening the market, or new spectrum with caps that do not allow for a robust competitor. The response to spectrum transfer issue suggests that the government should either go all-in or it should be prepared to declare that its policies have failed.

The incumbents are unsurprisingly opposed to further government policy measures. For example, Bell is most vociferous in its opposition as it is reluctant to even respond to Industry Canada's questions. It is opposed to a policy aimed at creating four competitors and believes that the government should encourage spectrum transfers for their most optimal use (never mind the hoarding and non-use of spectrum by the incumbents). Further, Bell is against any caps or other measures designed to foster greater competition.  Rogers is also opposed to a competitive assessment and spectrum concentration analysis. However, should the government implement such measures, it argues that it should only apply to future spectrum (thereby grandfathering its deal with Shaw).

On the new entrant side, the message is plain: either fix the competitive environment or we want out. The most obvious call for spectrum transfers comes from Mobilicity, which says the government must help to find ways to raise capital for future spectrum auctions or it should refrain from implementing any new rules on spectrum transfers. Wind Mobile and Public Mobile are more nuanced, focusing on the need for stronger policy measures to facilitate competition but making it plain that failure to do could lead to future spectrum transfers. Wind Mobile essentially says there should be no new restrictions on transfers until the government has addressed the competitive conditions in the Canadian marketplace. It points to four:

• the forthcoming spectrum auction rules will not allow non-incumbents to gain sufficient spectrum to support LTE
• non-usage of spectrum, such as in the case of Shaw, should be revoked and made available to the new entrants
• active regulation is needed to address high domestic roaming charges
• increased regulation is needed to deal with tower co-location

Public Mobile emphasizes some of the same issues, including the problems with the forthcoming 700 MHz spectrum auction (insufficient for a non-incumbent to develop an LTE network), the need for retaining set-asides in the AWS spectrum, and ensuring that all future spectrum auctions account for spectrum advantages held by the incumbents.

So where does that leave the Canadian government?

Following the incumbents' advice is a non-starter. For the past 5 1/2 years, the government has made it clear that it believes the Canadian wireless market is uncompetitive, resulting in high prices for consumers and businesses.  Given the ongoing competition concerns, doing nothing is not an option. That said, neither is maintaining the current approach of half-measures. It is time for the government to go all-in with all the policy levers aimed at fostering increased competition. That will require:

• complete removal of foreign investment restrictions
• stringent restrictions on transferring set-aside spectrum to incumbents
• future set-asides and limits in spectrum holdings by single entities (as is being discussed in the U.S.)
• enforcing use-it-or-lose-it rules on spectrum so that unused spectrum is reallocated
• enforceable measures on domestic roaming and tower sharing so that new entrants have a viable path to competitiveness
• increased CRTC regulation of consumer wireless issues
• encouraging the Competition Bureau to play a more active role in sector
  

The CWTA and the incumbents will scream, but the public will strongly support the measures. Industry Minister Christian Paradis said in March that the government "has worked hard to increase competition in the Canadian wireless sector." Unless Paradis is prepared to take further policy steps, the efforts of the past few years may soon be wiped out.

Soon after the publication of my column on the digital divide in Canada, I received the following email from a reader, who lives just north of Toronto (FWIW, I've received similar letters from people within the City of Ottawa limits). The reader reacts to both the lack of access and the efforts of Xplornet to stop the government from supporting communities without access. The letter ends with an important question: will the Standing Committee on Industry, Science and Technology take the time to hear directly from Canadians without access?  The full letter is posted below with permission.

My family lives in a rural subdivision north of Stouffville and east of Newmarket, ON.  We do not have access to broadband internet service except through the expensive satellite service to which you alluded in your article.  I have lobbied my representatives at all three government levels in hopes that they might be able to help provide service here........all to no avail.  At least my federal MP promised that the government was on the "cusp" of providing high speed internet service to our area.  I emailed back for a clarification of the term "cusp" and so far have not received a reply.  That was three years ago.

Xplornet Communications has been extremely aggressive in their marketing to sell high speed service in our area with flyers in the mail as well as door-to-door literature drop-offs.  However, due to topography and trees in our area, we are unable to "see" any of their towers, so even their service in unavailable to us.  It seems ironic to hear of their admonishment to the Standing Committee against the government's support to help areas like ours achieve what most Canadians take for granted, i.e., access to high speed internet.

Thank you for your article.  It has created a buzz amongst my neighbours.  We all thought we had just slipped through the cracks.  As a point of interest, I wonder if this Standing Committee actually includes anyone who does not have access to broadband?