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Competition Bureau is dead wrong on zero rating

Agency supports exempting internet services from data caps as long as no money changes hands.

net neutrality, net neutrality rules, net neutrality battles, competition bureau

Competition Bureau Doesn’t Understand Net Neutrality:

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Canada’s Competition Bureau is a lot of things, but broad-thinking is not one of them.

The government agency on Wednesday released its official position on the CRTC’s ongoing review of differential pricing in telecom services, and boy is it ever self-contradictory and dumb.

In plain English, the CRTC is wondering whether internet providers and wireless carriers should be allowed to exempt some uses of the internet from monthly data caps, but not others. It’s basically a question of whether Netflix will or won’t count against your caps, and whether Netflix can pay your ISP to get its service exempted.

In its submission, the Competition Bureau got it half right. It says that arrangements where content providers pay ISPs to exempt their services from caps should be prohibited, since that would harm competition, stifle innovation and raise prices for consumers:

“An example is where a partner company pays an ISP to allow customers to download the company’s services without having the download count toward the customer’s data limit. This could harm competition when the customer’s product choice is caused by the favourable partnership between the company and the ISP, rather than the superiority of the application. With the incentive removed for competing content providers to offer a superior product, product quality may decrease, and price may increase.”

An example of this sort of thing would be when Bell tried to exempt its own video services from customers’ caps in exchange for $5 a month. Bell was obviously benefiting in several ways at the expense of competing services, which is why both the CRTC and a federal court shut it down.

Where the bureau steers wrong is in supporting differential pricing where money doesn’t change hands between content providers and ISPs. “The Bureau found that competition is not likely to be harmed when ISPs do not receive a financial benefit from content providers for differential pricing.”

An example in this case is what Videotron has been doing with its Unlimited Music service, where any music streaming service doesn’t count against user caps, so long as it has been approved by the carrier. As far as anyone knows, Videotron isn’t getting paid to exempt any such services.

Telecom industry executives quickly applauded the Competition Bureau for “getting it:”

In point of fact, the bureau doesn’t get it. Differential pricing – otherwise known as zero rating – may appear on the surface to be beneficial to consumers, but you don’t have to dig much deeper to realize it has the potential and even likelihood of being harmful.

Numerous commentators have criticized Videotron’s zero-rating music, for example, for only including streaming services such as Spotify and Songza.

The data-free option does not extend to online radio stations or any other form of audio streaming, which seems to have anti-competitiveness written all over it. In other words, it’s more expensive to use online radio than a streaming app, solely because of an arbitrary decision by Videotron. It’s shocking the Competition Bureau doesn’t see that.

Moreover, allowing ISPs and wireless carriers to choose which services to exempt from data caps – even without any financial considerations – inevitably makes it harder for non-chosen services to arise and compete.

Netflix may get exempted, for example, but what about an as-yet unformed competitor to Netflix that aims to offer the same service, but better in some way?

Without similar data usage exemptions, such a service will be more expensive for consumers to use – a definite competitive advantage for established players.

How is that anybody – especially an agency whose sole purpose is to ostensibly safeguard competitive marketplaces – doesn’t get this?

The best competitive option is to ban zero rating entirely, because that will force ISPs and carriers to compete on how much overall data usage they offer customers, which will inevitably nudge caps upward.

Allowing them to reinforce their artificially imposed limits, as the Competition Bureau suggests, is utter folly.

3 Comments on Competition Bureau is dead wrong on zero rating

  1. The zero rating of unpaid content is anti-competitive in an even more harmful way if the existence of independent ISPs as an important competitive option matters to the Bureau. ISPs like VMedia are already facing the bite of zero-rating where telcos effectively don’t count their IPTV services against their internet customers’ usage. VMedia pays dearly for the bandwidth it provides to its subs to watch TV and and cannot zero-rate the TV usage, which already gives a competitive advantage to the telcos.This would be exacerbated if the telco or cableco for that matter would be able to offer all Netflix or Youtube viewing at essentially no cost, creating a significant pricing advantage for themselves, as they pay far less for their bandwith than they charge ISPs for it on a “wholesale” basis.This would also make their capped packages far more valuable to the consumer, depriving ISPs of their main differentiator, unlimited internet at capped prices, again because the ISPs would not be able to write off the zero-rated usage.Without a level playing field in the cost of bandwidth between the incumbents and the ISPs, zero-rating for any content paid or otherwise is an anti-competitive club which will inevitably harm consumers by denying them a meaningful choice in their internet services.

  2. marc handfield // July 3, 2016 at 12:14 pm // Reply

    Neither the CBC article (where I found out about your site) nor yours distinguishes the fact we are not talking about “net neutrality”, but in fact, “mobile net neutrality”. Or, as here is the case, the mixing of the two. There is a difference. Also, Videotron’s offer only applies to their premium phone plans, that is the higher cost ones. They currently offer something like 14 apps (including Spotify, etc) of which Stingray is available in all its forms as free cable service including radio stations.

    A point can be made for the offering of radio signals when these other phone apps are offered, by the simple manner of major cell phone ISP’s opening their restriction on fm stations. Most phones today have the capability to broadcast, but are blocked.

    Please do not cloud the issue. Commentators and writers must learn to distinguish between regular internet and mobile internet. Nothing is free. To continue on this path that we can have everything on our mobiles for the asking without giving up something is wrong. The fear-mongering about so-called start ups being unable to compete should not be the only reason. After all, we constantly see and hear about companies growing and moving into realms of others in order to compete. Netflix is a prime example. Canada now has Crave and Shomi.

    As to the effect on smaller ISPs who do not offer phone plans, they exist to caterer to 2 basic groups, those that want cheaper internet plans and the second group that wants cheap “unlimited” plans. Neither of these groups make decisions because of free streaming.

    As the saying goes, you are mixing apples and oranges. Regular internet and mobile internet.

    • Peter Nowak // July 3, 2016 at 4:12 pm // Reply

      You haven’t really distinguished the difference between the Internet and the mobile internet, at least not as it pertains to this issue. You’re right that nothing is free, but that’s why subscribers pay their monthly fees. In Canada, those fees happen to be the highest in the world. Also, it’s great Netflix has competitors, but those are from giant, well-funded companies who also happen to own the pipes through which people stream.

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