Canada: CRTC Establishes Rules for VOIP Services

Article by David Kidd, Gary Jessop and Sunny Handa, ©2005 Blake, Cassels & Graydon LLP

This article was originally published in Blakes Bulletin on Communications Law - May 2005

On Thursday, May 12, 2005, the Canadian Radio-television and Telecommunications Commission (CRTC) released its much anticipated decision regarding the regulation of telephone services offered using Internet Protocol (IP). Voice-over Internet Protocol (VOIP) telecommunications service has been gaining prominence worldwide as consumers and business users migrate their traditional circuit-switched telecommunications services to IP technology. The CRTC’s decision entitled "Regulatory Framework for Voice Communication Services using Internet Protocol" Telecom Decision CRTC 2005-28 (the VOIP Decision), establishes the regulatory framework for companies offering VOIP service in Canada. This decision confirms the CRTC’s preliminary position that VOIP service should be subject to the existing rules governing traditional telephony. Accordingly, the regulatory requirements for VOIP service providers will now depend on who is providing the service and what type of service is being offered. The VOIP Decision followed a lengthy process commenced by the CRTC in April 2004 which included a public consultation process.

As "peer-to-peer" (P2P) and VOIP services are already being offered by a multiplicity of service providers, the regulatory framework created in the VOIP Decision establishes important consumer safeguards in areas such as privacy protection. However, the VOIP Decision also limits the ability of the incumbent local exchange carriers (ILECs), such as Bell Canada, Telus and Aliant, to introduce new VOIP services in the market quickly and to respond to pricing and bundling initiatives of other service providers, particularly cablecos, in the ILEC incumbent service territory.

In its decision, the CRTC distinguishes between "peer-to-peer" (P2P) type voice services (P2P Service), involving calls made between two computers, from the more recently introduced communications services that permit a user to complete calls using a telephone (adapted for use on the Internet) by dialing a number and being connected to another person anywhere on the public switched telephone network (PSTN) (VOIP Service). P2P Service was found by the CRTC to be a retail Internet service and hence not to be regulated. However, VOIP Service will now be regulated in much the same fashion as traditional telephone service. The primary reason for the distinction is that VOIP Service allows a user to access the PSTN like traditional telephone service while pure P2P Service does not. In its decision, the CRTC takes a technologically neutral stance and instead focuses on the type of service being offered, rather than how it is being offered. As VOIP Service is substantially similar to traditional communications service, the CRTC has determined that it should be regulated in the same manner, i.e., that ILECs offering VOIP Services in their respective incumbent service territories will be subject to rate regulation.

A brief summary of the regulatory framework established by the CRTC for VOIP Service is set out below:

Under the new VOIP regulatory framework, VOIP Services offered by ILECs, such as Bell Canada, Telus, Aliant and MTS Allstream, will be treated as regulated local exchange services. This means that the ILECs must file tariffs with the CRTC and receive prior approval before offering VOIP Service in their incumbent territories. Competitors, such as non-dominant carriers, cablecos and resellers, will not be subject to any rate regulation for VOIP Services. In the event that an ILEC offers VOIP Service outside of its incumbent service territory, it will not be required to file tariffs for this service and it will be treated as a non-dominant carrier in that area. The CRTC established that the determining factor for in or out of territory VOIP Service is the area code and telephone number provided to the customer. If such area code and number corresponds to a location outside the ILEC’s incumbent service territory (i.e., providing an Alberta number to a Bell Canada customer located in Ontario), the VOIP Service will be considered to be provided out of territory and the out of territory ILEC can provide the service without rate regulation.

The VOIP regulatory framework does not make a distinction between VOIP Service offered over a managed IP network (i.e., only offered through a telephone company’s specific network) and VOIP Service that is access independent (i.e., can be used on any broadband network). VOIP Service offered by an ILEC in its incumbent territory will be rate regulated regardless as to how configured.

The CRTC confirmed its earlier decision that service providers, who are not Canadian Carriers (i.e., owners of telecommunications facilities), that provide VOIP Service are required to register with the CRTC as a reseller of telecommunications services. This means that Vonage and other VOIP Service providers, who are not Canadian Carriers, are now required to register as resellers as a condition of obtaining services from other telecommunications service providers.

The VOIP regulatory framework requires that the telephone listings of subscribers for VOIP Service appear in the local telephone directory where calls to and/or from the telephone number assigned to the subscriber are considered to be local calls, regardless of the geographic location of the subscriber’s service address (i.e., if the subscriber obtains a Toronto number, the directory listing would appear in the Toronto telephone directory even if the person’s address is in some other location).

The CRTC does not consider VOIP Services that access to and/or from the PSTN to be retail Internet service. As a result, VOIP Service offered by any service provider will be contribution eligible services. P2P Service is considered to be a retail Internet service and, as such, revenues for these services are not contribution eligible.

In 2001, the CRTC established a revenue-based contribution regime to subsidize residential local telephone service in high-cost rural and remote areas of Canada. Generally, telecommunications service providers with telecommunications revenues in excess of $10 million annually are required to contribute. This regime is similar to the Universal Service Fund administered by the Federal Communications Commission in the United States. In Canada, the contribution rate is currently 1.1% of telecommunications revenues earned, which rate is approximately 1/10^th the size of the similar rate in the U.S.

The CRTC expressed its continued concern that providers of VOIP Service may initially not be able to provide adequate privacy safeguards. Until the privacy issue is resolved, the CRTC is requiring all local VOIP Service providers to clearly advise subscribers or potential subscribers of such limitations. The CRTC stated that it expects all VOIP Service providers to provide privacy safeguards as soon as practicable.

In addition, the CRTC requires that all service providers offering VOIP Services are to implement Message Relay Service (for the hearing impaired) as soon as practicable.

It should be noted that there were two dissenting opinions by Vice-Chair Andrée Wylie and Commissioner Andrée Noël. In their view, VOIP Service constitutes retail Internet service and should not be regulated by the Commission.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.