Canada: Canada’s Telecommunications Policy Review Panel Releases Highly Anticipated Final Report

The Telecommunications Policy Review Panel, an independent Panel of experts appointed last year by the Government of Canada, has released its long-awaited report, which contains over 120 recommendations relating to the regulation, growth and development of Canada's telecommunications industry. The Panel's report touches on a number of issues relating to Canada’s telecom industry sector, including issues relating to economic, technical and social regulation, connectivity, information and communications policy, and Canada’s foreign ownership rules.

The Report concludes that Canada’s regulatory policies and legislative framework have served it well, however, this same framework is "one of the most detailed, prescriptive and costly regulatory frameworks" and is "particularly burdensome for Canada’s major telecommunications service providers who now face stronger competition in a number of market segments from well-established facilitiesbased rivals as well as from new entrants." The following is a summary of some of the Panel’s key findings and recommendations. 

The Panel has recommended a number of significant reforms to the way in which telecom services are currently regulated in Canada. For example, the Panel has proposed a series of reforms that are based on the principle that "the regulatory framework should rely on competition and market forces rather than on economic regulation to the maximum extent feasible."

The Panel has also recommended that greater emphasis be placed on ex post regulation as opposed to ex ante regulation. According to the Panel, "Canada has reached the point, for the vast majority of retail telecommunications markets, where the potential costs to the Canadian economy of continued regulation outweigh any real benefits." Among the Panel’s more significant recommendations on the issue of economic regulation are the following:

• The Telecommunications Act should be amended so as to remove the current presumption that all telecommunications services should be regulated unless the CRTC determines otherwise.

• Economic regulation should only apply if there is a finding that a service provider has significant market power (SMP).

• All forms of economic regulation should be applied symmetrically to all telecommunications service providers (TSPs) having SMP in any telecommunications market.

• There should be no prohibitions on price differentiation and targeted pricing unless they are part of a practice that is determined to be anti-competitive.

• Tariffs for services that are subject to regulation should automatically come into effect seven days after they are filed, unless suspended or disallowed by the CRTC.

• There should be a transition period of 12 to 18 months during which services that are currently subject to economic regulation should continue to be subject to such regulation until there has been an opportunity to examine whether there is SMP in the markets for these services.

• Control of anti-competitive conduct should be guided by competition law principles, suitably modified to take into account the specific features of the telecom services industry. A working group composed of representatives of the CRTC, the Competition Bureau and independent experts should specify the types of practices that could constitute abuse of dominance and develop guidelines for market definition and analysis of SMP.

• A working group composed of representatives of the CRTC and Competition Bureau should be established as soon as possible to develop recommendations on the definition of essential facilities and its application to today’s telecom markets.

• Owners of essential wholesale facilities should continue to make them available to competitors at regulated wholesale rates, but regulatory requirements to provide non-essential wholesale services or facilities should be phased out in order to provide increased incentives for innovation, investment and the construction of competing network facilities.

• Existing mandatory wholesale arrangements should remain in place for a three to five year transition period for most non-essential services and facilities except certain non-essential, colocation services which could be subject to a longer period given their typically high, one time costs. Once this transition period is over, only essential facilities and interconnection services should remain subject to mandatory access requirements and regulated pricing.

• In order to ensure that initial pricing under the Panel’s proposal is accurate, the CRTC should undertake a public review of its "Phase II" incremental costing methodology.

In order to ensure that competition law principles are applied to competitive telecommunications issues on a broad basis, the Panel has recommended the creation of a quasi-judicial regulatory authority called the "Telecommunications Competition Tribunal" or TCT which would have the same powers as those conferred on the CRTC under the Telecommunications Act and those conferred on the Competition Tribunal under the Competition Act.

The mandate of the TCT would expire after five years (unless there continues to be SMP in a substantial number of telecom markets) and should be composed of three senior members, namely: (i) the Vice Chair, Telecommunications, of the CRTC, (ii) the Commissioner of Competition, and (iii) a third member to be appointed by the Governor in Council, as well as expert staff drawn from both the CRTC and the Competition Bureau. The TCT should have exclusive jurisdiction to determine the following matters:

• Applications for deregulation of services in telecom markets.

• Complaints of anti-competitive conduct.

• Determinations on which services should be subject to mandated wholesale access services.

• Applications for re-regulation of services in telecom markets where SMP is alleged to exist.

• Reviews of mergers involving TSPs.

The Panel has recommended that resellers in the local telecom service market should be given the same regulatory rights and obligations as competitive local exchange carriers, provided that they assume all of the obligations of such carriers. At the same time, the Panel has recommended that the CRTC be given the power to directly regulate all TSPs, including resellers, rebillers and, presumably, Internet service providers (ISPs), but only in those areas where such direct regulation is warranted, such as in the application of social obligations (e.g., the provision of 911 service).

The Panel stated that a review of Canada’s telecom foreign ownership rules was "not specifically made part of its mandate". It nonetheless stated that it "sees significant merit in removing Canada’s current rigid and inflexible restrictions on foreign investment in telecommunications markets and replacing them with a more flexible regime that permits such investment where it benefits Canada and restricts investments that would not benefit Canada."

To this end, the Panel proposed that the federal government adopt a "phased and flexible approach" to the liberalization of foreign investment in TSPs that are not subject to the Broadcasting Act. Under this approach, liberalization would occur in two phases:

Phase I - In the first phase, the Telecommunications Act would be amended to give the federal Cabinet the authority to waive the foreign ownership restrictions on Canadian telecom carriers when it deems a foreign investment or class of investments to be in the public interest. During this phase, there would be a presumption that investments in any new start-up telecom carriers with less than 10% of the revenues in any telecommunications service market are in the public interest.

Phase II – In this phase, there would be a broader liberalization of the foreign investment rules that treats all telecommunications common carriers, including the cable telecommunications industry, in a fair and competitively neutral manner. This phase would take place after a review has been completed of Canada’s broadcasting policies and how such policies are being impacted by the technology and market trends that are transforming the telecom industry.

The Panel also examined the regulation of physical facilities and equipment used by TSPs in order to provide telecom services and networks. In particular, the Panel focussed on the resolution of disputes with respect to access to facilities, issues surrounding the interconnection of networks, spectrum policy and regulation, and the regulation of telecommunications equipment.

The Panel observed that disputes over access to facilities have increased over time, and that the mechanisms in place to resolve these disputes result in costly delays to the construction of networks and the provision of services. For example, TSPs may be forced to seek rights of access from other carriers, public utilities, provincial or municipal governments, or other federal government agencies. Given the potential range of parties involved, the panel noted that the CRTC does not always have the power to resolve disputes once they arise.

The Panel therefore made a number of recommendations that would place the ability to resolve disputes about access squarely within the jurisdiction of the CRTC and the federal government.

Specifically, the Panel recommended the following:

• The Telecommunications Act should be amended so as to clearly empower the CRTC to resolve disputes with respect to access, whether the disputes involve access to support structures, public property, antenna towers or multi-unit buildings.

• Amendments to the Telecommunications Act should provide the CRTC with the ability to enforce guidelines for access to these facilities.

Just as disputes over access to facilities can delay the delivery of service, issues related to interconnection can also be obstacles to competition in the provision of telecommunications services.

Many technologies, including new Internet-based applications, require the interconnection of telecom networks in order to function, and disputes often arise with respect to interconnection agreements. The Panel took note of the work of the CRTC Interconnection Steering Committee (CISC) in resolving interconnection-related disputes, however, in the opinion of the Panel, a number of concerns must be resolved in relation to the CISC process. For example, the Panel emphasized the need to resolve interconnection disputes in a timely fashion and encouraged the CRTC to provide appropriate staff resources to CISC in order to increase its effectiveness.

One of the areas where the Panel made significant recommendations for change is the area of spectrum policy and regulation. Currently, spectrum regulation and management activities fall under the mandate of the Minister of Industry, who is responsible for the development of regulatory and operational policies and process, granting licences for satellite and radiocommunication systems, enforcing spectrum-related regulations, and coordinating spectrum usage and radiocommunication standards with other countries.

However, in the opinion of the Panel, Canada has not been fast enough to adopt market-oriented approaches to spectrum management. The Panel specifically noted that Canada needs to move quickly to create a framework that encourages a strong and vibrant telecommunications industry in order to realize the full potential of mobile wireless technology, which it sees as a strong competitive alternative to broadband services. The Panel also noted the need to have a coordinated approach to spectrum regulation in light of the increased convergence of wireless and wireline telecommunications and broadcasting technologies (i.e. wireless IP services, mobile TV cell phones and satellite radio).

The Panel recommended a three-pronged approach to the transfer of spectrum licensing, management and enforcement functions from Industry Canada to the CRTC.

• Industry Canada should prepare a new spectrum policy that would provide the CRTC with clear direction in exercising its new authority to manage and regulate Canada’s radio spectrum. A number of principles should be reflected in this policy, including the establishment of market-based exclusive spectrum rights, the elimination of barriers to the development of secondary markets in spectrum, the continued use of spectrum caps to provide more opportunity for new entrants, and the streamlining and standardizing of licensing processes.

• Once Industry Canada has completed this new policy, authority to regulate Canada’s radio spectrum and to license its use should be transferred from Industry Canada to the CRTC.

• Finally, the CRTC and Industry Canada should work together on the transition and integration of spectrum regulation, and continue to cooperate on spectrum policy development.

In a similar vein, the Panel recommended that the regulation of technical equipment and devices, which is currently divided between the Governor in Council, the Minister of Industry and the CRTC, be consolidated into the CRTC after a review of the state of the regulation of telecommunications equipment is conducted by Industry Canada in order to eliminate any unnecessary regulation.

The Panel examined the issue of social regulation and the role played by regulatory policies and practices in implementing the social objectives of telecommunications policy. The Panel noted that, in order to be effective in achieving social policy goals, social regulation must complement the economic regulation of telecom services. The recommendations of the Panel are intended to respond to increased competition, changing technologies, and evolving telecom markets.

One of the major social objectives telecommunications policy is intended to promote is the provision of universal access to telecom services at affordable prices. Currently, the CRTC imposes an obligation on incumbent carriers to provide basic telephone service in non-competitive markets, including requiring individual line local service with touch-tone dialling, access to operator and directory assistance services and access to the local long distance network. However, only Bell Canada is statutorily obligated to provide this basic service. In order to address this inconsistency, the Panel recommended that the obligation of all incumbents to provide basic telephone service where they have available network infrastructure should be codified in the Telecommunications Act. The Panel also proposed a mechanism whereby an incumbent could be relieved of its obligation to serve with the permission of the CRTC.

The Panel concluded that current mechanisms in place to address complaints by individual consumers and small business retail customers about TSPs are intimidating and time consuming, and do not address complaints about TSPs not directly regulated by the CRTC. In light of the continued growth and ever-increasing complexity of telecom services, the Panel determined that a new agency is required to provide protection to individual consumers and small businesses.

This new agency, called the Telecommunications Consumer Agency, would be given a broad mandate to hear complaints by individuals and small business retail customers of any TSP, with respect to all services offered by them. The Agency would be an independent office funded by industry, and membership in the Agency would be compulsory for all TSPs. The Panel recommends that, while the Agency would initially play the role of mediator in disputes, it should be given the power to make decisions encompassing both monetary and equitable relief, ranging from requiring a TSP to issue an apology to awarding monetary compensation to a complainant.

The Panel noted a growing concern with respect to the blocking or degrading of consumer access to certain types of applications or content by ISPs. While it acknowledged that there are different and sometimes legitimate reasons why an ISP may block or degrade access to specific content, including national security, copyright, and limits on the technical capacity of some ISPs, the Panel emphasized the overriding importance of open access and the right of consumers to have the information required to make informed choices.

In order to maintain the objective of open access, the Panel therefore recommended that the Telecommunications Act be amended to confirm the right of Canadian consumers to access publicly available Internet applications and content of their choice by means of all public telecommunications networks providing access to the Internet. This amendment would take into consideration reasonable commercial limitations to providing open access and would be limited by constraints established in other areas of the law, including criminal, copyright and broadcasting law.

The Panel also examined the important role played by information and communications technologies (ICTs), such as computers, software, fibre optics and interactive video, in the economic and social growth of Canada. The Panel acknowledged that ICTs are changing the ways in which we conduct business, deliver government services, and interact with one another. By acting as the foundation for linking ICTs, telecom networks facilitate these changes and are a crucial factor in improving productivity and quality of life in this country.

However, following a detailed examination of the relationship between productivity and ICTs, which presented evidence supporting the conclusion that ICT investment leads to greater productivity, the Panel found that Canada’s investment in ICTs is average compared to that of other countries and that its productivity rate has fallen significantly in recent years. The Panel concluded that more needs to be done to realize the full potential of ICTs in Canada.

In order to ensure that Canada does not fall behind in the development and use of advanced networks and ICT applications, the Panel recommended the implementation of a national ICT adoption policy with the following six objectives:

• strengthening ICT adoption by Canadian businesses, particularly small and medium-sized enterprises;

• strengthening the links between ICT sector research and development and smart ICT adoption;

• enhancing ICT adoption by governments;

• promoting development of ICT adoption skills on a coordinated national basis;

• improving security, trust and consumer confidence in the online environment; and

• achieving ubiquitous access to broadband networks and services. The Panel emphasized that this strategy must be advocated by leadership at the highest level. In this regard, the Panel recommended the following:

• The Minister of Industry should be given the lead responsibility for developing and implementing a national ICT adoption strategy.

• The mandate of the Minister would also include the establishment of a National ICT Adoption Centre within Industry Canada to support the Minister’s ongoing work with the ICT Adoption strategy.

• The Minister should create an independent National ICT Advisory Council, composed of leaders from the private, public and not-for-profit sectors which could advise the Minister on a broad range of issues related to ICTs.

The Panel proposed a number of measures that could be taken by the federal government to provide support for a national ICT strategy. Among the proposed measures are the following:

• The creation of an ICT adoption tax credit for small and medium-sized businesses (SMEs).

• Offering expert support and advice to SMEs to help overcome obstacles to ICT adoption.

• Improving the quality and availability of data on the levels of federal government ICT research and development support for various technologies and industry sectors.

• Facilitating the interoperability of next-generation telecom networks by supporting and coordinating research and development efforts with respect to ICT infrastructure.

The Panel also emphasized that the government must take a leadership role in ICT adoption and, for example, should encourage the development and uptake of advanced ICTs through its procurement policies. Similarly, the Panel recommended that the government foster ICT adoption skills in a number of ways, including by encouraging the growth of an information technology-capable workforce.

Finally, the Panel examined the security and privacy issues related to ICTs, and encouraged the federal government to continue its existing efforts to protect Canadians’ privacy, personal information and computer security.

The Panel made a number of other recommendations related to policy-making and regulatory institutions. The changes proposed by the Panel are intended to achieve the following objectives:

• to better equip policy-making and regulatory institutions to implement the new policy and regulatory approaches proposed in the Panel’s report;

• to clarify the roles and relationships of these institutions; and

• to improve the effectiveness, timeliness, cost-efficiency, transparency and accountability of their operations.

In addition to the institutional reforms noted above, the Panel proposed specific measures to improve the policy-making process. In particular, the Panel recommended the following:

• The government should take a more active role in providing policy direction to the CRTC through amended procedures associated with creating new telecommunications policy.

• The government should be required to issue a public notice containing a proposed policy direction and the reasons for it and give the public a reasonable opportunity to comment on it before it issues the policy direction to the CRTC.

• The power of Cabinet to review individual CRTC telecommunications decisions should be repealed. While this power has been used relatively infrequently since its inception over a decade ago, its existence creates an extended period of uncertainty for parties affected by a CRTC decision, since the government can take up to a year to make a decision on a petition for review.

In addition, the Panel recommended significant changes to the CRTC itself, including reducing the number of commissioners from 13 to five members, and improving the recruitment practices for commissioners.

According to the Panel, while Canada can be proud of the regulatory process currently in place, changes should be made in order to improve the delivery of regulatory services. Some of the procedural reforms suggested by the panel include:

• Addressing inadequate enforcement and deterrence mechanisms by granting the CRTC authority to impose administrative monetary penalties and simplifying and clarifying the rights of civil action for damages.

• Reducing the complexity and opaqueness of CRTC telecommunications rules by requiring the CRTC to establish a regulatory code to provide a single, updated source of telecommunications regulatory rules.

• Replacing licensing regimes for basic international telecommunications services and for international submarine cables with simple registration requirements.

• Updating, reviewing and streamlining the CRTC Telecommunications Rules of Procedure.

Canada has a strong track record in the deployment of broadband facilities and infrastructure, however, the Panel noted that market forces will not, on their own, ensure the availability of these facilities throughout all areas of Canada. The Panel therefore recommended that the federal government "immediately commence a program to ensure that affordable and reliable broadband services are available in all regions of Canada, including urban, rural and remote areas, by 2010 at the latest." Specifically, the Panel recommended that:

• A specific targeted government subsidy program (called the "Ubiquitous Canadian Access Network" or "U-CAN" program) be established to ensure that broadband access is made available in areas where commercial operators are not providing service and are unlikely to do so. This new program should aim to complete the job of the Broadband for Rural and Northern Development (BRAND) program of providing ubiquitous broadband throughout all regions of Canada that the market is not likely to serve on its own by 2010.

• The budget allocation for the U-CAN program should be based on the projected costs of providing broadband connectivity to the remaining unserved areas of Canada. Subsidies should be provided by means of least-cost subsidy auctions for local access facilities and backhaul networks.

• The U-CAN program should be flexibly designed to meet the needs of communities that it serves and should not be used to promote the duplication of existing or planned network facilities.

• Network operators that receive U-CAN program funding should be required to provide transmission services to other local service providers who wish to serve the at rates that are discounted to reflect the subsidies received. Such operators should also be subject to additional conditions in order to ensure that their points of presence are open to other service providers on a fair and reasonable basis.

In order to implement its ambitious proposals, the Panel has recommended a two-phased approach which recognizes that legislative reform involves longer lead times than other types of reforms. Under this approach, the government would first publish a formal response to the Panel’s report which would announce the general policy approach it intends to pursue in the telecommunications sector, and map out is intended course of action regarding the Panel’s recommendations. This response would then be followed by the Panel’s two-phased approach:

Phase 1 – This phase would include the following initiatives:

• The issuance of one or more policy statements by the government that respond to and address the recommendations of the Panel’s report that do not require legislative change to implement and setting out the government’s commitments in the ICT sector.

• A broad policy direction to the CRTC, issued under s. 8 of the Telecommunications Act that addresses broad policy matters that the government wishes the CRTC to begin taking account immediately.

• The establishment of implementation working groups to begin the detailed groundwork that will assist in drafting new legislation and other reforms recommended in the Panel’s Report.

• An order issued under s. 14 of the Telecommunications Act requiring the CRTC to issue reports on issues identified by the Panel in its recommendations.

Phase 2 – This phase would involve legislative amendments to the statutes that govern the telecommunications sector, in particular, the Telecommunications Act, the Radiocommunication Act, the Canadian Radio-television and Telecommunications Commission Act, the Emergency Preparedness Act and the Competition Act. 

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