CRTC gets frosted at Kellogg's over email violations

David Elder

In the fifth, and most recent, enforcement decision relating to compliance with Canada’s Anti-Spam Legislation, the CRTC has announced that Kellogg Canada has voluntarily entered into an undertaking respecting alleged non-compliance, which includes payment of $60,000 in penalties.

The undertaking resulted from an alleged failure to obtain consent from recipients prior to sending commercial electronic messages.  The alleged violations apparently occurred over an 11-week in late 2014.

As with previous undertakings announced by the CRTC, the summary produced by the CRTC includes few details about the alleged non-compliance, such as whether the company sent messages without obtaining consent, failed to meet form requirements in collecting consent, or was unable to prove the existence of an existing business relationship that would give rise to implied consent.

Interestingly, the CRTC summary does note that the messages in question were allegedly sent by “Kellogg and/or its third party service providers”, and that Kellogg undertook to comply with CASL and its Regulations, and to “ensure that any third party authorized to send a commercial electronic message on its behalf” did the same – suggesting that the alleged violations may have stemmed, at least in part, from the activities of a third party service provider.  This, in turn, raises important – but unfortunately, unanswered -- questions about how penalties are assessed in such circumstances, and the extent to which due diligence in vendor selection and procurement arrangements might impact liability for non-compliance under CASL.

The central prohibition in CASL relating to commercial electronic messages does refer explicitly to those sending such messages, as well as to those causing or permitting such messages to be sent; accordingly, the law appears to apply to both marketers and the service providers that may be retained to send marketing messages on their behalf.  Organizations would be well advised to choose third party vendors carefully, and to impose clear contractual and process requirements on such vendors to help avoid potential non-compliance.

CRTC partners with global agencies to enforce spam and telemarketing rules

David Elder - 

The Canadian Radio-television and Telecommunications Commission (CRTC) has announced that it has signed a memorandum of understanding with 10 domestic and global enforcement agencies to aid in the enforcement of spam and telemarketing laws.  However, while the announcement is certainly a step in the right direction, many of the countries that produce the most spam were not at the table.

The agreement is intended to promote cooperation between the various enforcement agencies, and includes commitments by each signatory to share information and intelligence regarding unsolicited communications, where permitted by the laws of its jurisdiction.  

For its part, in Canada, s. 60 of Canada’s Anti-Spam Legislation permits the government, the CRTC, the Office of the Privacy Commissioner of Canada (OPC) and the Commissioner of Competition to share information with foreign governments and agencies with respect to investigations and enforcement activities relating to foreign laws that address conduct that is substantially similar to conduct prohibited under Canadian laws regulating unsolicited telecommunications and commercial electronic messages.

In addition to the involvement of the CRTC and the OPC, the memorandum was signed by 9 international agencies, from the U.S., Australia, the Netherlands, the UK, Korea, New Zealand and South Africa.

Each of the signatories to the new MOU is a member of the “London Action Plan” (LAP), a global organization created to promote international spam enforcement cooperation and address spam related problems, such as online fraud and deception, phishing, and dissemination of viruses. 

Interestingly, while all signatories are members of the LAP, not all LAP members have signed on to this latest memorandum -- in fact, only about one third of LAP members have signed on.  More significantly, absent from the list of signatories are regulatory agencies from 8 of the Top 10 Worst Spam Countries, as compiled by the Spamhaus Project, an international organization that tracks spammers and spam-related activity.

The CRTC has previously entered into similar agreements with the Commissioner of Competition and the OPC, and most recently, announced the signing of an agreement with the U.S. Federal Trade Commission and Federal Communications Commission respecting mutual assistance in the enforcement of laws on commercial email and telemarketing.

Enforcement agencies, including the CRTC, face many challenges in investigating and enforcing unsolicited communications laws where the alleged perpetrators operate from outside of Canada, necessarily requiring the cooperation of local regulatory and enforcement authorities.  Some feel that as a result, CRTC enforcement activity disproportionately focuses on known and legitimate domestic companies, many of whom are trying to comply with the rules, rather than on rogue international operators, whose campaigns often have fraudulent objectives.

Hopefully, these new information and intelligence sharing arrangements will assist somewhat with the CRTC’s international enforcement challenge, although the effectiveness of the initiative will be frustrated by the absence of a majority of the biggest spam-producing countries.

CRTC shows great interest in US-based robocaller offering low credit card rates - $145,000 fine imposed

David Elder -

For the second time in a month, the CRTC has imposed a penalty against a foreign telemarketer.

In the most recent case, an administrative monetary penalty of $145,000 was issued against Arizona-based Rainmaker Marketing/Maple Accounting for making unsolicited telemarketing calls pitching lower credit card rates.

The calls violated the Unsolicited Telecommunications Rules by making unsolicited telemarketing calls Canadians whose numbers were registered on the National Do Not Call List.  In addition, the company did not display its originating telephone number, nor provide a local or toll-free number where it could be reached.  Finally, the company failed to register with and subscribe to the National Do Not Call List before making the calls in question.

As was the case with the $200,000 fine levied earlier this month against a US-based telemarker, the CRTC worked again with the US Federal Trade Commission (FTC) and the Canadian Anti-Fraud Centre, an organization jointly managed by the Royal Canadian Mounted Police, the Competition Bureau and the Ontario Provincial Police.  However, unlike that earlier case, the FTC has apparently not yet issued its own decision on the case.

This most recent decision further demonstrates that foreign-based telemarketers are equally subject to Canadian telemarketing rules, and may be held to account for non-compliance.

First blood: CRTC imposes $1.1 million fine in first ever finding under anti-spam law

David Elder -

Eight months after Canada’s Anti-Spam Law (CASL) came into force, the Canadian Radio-television and Telecommunications Commission (CRTC) has made public its first ever finding of non-compliance with the Act, issuing an administrative monetary penalty of $1.1 million against Compu-Finder, a firm that provides training and consulting services.

Surprisingly, this much anticipated enforcement action was not against a firm targeting consumers, as many had suspected, but rather was directed at a firm sending email messages to businesses to promote various training courses related to topics such as management, social media and professional development.   It is believed by many that the overwhelming majority of the more than 250,000 complaints received by the CRTC since the law came into force have been from consumers.  In the case at hand, the CRTC indicated that over one quarter of all complaints about the training industry sector received by the Spam Reporting Centre related to Compu-Finder, although it is not known how many complaints were received.

Following an investigation, the CRTC’s Chief Compliance and Enforcement Officer found that Compu-Finder sent commercial electronic messages without the recipient’s consent, as required by law, as well as sending commercial electronic messages in which the required unsubscribe mechanisms did not function properly.   

The CRTC’s media release also indicates that the messages in question were sent to electronic addresses the company found by scouring websites.  To the extent that these addresses were collected by a computer system, such collection and use may also be contrary to the Personal Information Protection and Electronic Documents Act, pursuant to consequential amendments to that law that were made by CASL, meaning that the company’s behaviour could also be the subject of complaints to the Privacy Commissioner of Canada.

While well below the maximum $10 million per violation that the CRTC may impose, the size of the penalty is considerably higher than the vast majority of penalties the CRTC has issued under the Unsolicited Telecommunications Rules, which apply to unsolicited voice and fax communications, and which carry maximum penalties of only $15,000 per violation

The penalty imposed against Compu-Finder is also notable for two other reasons: first, because it apparently relates to just four violations.  Even if each of these violations were to involve individual training offers sent to thousands of recipients, the decision suggests a somewhat aggressive approach to determining appropriate penalty amounts.  Second, each of these violations occurred between July 2, 2014 (the day after the Act came into force) and September 16, 2014, suggesting that, contrary to the expectations of some, it would appear that the CRTC is showing little leniency in the early days after the law came into force.

The CRTC has indicated that a number of other investigations under CASL are currently underway, but no other Notices of Violation have been made public to date.  The Commission has also noted that it is working with its international partners with respect to enforcement of the Act, suggesting that non-Canadian senders of electronic messages may also be the subject of future enforcement action.

Eastlink and Bruce Telecom abandon $26.5M merger amid Competition Bureau concerns

Megan MacDonald and Erica Lindberg -

On August 15, 2014, the Competition Bureau (the Bureau) announced that Bragg Communications Inc. (Eastlink) and Bruce Telecom had terminated an announced merger, which would have resulted in the acquisition of Bruce Telecom (the incumbent telecommunications provider for a large portion of Bruce County, Ontario) by Eastlink (a privately-held company that owns and operates cable systems across Canada), for a purchase price of C$26.5 million.

Eastlink’s decision to terminate followed a review by the Bureau’s Mergers Branch, pursuant to which the Bureau concluded that the acquisition would likely have resulted in a substantial lessening or prevention of competition in the towns of Port Elgin and Paisley, Ontario, where Eastlink and Bruce Telecom are the only current providers of wireline telecommunications services. Although the merger did not meet the thresholds for notification to the Bureau, it was brought to the Bureau’s attention as a result of several consumer complaints.

Both Eastlink and Bruce Telecom are facilities-based providers of wireline telephone, broadband internet, and television services in Bruce County, who also offer bundles of telephone, television and/or wireline broadband internet services. Eastlink owns and operates more than 500 cable systems across Canada, and was a successful participant in Industry Canada’s 700MHz spectrum auction, which took place earlier this year. Bruce Telecom is a small operator owned by the Municipality of Kincardine and has been providing telecommunications services for a large portion of Bruce County for over 100 years.

In response to the Bureau’s announcement, the Municipality of Kincardine immediately issued a statement contesting that the agreement had been terminated and seeking a correction from the Bureau. The Municipality stated that it had not decided to abandon the transaction, nor had it been notified or consulted in connection with the Bureau’s announcement.

Prior to issuing a Position Statement on August 19, 2014, Bureau spokesperson Phil Norris indicated that the Bureau would not be issuing a correction as it had been advised by Eastlink that Eastlink had decided to abandon the deal. On August 14, 2014, just prior to the Bureau’s initial announcement, the Municipality of Kincardine had issued a public statement contesting the findings of an investigator to whom it had referred a complaint regarding certain closed meetings held in connection with the proposed sale; a public meeting planned for August 27 to address potential public concerns arising from those closed meetings was ultimately cancelled.

In the Bureau’s August 15 announcement, the Commissioner of Competition, John Pecman, said of the Bureau’s review: “[…] Eastlink’s acquisition of Bruce Telecom would have likely resulted in higher prices and fewer choices for the supply of telecommunications services to the residents of the towns of Port Elgin and Paisley. In the absence of the dynamic rivalry that exists between Eastlink and Bruce Telecom, customers would also have been deprived of the benefits of innovation in their telecommunications services.”

As described in the Bureau’s Position Statement, in considering whether the transaction would be likely to lead to a substantial lessening of competition, the Bureau’s analysis focused on two relevant product markets: a market for wireline broadband internet services; and a market for bundles. The Bureau found that there were no close substitutes for the unique consumer benefits offered by bundling services. With respect to substitutes for wireline broadband internet services, wireless telecommunications services were found not to offer a close substitute for several reasons, including cost and speed differences. Although the Bureau considered the potential for entry by other competitors, it concluded that new entry would be unlikely due to the high costs of establishing a presence in the business and the low population densities of the areas in question.

The decision comes amid a time of regulatory uncertainty for telecommunications providers. In recent years, the Canadian Radio-television and Telecommunications Commission (“CRTC”) has been hesitant to take steps to curb or regulate the rapid evolution of “new media”, spurred by the growth of the mobile television broadcasting industry and by a desire among consumers for greater choice in television services. These changes resulted in the launch of the CRTC’s “Let’s Talk TV” campaign, a consultation process through which the CRTC has sought input from Canadians in connection with a formal review of the Canadian television broadcasting system. The CRTC is also currently undertaking two related proceedings examining the level of competition for wholesale mobile wireless services and the potential for regulatory reform. A public hearing in connection with the CRTC’s wholesale mobile wireless services review is scheduled for September 29, 2014.

Almost one year ago, on September 23, 2013, the Bureau entered into a Letter of Agreement with the Chairman and Chief Executive Officer of the CRTC, seeking to establish a framework for cooperation in the delivery of the organizations’ respective mandates.  More recently, in its first ever Annual Plan, released on May 5, 2014, the Bureau identified among its priorities for 2014 and 2015 the encouragement of competition in regulated sectors and the continuation of its advocacy efforts on telecommunications and wireless issues. In pursuing these goals, the Bureau noted that it would engage in strategic interventions and make submissions to the CRTC, as appropriate, over the year to come. In fact, the Bureau had already made four submissions to the CRTC between February 2013 and the release of its 2014-2015 Annual Plan and has since made additional four submissions, demonstrating its commitment to these advocacy goals. According to the Bureau website, prior to February 2013, the Bureau had not made public submissions to any regulator since 2008.

In light of the above, telecommunications companies considering mergers or acquisitions, regardless of size, or other activities of potential interest to the Bureau, should be aware that the Bureau will likely continue to take an active role in the regulation of the telecommunications sector and that increased cooperation between the CRTC and Bureau is to be expected.

Commissioner of Competition makes submissions to CRTC regarding wholesale wireless roaming arrangements

Michael Laskey -

On January 29, the Commissioner of Competition made submissions to the CRTC in connection with the its ongoing public proceeding examining whether incumbent wireless carriers are unjustly discriminating, or demonstrating undue preference, with respect to wholesale mobile wireless roaming arrangements.

Wholesale roaming arrangements allow the subscribers of one wireless carrier to utilize the wireless network of another carrier in areas in which the former carrier does not operate a network. In this way, roaming agreements allow carriers without fully-developed Canadian networks (for example, U.S. carriers and new wireless entrants) to offer their customers nation-wide coverage by “piggybacking” where necessary on the network of a more developed carrier.

After a fact-finding exercise in mid-2013, the CRTC determined that some Canadian carriers were charging significantly higher rates in wholesale arrangements with other Canadian carriers (i.e., new Canadian entrants such as Wind Mobile and Mobilicity, which compete with the other Canadian carriers) than in their arrangements with U.S. carriers. The CRTC launched a public proceeding on December 12, 2013.

According to the Commissioner’s comments, the Competition Bureau believes that incumbent carriers (i.e., Rogers, Bell and TELUS) have market power in the provision of retail wireless services, and “therefore have an incentive to enact strategies to protect their market power by ensuring that entrants are not, and do not become, fully effective competitors.” The Commissioner states that imposing “supra-competitive roaming rates” on competitors can result in the elimination of those competitors (either by excluding them from a market entirely, or by raising their costs and preventing them from competing).

The Commissioner also criticizes a report by Jeffrey Church and Andrew Wilkins of the University of Calgary which concludes that no “competition problem” exists in mobile wireless services in Canada; the report also argues that government intervention is not necessary and is likely to be unsuccessful and inefficient. The Commissioner alleges that the report’s analysis does not support its conclusions.

Finally, the Commissioner argues that wireless carriers have engaged in “differential treatment” which should be regarded as unfair or undue, and which could result in the elimination of a source of competitive discipline. The Commissioner states, in the abstract, that if the CRTC is faced with a choice of remedies in which one option goes too far and the other not far enough, it should opt for the former remedy. (This statement is supported with a reference to a decision interpreting the merger provisions of the Competition Act, rather than the Telecommunications Act.)

While the conclusions outlined in the Commissioner’s submission are far-reaching, the submission does not set out evidence and analysis in support of many of them. More importantly, the Bureau’s submission does not go on to consider potential remedies – perhaps leaving this to the CRTC, as the regulator in the area.

The Commissioner’s comments were submitted to the CRTC as part of the “public comment” process (which ended on January 29), and also pursuant to section 125 of the Competition Act, which authorizes the Commissioner to make representations to government bodies (including the CRTC) in respect of competition whenever such representations are relevant to a matter before the body. This provision had fallen into disuse since 2009, but has now been used twice by the current Commissioner to make submissions before the CRTC.

In the next stage of the CRTC process, parties will have until February 10, 2014 to submit replies to the public comments. Stay tuned – wirelessly or otherwise – for further developments.

CRTC guidance on check-boxes for e-marketing likely to tick off business community

David Elder -

Although the date on which Canada’s Anti-Spam Legislation (CASL) may come into force is uncertain, the CRTC has issued two bulletins that provide guidance as to how to comply with the new law, once proclaimed in force.

But while some of the new guidance is helpful, other provisions will likely create significant operational concerns for businesses.

The Commission is the body charged with oversight and enforcement of most provisions of the new law, including the core provisions respecting commercial electronic messages (CEMs), alteration of transmission data and the installation of computer programs.  In addition, the CRTC has the power to make regulations under the Act with respect to certain matters.

As we noted previously, the CRTC registered its Electronic Commerce Protection Regulations (CRTC) in March of 2012, providing additional clarification of these new regulations in a subsequent Regulatory Policy.

The first of the new Compliance and Enforcement Bulletins provides further, and in some cases helpful, guidance on the interpretation of these Regulations, such as providing details on acceptable unsubscribe mechanisms for each of email and SMS messages, including visual mock-ups of acceptable approaches.

However, the Bulletin also indicates that the Commission considers that, where included in general terms and conditions of use or sale of a product or service, requests to send commercial electronic messages, alter transmission data or download computer programs must be obtained through separate positive affirmations of the user, such as the proactive checking of a tick-box to signify consent to each of these actions, in addition to the acceptance of other contractual terms or an organization’s privacy policy. 

Most problematically, in a second Compliance and Enforcement Bulletin, the CRTC seems to be ruling out default settings that favour consent, even where the user can uncheck a box to exercise their choice (a process that the Commission refers to as “toggling”) and where the user does provide a positive affirmation to a set of terms or an agreement.  The following example, included in the Bulletin, shows that even where the pre-checked box and related consent is featured prominently, and is adjacent to a button that the user must pressed to signify agreement to a contract, the CRTC will not consider this to be valid consent to the receipt of CEMs under the anti-spam law.

Another area of likely concern for businesses relates to CRTC guidelines respecting the collection of oral consent, a form of consent which is explicitly authorized by the Electronic Commerce Protection Regulations (CRTC).  The Bulletin suggests that in order to be able to discharge the onus of proving that it obtained oral consent, a business would have to have that consent verified by an independent third party or retain a complete and unedited audio recording of the consent.

We would note that, while these methods may work where consent is collected by telephone, through a call centre, they would create significant operational problems where consent is collected during a face-to-face interaction, such as might commonly occur at point of sale.

While the Bulletins do not have the force of law, they do provide a clear indication of how the CRTC will interpret the law and regulations that is charged to enforce.

 

CRTC reaffirms competitiveness of mobile wireless industry, even as it plans new wireless consumer code

David Elder -

The Canadian Radio-television and Telecommunications Commission (CRTC) has denied requests by consumers, consumer groups and some new entrants to re-regulate retail and wholesale wireless services generally, finding that competition in the mobile wireless market continues to be sufficient to protect the interests of users with respect to rates and choice of competitive service provider.

The finding, in Telecom Decision CRTC 2012-556, followed a public proceeding to consider whether the conditions of forbearance in the Canadian wireless market had changed sufficiently to warrant CRTC intervention with respect to retail mobile wireless data and voice services. That proceeding was triggered by an application by consumer groups to prohibit certain billing practices by wireless service providers, as well as an application by wireless service providers for the Commission to establish a uniform national consumer code for wireless services.

In its decision, the CRTC indicated that it would establish such a national consumer code, initiating another public proceeding to determine the content, application and enforcement of such a code; however, it would continue to forbear from regulating mobile wireless service rates or competitiveness in the mobile wireless market generally, despite concerns raised by some interveners about the competitiveness of the Canadian wireless market, including issues related to choice of provider and pricing.

In a series of decisions commencing shortly after it received the forbearance power in 1993, with the enactment of the Telecommunications Act, the CRTC has determined that wireless services in Canada are subject to sufficient competition to protect the interests of users, and that it would allow market forces to guide the mobile wireless industry’s growth.   Accordingly, it has consistently forborne from exercising many of its powers under that Act, including the requirement for prior approval of rates, and the determination that rates be just and reasonable.

In its most recent decision, the Commission has maintained this approach, noting that there is no evidence that the conditions for forbearance have changed sufficiently to warrant regulatory intervention with respect to mobile wireless service rates or competitiveness in the mobile wireless market. 

In fact, the Commission noted that market indicators, including those included in its recently published 2012 Communications Monitoring Report, continue to demonstrate that consumers have a choice of service providers and a range of rates and payment options for wireless services. In addition, the average monthly cost for mobile services has remained relatively stable. Meanwhile, new entrants in the mobile wireless market continue to increase their market share and coverage and companies continue to invest in new infrastructure to bring new innovative services to more Canadians. 

Supreme Court puts to rest question of Wind Mobile's Canadian ownership - just as feds poised to change the rules

David Elder -

The Supreme Court of Canada has refused to hear an appeal relating to the scope of the authority of the federal cabinet to overturn a CRTC decision concerning whether a telecommunications carrier has met Canadian ownership obligations.

In doing so, the Court has essentially affirmed the eligibility of wireless new entrant Wind Mobile to operate, as well as implicitly endorsed the authority of the federal cabinet to take into account broad policy questions in determining whether to overturn CRTC decisions.

It also brings to an end a lengthy string of contradictory decisions, reviews and appeals, which began when the CRTC found  in 2009 that that, Globalive Wireless Management Corp. (Globalive), which operates in Canada as Wind Moible, was effectively controlled by a non-Canadian (Orascom Telecom Holding (Canada) Limited -- an Egyptian-controlled company) and was therefore ineligible to operate in Canada (Orascom Telecom Holding (Canada) Limited was subsequently acquired by Russian wireless carrier Vimpelcom Ltd. in April of 2011). That CRTC decision was at odds with the government’s issuance to Globalive of a spectrum licence, since holders of such licences must meet the same Canadian ownership requirements as telecommunications carriers.

The Telecommunications Act provides that telecommunications common carriers must meet Canadian ownership requirements to be eligible to operate in Canada. In order to be so eligible, at least 80% of the members of a corporation’s board must be Canadian, at least 80% of its voting shares must be held by Canadians and the corporation may not be otherwise controlled by non-Canadians. Each of the CRTC’s decision and the subsequent variances and appeals focused on Globalive’s compliance with the latter criterion.

Next, the federal cabinet disagreed with the CRTC and varied the regulator’s decision, finding that the record did not support the conclusion that the company was controlled by a non-Canadian, and suggesting that the Canadian ownership and control requirements “should be interpreted in a way that ensures that access to foreign capital, technology and experience is encouraged.”

The federal cabinet (formally, the Governor in Council) is empowered by s. 12 of the Telecommunications Act to vary, rescind or refer back for reconsideration any CRTC decisions under that Act, although the section provides no guidance on the factors to be taken into account by the cabinet in making such a decision.

Then, Public Mobile Inc., another new wireless entrant, brought an application for judicial review of the cabinet decision.  In the case of Public Mobile v. Attorney General of Canada et al., the Federal Court, Trial Division granted the application and quashed the cabinet decision.

In Globalive Wireless Management Corp. v. Public Mobile Inc. the Trial Division decision was subsequently overturned by the Federal Court of Appeal, which rejected the errors of law identified by the lower court.  We discussed this case in more detail in a previous post.

The Supreme Court’s refusal to hear a further appeal means last year’s Federal Court of Appeal decision will continue to stand, and that all avenues for appeal or variance have been exhausted.

Ironically, on the same day that the Supreme Court issued its denial of leave to appeal, Parliament introduced proposed amendments to the Telecommunications Act, which would exempt smaller telecommunications carriers like Wind Mobile from the obligation to comply with Canadian ownership requirements, rendering moot the original impetus for the cabinet variance and judicial consideration of the last 3 years. 

Government tables foreign ownership amendments to Telecom Act

David Elder -

With the introduction of the federal government’s latest budget bill, Canada is a step closer to lifting foreign ownership restrictions for some telecommunications providers.

In mid-March, the Minister of Industry announced planned changes to the current foreign ownership restrictions that are intended to provide greater access to capital and expertise for new entrants and smaller telecommunications carriers.  Last week’s budget bill, which amends over 50 statutes, contains amendments to the Telecommunications Act that are designed to put these changes to the Canadian ownership rules into effect.

Under the proposed amendments, which commence at section 595 of Bill C-38, the Jobs, Growth and Long-term Prosperity Act, Canadian ownership rules will no longer apply to a telecommunications common carrier if the carrier and all its affiliates have total annual telecommunications revenues that represent less than 10% of total Canadian telecommunications revenues, as determined by the CRTC.  

Based on the most recent Communications Monitoring Report, in which total Canadian telecommunications revenues for 2010 were reported at $41.7 billion, this means that telecommunications common carriers with annual revenues from telecommunications services of less than $4.2 billion will not be required to meet Canadian ownership requirements.

If a carrier that was eligible to operate without meeting Canadian ownership requirement exceeds the 10% threshold through internal growth, they will continue to be unaffected by Canadian ownership rules; however, those that exceed the threshold due to the acquisition of control of another carrier, or the acquisition of the assets of another carrier will become subject to ownership requirements.  In fact, the amendments contain a new requirement that telecommunications carriers with less than 10% of total Canadian telecommunications revenues must notify the CRTC when it acquires control of another carrier or acquires assets used by a carrier to provide telecommunications services.

The amendments would also introduce a number of new definitions to the Telecommunications Act.

One of the more notable new definitions fixes a current feature in the Act which provides that only corporations can be eligible to operate as Canadian carriers.  Over the years, this limitation has provided some challenges of interpretation with respect to other forms of business associations, such as partnerships, where the Commission has found that in order to be eligible to operate, each partner in a partnership must be a corporation that meets Canadian ownership and control requirements.

The proposed amendments to the Telecommunications Act would add a new definition of an “entity,” which would encompass not only corporations, but also to partnerships, trusts and joint ventures, each of which would now be eligible to operate in Canada, provided that they meet any applicable ownership requirements.  The requisite level of ownership and control for non-corporations would be determined based on the “voting interest” in a partnership, trust or joint venture, being the ownership interest in the assets of the business that entitles the owner to receive a share of the profits and to share in the assets upon dissolution.  At the operating company level, at least 80% of such voting interests would have to be beneficially owned by Canadians.

Other proposed amendments to the Act relate to telemarketing rules and the National Do Not Call List, giving the CRTC the explicit power to conduct investigations to determine whether there has been a contravention of any order made by the Commission with respect to its telemarketing rules, and clarifying the Commission’s power to set fees for the use of the National Do Not Call list and similar databases.

Since it is contained in the budget bill of a majority government, it is expected that these amendments will be passed in the coming weeks.

Canadian government to loosen foreign ownership restrictions in telecommunications sector

Susan M. Hutton, T. Gregory Kane & David Elder -

As part of its plan to auction rights for the 700 MHz spectrum band, the Canadian government announced yesterday that it plans to amend the Telecommunications Act to lift foreign investment restrictions for telecommunications companies holding less than a 10 per-cent share of the total Canadian telecommunications market.

The Honourable Christian Paradis, Minister of Industry, announced the following commitments designed to provide Canadians with greater choice and lower prices in the market for wireless services

  • The foreign investment restrictions in the Telecommunications Act will be amended in order to allow non-Canadian investors to control 100% of domestic wireless firms that have a market share of 10 per-cent or less;
  • The government will support an upcoming spectrum auction by applying caps so as to guarantee new wireless competitors as well as incumbents access to the spectrum up for auction;
  • Specific measures will be introduced in the 700 MHz auction to ensure that rural Canadians have equal access to telecommunications services;
  • Improvements and extensions for the existing policy on roaming and tower sharing to support competition and limit the proliferation of new cellphone towers;
  • Reserving a portion of the 700 MHz spectrum for public safety users including police and firefighter services across Canada.

In 2008, the government auctioned Advanced Wireless Services spectrum in order to set aside spectrum for new entrants, while the Canadian Radio and Telecommunications Commission (CRTC) established policies to support the entry of new competitors in the market for wireless services.  In the upcoming spectrum auction, which is set to take place in 2013, the government has said it will apply caps enabling four or more service providers in each region to obtain spectrum in both the 700 MHz and the 2500 MHz bands. 

Revising Foreign Ownership Restrictions

Under the existing legislative regime, non-Canadian wireless service providers are subject to ownership restrictions found in the Telecommunications Act, the Radiocommunication Act, and the Canadian Telecommunications Common Carrier Ownership and Control Regulations.  At present, the rules may be summarized as follows:

  • at least 80% of the members of the board of directors of the carrier must be Canadian;
  • non-Canadians may not beneficially own, directly or indirectly, more than 20% of the carrier's voting shares;
  • non-Canadians may not beneficially own directly or indirectly more than 33 1/3 % of the voting shares of the carrier's holding company; and
  • the carrier or the holding company may not otherwise be controlled by non-Canadians (i.e., "control in fact" – a test set out by the National Transportation Agency (now the Canadian Transportation Agency) in the Canadian Airlines decision and discussed by the CRTC in   Telecom Decision CRTC 2010-226).

The government has said that the proposed amendments will  apply to the Telecommunications Act and will create a threshold exemption whereby no foreign ownership restrictions will apply to telecommunications providers with revenue representing less than 10% of the total Canadian telecommunications market.  In addition, the planned changes are designed to encourage long-term investment in Canada’s telecommunications industry by allowing foreign-controlled companies that are successful in growing their market shares beyond 10 percent - other than by merger or acquisition -  to continue to be exempt from the restrictions.

It should be noted, however, that in spite of the government’s commitment to reform ownership restrictions under the Telecommunications Act, restrictions will remain in place under the Broadcasting Act and direct foreign investment will continue to be subject to the controls found in the Investment Canada Act

For more background on the Canadian governments’ plans to liberalize the telecom sector and the implications for foreign ownership please see our backgrounder and our previous blog post on this topic.

CRTC's vertical integration decision in broadcasting proposes controls on vertically-integrated broadcasters

Michael Laskey -

On February 1, 2011, the Competition Bureau issued a statement in respect of the proposed acquisition of CTVglobemedia Inc. by BCE Inc. The statement noted that the Bureau was “cognizant of the growing trend toward vertical integration in the broadcasting industry” and that it was reviewing issues of vertical foreclosure. The statement also noted that the Commissioner of Competition would “closely monitor” the CRTC’s vertical integration hearings and subsequent regulatory developments in that same regard.

On September 21, 2011, the CRTC released its decision, Broadcasting Regulatory Policy CRTC 2011-601, setting out a regulatory framework for vertical integration among broadcasting and programming companies. In its decision, the CRTC imposes a number of restrictions on the activities of “vertically integrated” companies, which for the purposes of the decision it defines as companies that control both programming services (such as conventional television stations) and distribution services (such as cable or satellite systems). More specifically, some of the restrictions imposed by the decision include:

  • Restriction on Exclusivity: In proposed amendments to the Exemption order for new media broadcasting undertakings1,  to be published later this year, no person operating under that order will be allowed to offer programming designed primarily for conventional television on an exclusive (or otherwise preferential) basis in a manner that is dependent on a consumer’s subscription to a specific mobile or retail internet service. However, to encourage innovation in programming, exclusivity may be offered for programs created specifically for new media platforms (e.g., content designed specifically for mobile phones). A notice of consultation will be published, calling for comments on the draft regulations.
     
  • Programming Services Must Be Independently Available: Before the end of 2011, the CRTC will issue a notice of consultation containing draft regulatory amendments that will include a provision that all programming services must be made available to independent broadcasting distribution undertakings (BDUs) on a stand-alone basis. Therefore, vertically integrated firms will not be allowed to use their most popular programming services to encourage sales of less valuable programming.
     
  • ”No Head Start” Rule: Before the end of 2011, the CRTC will issue a notice of consultation containing draft regulatory amendments stating that, whenever a programming undertaking is ready to launch a new pay or specialty service, it will be obligated to make that service available to all BDUs. If a commercial agreement between the parties cannot be reached, the CRTC will be able to manage the dispute and impose rates. The “no head start” rule will also apply to television programming distributed on new media distribution platforms (including mobile phones and retail internet).
     
  • “Code of Conduct” for Commercial Interactions: The CRTC concluded that there was a potential for abuse of market power by vertically integrated entities, and imposed a code of conduct to ensure no party “uses its market power to engage in anti-competitive behaviour”. The code of conduct, which establishes the guidelines for commercial arrangements between BDUs, programming undertakings and new media exempt undertakings, is attached as Appendix 1 to the CRTC’s decision. The CRTC noted that it would refer to the principles in the Code of Conduct when making determinations on complaints or other applications.
     
  • Penalties for Non-Compliance: In “appropriate case[s]”, the CRTC said that it would impose financial remedies on non-compliant entities in the form of orders to pay amounts into a fund for the “benefit of the Canadian broadcasting system”.

As noted above, several of the new restrictions will be implemented though regulatory amendments, and will be subject to further consultation before they are set out in their final form. The Competition Bureau has not commented on the CRTC’s decision.


1. This order applies to, among others, Bell, Rogers, Shaw, and Quebecor Media.

Net neutrality debate comes to Canada: CAIP files complaint against Bell Canada's Internet traffic-shaping measures with the CRTC

Susan M. Hutton

The debate over traffic-shaping measures undertaken by Internet service providers in the United States such as Comcast - and whether such measures constitute reasonable network management to control congestion or unreasonable interference with Internet content and discrimination against competing Internet Service Providers (ISPs) - has come to Canada.

In October, 2007, Bell Canada implemented measures for its retail Sympatico customers to delay the delivery of some so-called Peer-to-Peer (P2P) data during peak Internet usage periods. The extension of these measures to its wholesale Digital Subscriber Line (DSL) customers led to the filing of a complaint by the Canadian Association of Internet Providers (CAIP) with the Canadian Radio-television and Telecommunications Commission (CRTC) on April 3, 20081.The complaint requests, among other things, interim and final injunctions prohibiting Bell Canada from using the traffic management measures in respect of its wholesale ADSL services, as well as declarations pursuant to sections 27(2) and 36 of the Telecommunications Act that Bell Canada has granted itself an undue and unreasonable preference and subjected independent ISPs to undue and unreasonable disadvantage, and that Bell Canada has violated the prohibition against carrier interference with the content of messages carried over its telecommunications network. The CAIP complaint states that there is no proof of a network congestion problem, and that Bell Canada's measures, introduced at a time when Bell and some other incumbent ISPs are phasing out unlimited Internet service plans at retail, are intended to "stem the losses that [Bell Canada] will likely face in the retail market if its wholesale ADSL customers continue to offer unlimited usage or flat-rate billing plans" and, as such, are anti-competitive.

In its Answer, filed with the CRTC on April 15, 2008, Bell Canada states that it is simply applying the same network management tools to its wholesale customers - that is, to those who share the same undedicated bandwidth as its retail customers - as it applies to its own retail Internet customers.  It says the deep-packet inspection (DPI) technology it has employed delays only P2P applications during peak periods (and not VoIP, audio and video streaming, and other applications as alleged by CAIP), and that the traffic management measures have resulted in a "50% reduction in total P2P traffic during peak periods and a decrease in the number of congested links" during such times.  According to Bell Canada, other types of traffic such as web browsing, and audio or video streaming, "previously impacted by congestion at peak periods, has quickly filled the bandwidth made available through the use of Internet traffic management, therefore improving the customer online experience for such interactive and real-time activities."  To prohibit use of measures to prevent a few users from clogging the Internet's arteries, so to speak, would in the view of Bell Canada itself discriminate against the majority of Bell Canada's Internet customers.

The proceedings raise many issues. Among them, as is evident also from CAIP's reply filed on April 24, 2008, are the following: whether independent ISPs who use Bell Canada's wholesale Gateway Access Service (GAS) (as opposed to those who use its more expensive dedicated High Speed Access (HSA) service or who lease unbundled loops and provide their own co-location facilities and DSLAMs2) should be provided with unlimited bandwidth on Bell's network; whether there in fact is a network congestion problem necessitating the use of network management tools; whether Bell Canada's solution is adversely affecting more than just P2P traffic; whether it is violating its tariff for GAS services; whether the measures implemented provide Bell Canada with an undue preference or unreasonably discriminate against certain of its customers; and whether the tools used by Bell Canada constitute interference with content and thus require the prior approval of the CRTC.

The CRTC issued Telecom Decision CRTC 2008-39 on May 14, 2008, rejecting CAIP's request for an interim injunction on the basis that it had not demonstrated that its members would suffer irreparable harm if the interim relief is not granted.  That said, it also found that the issues raised were not "frivolous or vexatious," and set out in a letter to Bell Canada and to CAIP a timetable that would see all submissions and evidence filed by June 26, with a decision to be issued within ninety days thereafter.


1The proceedings are publicly available at www.crtc.gc.ca, under "Public Proceedings", "Telecommunications: Part VII", "Competitor Complaints (8622)", "2008" (Reference: 8622-C51-200805153).
2Digital Subscriber Line Access Multiplexers

Tags: ,

CRTC issues new policies on cross-media, television and BDU ownership

D. Jeffrey Brown and T. Gregory Kane, Q.C.

On January 15, 2008, Canada's broadcasting and telecommunications regulator, the Canadian Radio-television and Telecommunications Commission (CRTC), issued new policies respecting cross-media, television and broadcast distribution undertaking (BDU, e.g., a cable or satellite TV provider) ownership 1. Under these policies, as a general rule:

  • a person will be permitted to control undertakings in only two of three types of media (radio, conventional "over-the-air" television and newspapers) serving the same (local) market (cross-media ownership policy);
  • the CRTC will not approve applications for transfers of effective control that would result in common ownership of television undertakings (conventional, specialty and pay) with a total national audience share (across all types) greater than 45%, will carefully examine applications that would result in a share between 35% and 45%, and will expeditiously review applications resulting in a share less than 35% (television ownership policy); and
  • the CRTC will not approve applications for transfers of effective control of BDUs that would allow one person to control all BDUs in any given market (BDU ownership policy).

The stated purpose of the new policies is to preserve the "diversity of voices" in the Canadian broadcasting system, including the diversity of editorial voices at the local level and the diversity of programming at the local, regional and national levels.  According to the CRTC, the new policies were driven by public concerns raised by recent consolidation in the media sector. Although stating that a diversity of voices continues to exist in the current Canadian broadcasting system, the CRTC justified the new policies as necessary to address the potential effects of the further consolidation that is expected to occur in response to audience fragmentation.

At the same time as it adopted the new policies, the CRTC reaffirmed its existing policies respecting conventional television and commercial radio ownership 2.

The new policies raise a number of questions.  Are they actually necessary? What impact will they have on the interface between the CRTC's regulation of the Canadian broadcasting system and the application of the Competition Act to the sector, in particular in relation to broadcasting mergers?  Will they lead the CRTC to block potentially beneficial licence applications or mergers?

Are the new policies necessary?

Despite what the CRTC described as a "wave of consolidation in the Canadian broadcasting industry," the CRTC acknowledged that a diversity of voices continues to exist in the Canadian broadcasting system.  Rather than addressing an existing problem, therefore, the CRTC based its new policies on the potential impact of future consolidation, which it expects in response to audience fragmentation. Indeed, the CRTC expressly recognized that none of the transactions reviewed by it during the recent "wave" would have raised concerns under its new policies.

Setting aside the question of whether concerns about this potential future impact are justified, there is nothing in the new policies that the CRTC could not have done pursuant to its broad regulatory powers. The CRTC's powers to issue licences, approve licence transfers and set licence terms (including in the context of renewal proceedings) provide it with ample tools to preserve a diversity of voices in Canada's broadcasting system.  By formally extending the CRTC's consideration to newspapers, the new policies also raise questions about whether the CRTC may be exceeding its jurisdiction, which is limited to the broadcasting system.

Even if the new policies do not add to the CRTC's powers, they do arguably promote transparency and predictability, both of which are widely accepted as highly desirable regulatory objectives. There is a risk, however, that these objectives could be achieved at the expense of the CRTC's flexibility to make appropriate licensing determinations on a case-by-case basis. The CRTC could avoid this risk by allowing exceptions where their application is either not necessary to achieve a diversity of voices or would otherwise not be in the best interests of the Canadian broadcasting system. Whether the CRTC will take such an approach is unclear, given the rigid language used to describe the policies, including a statement that "[a]s a result [of the new cross-media ownership policy], a person or entity will only be permitted to control two of the following types of media that serve the same market: a local radio station, a local television station or a local newspaper." 3

How will the new policies affect the interface between the CRTC's regulation of the Canadian broadcasting system and the application of the Competition Act?

While the CRTC's new policies with respect to diversity of voices apply only to the CRTC, their effects may extend to the relationship between the CRTC and other regulatory regimes, such as the Competition Act

The Competition Act requires prior notification of mergers that exceed certain monetary and shareholding thresholds and also allows the Commissioner of Competition, who heads the Competition Bureau and is Canada's primary competition enforcement official, to challenge mergers that substantially prevent or lessen competition, whether or not they exceed the thresholds for pre-merger notification.(For ease of reference, the Commissioner of Competition and the Competition Bureau are referred to simply as "the Bureau.") To the extent that the CRTC reviews and approves a broadcasting merger, however, parties may challenge the Bureau's jurisdiction pursuant to the so-called "regulated conduct doctrine," which has been used by courts in certain cases to oust the Competition Act's application to conduct that was required or authorized pursuant to other legislation.

The stated position of both the CRTC and the Bureau is that they have concurrent jurisdiction over broadcasting mergers.4 However, as the body charged with the regulation and supervision of "all aspects" of the Canadian broadcasting system, the CRTC enjoys a broad jurisdiction over broadcasting matters, including mergers.  Indeed, the broad scope of the CRTC's jurisdiction has prompted litigation as to whether its jurisdiction over broadcasting mergers is exclusive, thereby precluding the application of the Competition Act.5 Owing to a settlement between the parties, no decision was rendered by the court in that case, leaving unanswered the question of the whether the CRTC's jurisdiction over broadcasting mergers is exclusive.  The CRTC has recently called for a clarification of its role and the role of the Bureau in "communications" mergers, and advocated that it have "ultimate responsibility" for approving such mergers.6

The jurisdictional question is important, owing to the different analytical approaches followed by the CRTC and the Bureau.  In contrast to the CRTC, the Bureau's reviews of media mergers focus on their economic aspects, such as advertising.  However, as the CRTC itself has recognized, 7 concentration of economic aspects is not wholly divorced from the question of diversity of voices, insofar as common to each is the question of who ultimately controls the media undertakings. Thus there would appear to be some potential for overlap (possibly significant overlap) between the CRTC's and the Bureau's reviews of a broadcasting merger.

At the same time, there are important differences in the methods used by the CRTC and the Bureau in their analysis of diversity of voices and the economic effects of mergers, respectively. The Bureau carries out a detailed analysis of relevant product and geographic markets in order to assess the likely economic impact of a merger in those defined markets. As compared to the Bureau's approach, the CRTC's approach to assessing "diversity of voices" appears simplistic, as evidenced, for example, by the cross-media ownership policy's focus on mere ownership of particular kinds of media and the television policy's focus on national television audience shares (without, for example, distinguishing between "news and information programming," which the CRTC identified as its primary area of concern, and other programming). The CRTC does purport to borrow aspects of the Bureau's analytical approach (e.g., the "market share" thresholds used to assess concentration under the new television ownership policy, which are adapted from those the Bureau used to preliminarily assess the proposed bank mergers in the late 1990s), although without undertaking the Bureau's detailed market-definition analysis prior to calculating such shares. Given a merger transaction that is reviewed by both the CRTC and the Bureau, therefore, the CRTC's policies would seem to promote rather than discourage a repeat of the 2002 dispute over the Bureau's jurisdiction to review broadcasting mergers.

Will the new policies lead the CRTC to block potentially pro-competitive licence applications or mergers?

Another potential consequence of the blunt nature of the CRTC's approach to diversity of voices is that it could lead the CRTC to block potentially pro-competitive licence applications or mergers. Applying its cross-media policy, for example, the CRTC might block expansion of an entity owning a local television station and a local newspaper into the local radio business, even though such expansion could, in certain circumstances, stimulate greater competition in the local radio market and provide benefits to advertisers and consumers in the process. Similarly, in considering a merger involving BDUs, the CRTC's policy seems to preclude consideration of potential efficiencies, and more specifically the possibility that efficiencies could outweigh any negative effects caused by a reduction in competition by such a merger.  The Competition Act, in contrast, recognizes these potential benefits by allowing otherwise potentially anti-competitive mergers if they are "likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition."

Conclusion

While helpful to business in terms of shedding light on the CRTC's approach to broadcasting ownership issues, the new policies have also raised new questions that highlight the jurisdictional divide between the CRTC and the Bureau.

1 Broadcasting Public Notice CRTC 2008-4 (BPN CRTC 2008-4), available at http://www.crtc.gc.ca/archive/ENG/Notices/2008/pb2008-4.htm. 2 The CRTC's existing conventional television ownership policy prohibits one person from owning more than one conventional television station of the same language in a given (local) market. Common ownership of commercial radio stations is limited to two AM and two FM stations of the same language for markets with more than eight commercial radio stations of that language and to three stations of the same language, with a maximum of two stations in any one frequency band, for smaller markets. 3CRTC News Release, "CRTC establishes a new approach to media ownership" (15 January 2008). 4CRTC and Competition Bureau, "CRTC/Competition Bureau Interface" (8 October 1999), available at http://www.crtc.gc.ca/eng/publications/reports/crtc_com.htm.
5 In 2002, parties to a radio merger challenged the Bureau's jurisdiction to review the transaction. See Astral Media Inc. v. Le Commissaire de la concurrence et al. and Télémédia Radio inc. v. Le Commissaire de la concurrence et al., Federal Court - Trial Division, Court File Nos. T-2256-01 and T-2256-02.  The CRTC had reviewed and approved the transaction, however the Bureau alleged that the transaction would substantially lessen competition in certain local markets in the province of Quebec.  The parties and the Bureau subsequently entered into a consent agreement resolving the Bureau's concerns with respect to the merger, therefore no decision in the application contesting the Bureau's jurisdiction over the merger was rendered.  Stikeman Elliott LLP acted as counsel to Astral in that case. 6 See, CRTC, "A Competitive Balance for the Communications Industry:  Submission of The Canadian Radio-television and Telecommunications Commission to The Competition Policy Review Panel" (11 January 2008). 7 See BPN CRTC 2008-4, at para. 37 ("With respect to market dominance, . while this concern is largely an economic issue relating to questions of competition, issues of dominance also have social and cultural dimensions.").