Introduction

On July 31, 1998, the Canadian Radio-television and Telecommunications Commission (CRTC) launched a public proceeding under both the Broadcasting Act and Telecommunications Act to examine what its policy should be toward “new media.” Its “working description” of this term encompasses

singly or in combination, and whether interactive or not, services and products that make use of video, audio, graphics and alphanumeric text; and involving, along with other, more traditional means of distribution, digital delivery over networks interconnected on a local or global scale. (CRTC, 1998e, p. 2)

The Commission noted that, under this description, virtually all services found on the Internet (the Net) could be considered as forms of new media.¹

The purpose of this paper is to respond to the CRTC’s “Call for Comments” on whether it should (further) regulate the Internet and, if so, how it should do so. Regulating the Net is an important public policy issue for several reasons:

• The Net is a communications medium of extraordinary potential.² It has been called “the digital tornado” (Werbach 1997). Much of its very rapid growth and fascinating evolution may well be attributable to the near absence of government regulation,³ compared to other electronic means of communication, notably broadcasting and telecommunications.

A growing number of Canadians have access to the Net either at work, at home, or at school, although the data provided by the various surveys are not consistent. A survey in April 1998 indicated that 40 percent of Canadian households have a PC at home⁴ and that 20 percent are connected to the Internet.⁵ AC Nielsen’s large-scale, fourth annual Home PC and Entertainment Study found that 54 percent of Canadian homes have a personal computer (PC) and that one-quarter of those with a PC at home also run a small business out of their home. About two-thirds of households with a PC also have a modem which is used primarily to gain access to the Net (AC Nielsen, 1998). This suggests that as many as 36 percent of Canadian households are connected to the Net.⁶ It must be emphasized that individuals gain access to from several sources as these 1997 data show: home (13%), work (8%), school (5%), library, friend’s home etc. (5%). Some 23 percent gain access from all of these locations (Sanders, 1997, p. 7).

At the same time, more businesses are going online and making greater use of the Net for electronic commerce. The Canadian Federation of Independent Business (CFIB, 1998) found that the fraction of small and medium-sized enterprises with access to the Net grew from 31 percent in the first quarter of 1997 to 43 percent a year later. Almost 70 percent of businesses with from 100 to 499 employees were online in the first quarter of 1998. Overall, CFIB expects that from 50 to 60 percent of small and medium-sized businesses in Canada will be online by early 1999. It seems reasonable to believe that an even higher percentage of large firms are already online. More generally, the volume of electronic commerce conducted over the Net or making use of it is growing very rapidly (see OECD, 1998). Also, all schools in Canada will soon be on the Net due to a joint initiative of major telecom carriers and the federal government.⁷ In short, regulation of the Net by the CRTC will affect an increasing number of Canadians and an increasing amount of communications activity. We want to be sure that further intervention is justified.

• In some ways, the federal government’s present position on the Net resembles its position on radio broadcasting in the 1920s. Then, radio was the new, powerful means of mass communication. By the late 1920s, Canadian nationalists were very concerned about the importation of US-made programs. Indeed, surveys showed that most of the top-rated programs in Canada were produced in the US (Nash, 1995). The nationalists, led by the Canadian Radio League, sought to create a state-owned national broadcasting system to prevent “the cultural annexation of Canada” by the US. The result was the creation of the Canadian Radio Broadcasting Corporation in 1932, a federal Crown corporation with had two responsibilities: to create a national broadcasting network, and to regulate private broadcasters. Although cultural nationalist concerns about the Internet are less visible than they were in the early days of radio, there is enough evidence to suggest that the CRTC’s central motivation in issuing the “Call for Comments” is a desire to extend Canadian content (CanCon) policies to the Internet.

• The CRTC’s ambitions for its CanCon agenda are apparently boundless (see Stanbury, 1998a). At present, its efforts are being strongly reinforced by the Minister responsible for the CRTC, Heritage Minister Sheila Copps. After one cuts through the awkward and often indirect language of the “Call for Comments,” it is clear that the CRTC wants to impose some type of regulatory and/or taxation regime on the Internet in order to increase the supply of CanCon on the Net (see the section “Intimations of the Application of CanCon Requirements to the Net” below). Present CanCon regulations concerning radio and TV broadcasting both impose economic burdens on Canadians, and constrain their rights to freedom of expression, protected by the 1982 Charter of Rights and Freedoms. At present, the Net is one of the best antidotes to the negative impact of these regulations (see Stanbury, 1998a).

• Because Canada has so much government regulation (despite a decrease in economic regulation over the past 15 years), any suggestion by a regulatory agency that it should expand its mandate should always be treated with the greatest scepticism. Recall the adage: “Don’t ask a barber if you need a haircut.” In its September 1997 “Vision Statement,”⁸ the CRTC suggested that in the future it was going to be far less of a “hands-on” regulator and more of a referee among competitors, particularly in telecommunications (telecom).⁹ But the Internet is a form of communications which threatens to disrupt both the telecom and broadcasting sectors.¹⁰ Indeed, it is an excellent example of convergence.¹¹ Not only does the Net offer new services (e.g., e-mail and the world wide web), but it also offers, or could offer in time, a substitute method of delivering broadcasting signals and a substitute for many telecom services.¹² For example, it is already possible to make long distance telephone calls over the Net and Internet television services such as WebTV are beginning to emerge.¹³
  
  Historically, the CRTC has sought to regulate all new technologies threatening established broadcasters or telecom carriers. Because of its desire to expand the supply and consumption of CanCon, it has been particularly concerned about controlling new technologies relating to broadcasting. Why should Canadians expect that the Internet will be an exception? Yet innovation is what helps improve our standard of living, through what economist Joseph Schumpeter called “gales of creative instruction.” This process is often painful for established firms, and even for innovators, a high proportion of whom fail. But it usually is beneficial for society as a whole.

• In its “Call for Comments,” the CRTC claims that it has an open mind about whether it should take any action in relation to the Internet. There is evidence from the Commission itself that this is not the case. For example, in a speech in April 1998, the chair of the CRTC said that, “The CRTC is committed to play a vital role in the evolution of our audiovisual universe. We are passionate about this. This is because we are convinced that the 21^st century economy will be profoundly influenced by the content available through the new information technologies” (Bertrand, 1998a, p. 5). The key new information technology is the Internet. If the CRTC is already so committed to playing a vital role in the future of the Net, the “Call for Comments” is an elaborate exercise in cynicism. In principle, the decision to intervene in some way to increase the supply of Canadian content appears to have been made. It’s like the hangman inviting the condemned man to discuss frankly the details of how the deed is to be done. Would the victim prefer a silk rope or one of hemp? The end result is the same.

• The CRTC has already begun to regulate certain matters related to the Internet. First, it has asserted its authority over Internet telephony in order to ensure that this substitute for long distance voice telephony pays “contribution”¹⁴ to local exchange carriers. Second, it has responded to demands of Internet Service Providers (ISPs) to constrain Bell Canada from changing its rates in a way that would seriously harm their business. Third, the CRTC has not constrained local telephone companies (telcos) or cable TV companies from entering the ISP business, and it has exercised forbearance in the regulation of rates (see below). Fourth, the CRTC has asserted its jurisdiction over video-on-demand (VOD). Finally, the chair of the CRTC has suggested that the agency will regulate the menus of BDUs¹⁵ or others who distribute Canadian content to ensure that such content will be prominently featured, presumably to increase the likelihood that Canadian-made materials will be chosen. The first three of these issues are discussed in the section “Using the Telecommunications Act to Regulate the Net” and the last two issues are addressed in the section “Broadcasting Regulation and the Net.”

• It is usually easier to scotch a viper in its nest than to kill it when it becomes full grown. Canadians interested in protecting freedom of expression and their wallet (from more taxes to finance CanCon) should use the CRTC’s “Call for Comments” as a great opportunity to try to block the CRTC from giving regulatory force to its ambitions regarding the Net now and to discourage it (and its political masters) from doing much to regulate the Net in the future. Thus, those who want to prevent further undesirable intrusions by the state should take the opportunity to send the CRTC a very strong message indeed. Note that the Net has greatly reduced the costs of entry into the “market for voices.” Many of the voices on the Net are critical of various aspects of government. Indeed, it has been cogently argued that the Net has a libertarian ethos (see Seib, 1998).¹⁶

To respond to the CRTC’s “Call for Comments” regarding the possibility of regulating the Net, it is useful to put its initiative into context. The section “Using the Telecommunications Act to Regulate the Net” reviews the direct and indirect applications of the Telecommunications Act to the Internet, the section “Broadcasting Regulation and the Net” examines how the Broadcasting Act might be used to regulate the Net, and the section “Analyzing Public Notice 1998-82" examines CRTC’s “Call for Comments” in some detail. The conclusions are set out in their own section.