Information & Ethics Committee on Feb. 15th, 2018

[The Chair, Conservative, Bob Zimmer]

We'll call to order the meeting of the Standing Committee on Access to Information, Privacy and Ethics. Pursuant to Standing Order 108(3)(h)(vii), we are continuing our briefings on net neutrality.

Today we are with our Columbia Law School guest, Timothy Wu. I hear you have a statement. Please proceed.

[Professor Timothy Wu, Professor, Columbia Law School]

Thank you.

I'd first like to thank the committee for inviting me. It's an honour. As you may know, I grew up in Toronto and I used to attend question period on vacations. I'm also a Canadian citizen, so I'm very interested in this issue. I want to apologize for not being there in person. The reason is child care, but I would have enjoyed the opportunity to be there in person.

Let me say a few things about net neutrality policy, which is in a state of turmoil. My basic thesis is the following. In the United States, on which I can testify most accurately, net neutrality has arguably been the most successful of the tech policies put together in the early 2000s to oversee the development and industrial, economic, and social growth of the Internet. It has been a success from almost all quarters. Obviously, it has had some opposition for various reasons that we can talk about, but the track record is excellent. It's difficult to find a sector of the economy that has grown so well. I think some of the success of the American—and to some degree North American—Internet story relative to Europe and to some degree to Asia has to do with communication policy.

Let me make clear why I say these things. As you may know, the first glimmerings of net neutrality policy were in the early 2000s. They were in reaction to cable and phone companies in the United States starting to block or degrade applications that were competing with them, or putting conditions on applications or devices such as Wi-Fi.

In the United States, there's a long antitrust tradition centred on the phone companies. There is some suspicion that they have tended to want to own all the markets adjacent to communications. I think there was a receptivity in the United States to doing something. It was actually a Republican administration that began to enforce a version of net neutrality rules by fining phone companies for blocking voice over IP. They established a rule in 2003 that made it clear that there would be no blocking or degradation, and users were free to attach whatever applications they liked. From 2003-04 to our present day, this rule has been more or less in effect, although it's about to disappear here.

The basic guarantee—and I think this is the most important thing about net neutrality—of being able to reach end-users was extremely important for a series of new companies that I'll now describe. One of the earliest was Skype, which was an innovator in voice over IP. They were trying to make phone calls cheaper for people. They got started when it was clear that they were going to be blocked by the incumbent cable or phone companies in a way that would hurt their ability to do business.

You had the launch—and this was a big deal—of streaming video and the revolutionization of television in the United States, which once again relied on this bedrock idea that they'd be able to reach consumers with streaming video. I don't think that would necessarily have happened without net neutrality rules. I think attracting investment in enterprise when you have some danger of being blocked would have been an uphill battle, and I think in the 1990s television in the United States had become very stagnant, and the quality of programming had also become questionable. There was a revitalization of television in the United States, and I think, very interestingly, a massive increase in the amount of money being spent on content.

The question from television's entire history is, are we going to have good stuff to watch and what do we do to make that happen? Canada obviously has the approach of the Canadian Broadcasting Corporation, modelled on the Reithian BBC, the best of everything. I think that's a good way of approaching things, too. The United States doesn't have that. It does have the Corporation for Public Broadcasting.

Nonetheless, during the last 10 years of Internet neutrality, with the excitement of a new business, enormous amounts of money was invested in the content, with billions of dollars being spent investing in documentaries, series, whatever. I think a lot of that has to do with the explosion of a whole new form of business, a whole new way of transmitting television.

I think net neutrality helped the Internet over the last 10 or 15 years be a place where new technologies could have their go and a lot of things that were experimental, non-profit, and smaller were able to have some success. Here I'll bring up the example of Wikipedia, which I think would have had a very challenging time if it had been in an environment where it was forced to account for its bottom line and justify to phone and cable companies what it could have done.

As I said, it has been a success story. I can explain in response to your questions why it's being abandoned in the United States, which is something I profoundly disagree with. It has a lot to do with jurisdictional battles.

I should also say that this has been a very profitable and successful period for the phone and cable companies. They have lived under the rules of net neutrality; they have prospered under them. Their margins are terrific. It's the most profitable line of their business. In some ways net neutrality saved them from themselves, in the sense that they ended up in the position of bringing all of this great stuff to people and not having that be particularly expensive for them, and it's become the most valuable part of their business.

The reason net neutrality rules have gone down centre on rate regulation, which has to do with complications implicit to the American structure of telecommunications law, which I can tell you about during your questions, if you want. I think what's happening in the United States is a terrible pity. I think it's bad policy. I think we'll look at it as a bad mistake. It's very possible that it will be reversed by one of various ways in the near future, anyway.

I don't want to go on forever. I realize I went over my last five minutes. I want to thank you once again for having me. I apologize for not putting any French in my comments, but I'm much better in English.

Thank you very much. I look forward to your questions.

[The Chair, Conservative, Bob Zimmer]

Thank you, Mr. Wu.

We'll go with the first line of questioning to Mr. Baylis. Seven minutes.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

Bonjour. That's to get you going with some French.

The end of net neutrality is bad for society in general. Someone's going to win. Someone wants this. Who's pushing for this end of net neutrality in the United States? Who is perceived to be the winner if this is taken away?

[Prof. Timothy Wu]

I think there isn't a lot of mystery as to who's interested in killing net neutrality in the United States. It is not the Republican Party, but it is very narrowly the phone and cable companies. I think that even though they've prospered under net neutrality, they have a series of interests, the most basic of which is to try to take an extremely profitable service, which is already delivering over 95% margins, and making it more profitable—this is what companies do, obviously—but not in ways that I think are good for society.

One way is to start taxing all of the stuff on the Internet, adding some fee in order to reach people. The other, I think, is to find different ways of raising prices for consumers.

One thing that I think you will see, maybe not right away but eventually, is more and more fees being attached to Internet programs. Email is basic, so it will probably cost a little extra for streaming video instead, a bit in the way airlines have added fees for what were standard features before. I think that's the long-term business model. It used to be free to have baggage. It might in the future cost extra money if you want a video account and so on.

I would say it's very narrowly the phone and cable industries.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

In Canada there are very few players; we call them an oligopoly. If they're profitable, why would the U.S. government want to make them more profitable to the detriment of everybody else? What's the thinking there?

[Prof. Timothy Wu]

It's not the U.S. government. It's one agency of the U.S. government with a chair who is a former employee of the phone companies, who has long agreed with them that they should get rid of net neutrality. I don't think it's government as a whole. I don't think even the White House necessarily bought into this. It's not very popular in Congress either, which is why it might get reversed. It's a narrow part of the government that's doing this. I can give you the argument why they're doing it, but it's not representative of the entire government. It's also very unpopular publicly; I think there are polls showing over 70%. Even republicans are opposed to it. It's a good example of what we call industry capture.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

I'm not that familiar with the process in the United States of how that will actually become law. Has it been signed into law, or is it going through Congress?

[Prof. Timothy Wu]

Okay, maybe I should make this clear. It's not a bill, not a statute. It's a regulation. The agency has the independent power—I think the CRTC has this power as well—to pass rules without Congress.

The process will go like this. They've written the rule, they voted on it, and they're publishing the rule. There will be a court challenge, which I'm personally involved in as well. It will be about a year or maybe a year and a half, in which people figure out whether the rule is actually going to survive the challenge.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

What will the court challenge be based on?

[Prof. Timothy Wu]

It will be based on two things. One is the idea that the agency, the FCC, doesn't have the authority to pass the law this way. The second is that their changing of the rule that was successful, without giving reasons for doing so, is arbitrary and capricious.

The rule in American administrative law is that you can't simply change long-standing administrative rules for purely political reasons. You have to have a change in circumstances; something has to have happened in order for you to change the rule that the industry was relying upon. The argument in court is that there was no change in circumstance; it was—

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

Just so I understand, your first argument is to say that the FCC does not have the jurisdiction to make the change. Is that what you mean?

[Prof. Timothy Wu]

No. It's actually that they're compelled by the statute to adopt some.... The nature of the broadband service is such that they have to classify it under the statute in a certain way. I guess that's the way I'm suggesting.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

Thank you for that explanation.

I want to swing around now to the potential impacts it could have on Canada.

[Prof. Timothy Wu]

Yes, sure.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

First of all, what do you see as the potential impacts, and what should be some of the mitigating steps that we should consider, if any?

[Prof. Timothy Wu]

The one thing I would imagine is that you will have the Canadian industry also demanding parity. That's a small thing. I don't think that would be good for consumers for reasons I've suggested or for the country, but it may be something that is demanded.

I think that's maybe the most important. Sometimes things become standard in the United States that aren't necessarily good and have a way of making their way up to Canada. You haven't quite had our problem with mortgage-backed securities, but I'm sure there's always pressure for things to become adopted in Canada that have become standard in the United States, like four-down football. They held on and resisted on that one.

More specifically, the degree to which Canadians have also benefited from an open and diverse Internet will become challenged. I'm thinking about Wikipedia. There's some statistic—I don't know what—that a disproportionate number of Wikipedia editors are Canadians. It sort of fits the personality of Canadians, I think, in some ways to be interested in truth and work hard behind the scenes. If Wikipedia begins to suffer because it doesn't have the money it needs to pay off the phone and cable companies, I think that could hurt something that a lot of Canadians are very vested in.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

I understand that.

Do you have suggestions that we should be looking at to help mitigate that, or are we just to wait and see what actually plays out in the United States? Are there some proactive measures we should be considering?

[Prof. Timothy Wu]

I think it's very important to reaffirm Canada's commitment to net neutrality. I could think about it. I'm not sure if there's something at this point that I would specifically recommend, other than reaffirming the commitment, which I think the Prime Minister has done, if I'm not mistaken. I think that's very important. Let me think about that. Even during questioning I might have a better answer for you. Off the top of my head, I don't have anything specific. Partially it's because this is a chess game. For one thing, we may handle it ourselves. We may stop it or reverse this rule. A Democratic administration would reverse this situation. There are a lot of things in motion, I want to say, and there's the court challenge. I think you should be watching this carefully.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

Thank you.

[The Chair, Conservative, Bob Zimmer]

Thank you, Mr. Baylis.

I just want to welcome the chair of my former committee, Mr. May, this morning. Thank you for visiting. We're honoured.

We'll go next to Mr. Kent for seven minutes.

[Peter Kent, Conservative, Thornhill, ON]

Thank you, Chair.

Thank you, Professor, for being with us today. Anytime you are in the Ottawa region, we'd be glad to sit down and have a coffee, either formally or informally.

In the last couple of weeks, this committee has been assured by the Canadian regulator, the CRTC, and by the major providers that net neutrality is well protected in Canada because of our current statutory and regulatory regimes. I continue to hear voices, particularly from the United States, but some from Europe, who agree that, should the FCC remove net neutrality from the United States, consumers around the world would still be seriously protected. We're told in Canada that very little, or a rather small part of Canadian content moves through American providers, but I'm just wondering, if there isn't an immediate threat, do you see a longer term, serious erosion of the concept, should the United States go in a direction that you obviously oppose?

[Prof. Timothy Wu]

I do see a long-term threat for a lot of reasons. I think I suggested this earlier. I'm concerned that if the carriers, the phone and cable companies, are successful at doing this in the United States, and if they start imposing taxes on all American content providers, including small non-profit sites and everything like that, they will push very hard for that to become the global norm, that this is the way things need to be because the United States is the home of the Internet and so forth.

As I think I suggested earlier, I'm also concerned that the opportunities for Canadian speakers to reach Americans will be threatened. Canadians are often interested in reaching an American audience. Look, I'm a Canadian reaching an American audience all the time, and I think the opportunities for Canadian speakers to reach Americans are threatened. It's not like it's cut off at the border. In a narrow sense, it's tough delivering content, but anytime Canadians interact with things that are American, they end up being affected by the change and the shape.

I see a future where, in the United States, there's a very strong effort to make everything that really survives on the Internet—that lives there—to be highly commercially successful. This is an important point that I didn't make in my opening remarks, which is that you see more and more power going towards the biggest Internet companies, ironically, Google, Facebook, and Amazon. To the degree that you're concerned about the market power of those companies in Canada...I don't know if that's a big concern. It's certainly a concern here. If you're concerned about the market verging on monopoly power—frankly monopoly power for many of them—and its effects on the Canadian economy, the loss of net neutrality in the United States makes those entities more powerful. That's something I think you need to be concerned about.

I've thought of one thing that's important. I think it's important that you speak to the competition authorities and ask them if this will create more barriers to entry. Will this create more barriers to entry, more market power for some of the biggest companies? Do we need to be concerned about this problem?

[Peter Kent, Conservative, Thornhill, ON]

That leads to the point that we've heard that new ideas, smaller companies, and start-ups may in fact find it much more difficult to start up in the United States under a new regime, but the Canadian start-ups may well also be affected in a domino effect.

[Prof. Timothy Wu]

Absolutely. What's the market for Canadian start-ups? It is Canadians, but also Americans. This change disadvantages the little guy and Canadians because although Canadians are not quite outsiders, they're a little bit outside the mainstream.

I think Silicon Valley is in a bit of a crisis right now in the sense that the new companies are not attracting the same kind of investment they used to. People are concerned that if you're not Facebook, Google, Amazon, or Microsoft, you don't really have a chance and that those guys will copy you quickly.

That's the Silicon Valley start-ups. How are Canadian start-ups, which are another step removed, looking? If they start facing net neutrality concerns, this will actually be a really serious concern. Imagine you have a Canadian start-up in the Ottawa region or in Vancouver. To reach their customers, they have to start negotiating with American carriers, and they may have no idea who those people are: Verizon, Comcast, AT&T, and so on. It's a greater barrier of entry for Canadian entrepreneurs, even more than for Americans.