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.
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.
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.
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?
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?
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.
It's wonderful to have you before our committee, Professor Wu, to discuss this issue.
It was interesting to hear the CRTC reassure us that everything is fine in Canada. The , as you pointed out, has noted his concern. However, we're talking about regulation. The FCC had decided in regulation to recognize and protect net neutrality. The CRTC's position in 2016 was that they were of the preliminary view that the act prohibited the blocking of access to end-to-end users.
Do you think, given the American experience, that we would be better off to define net neutrality in legislation, as opposed to having it interpreted by whichever CRTC commissioner we have at a given time?
I was interested in this whole issue, when we're talking about parity. Our telecom folks will start to push for parity. We have an oligarchy here. We have three or four giants, who also are content providers. They are very competitive with each other but not very competitive with consumers. It seems to me we are not all that different from the United States except that we probably do a much greater job of keeping the start-ups out of a very closed market.
Given the Canadian experience, you'd think we would be very susceptible to pressure. This is how it happens. They'll say, “Well, the Americans have it. We can't compete.” I mean, God, they come and cry on our shoulders all the time to get more and more protection for their protected market. Do we have to protect the consumer and people who use the Internet by having this very clearly defined?
In another life I was a musician. We saw how much the Internet turned over the traditional music model. Certainly there are many factors besides the Internet for what happened to the recording industry in the early 2000s. I came to Parliament, and the Internet was the biggest menace stalking the halls of Parliament. We had to constrain it. We had to define it. We had stop all the pirates. We came up with these big, giant bibles on how to save television by really committing to that 1970s vision of television. The market is changing and new things are happening. Certainly you mentioned this golden age of television. Now on Netflix I watch Icelandic television and Swedish television and New Zealand television.
What is the track record of having an open Internet, where things do get upset, where traditional models are overturned, and new start-up punk operations actually turn the world upside down? How do you see the importance of what the Internet has done and its potential to create new forms of communication?
Yes. I think that Canada should be seeking assurances from the United States that this continent-wide community is able to communicate among themselves without interference.
The phone and cable companies in the United States have been empowered—it is quite shocking—to block anything they want to. It's frankly a censorial power. If there is a Canadian site that is criticizing the excessive imperial attitudes of the United States, they can just block it so that no Americans see it. We had thought of this as an open continent, that in North America we can talk to each other, but they can block, they can intercept, they can block all your email communications. If they don't like what you have to say, because Charlie disagrees with Verizon's hegemony in this area, they can block it.
I think that if I were in the Canadian position—I wish I had said this in my opening remarks—I would seek assurances, maybe working with the trade treaties, maybe in terms of a question about free speech, that there will not be blocking of Canadians who want to speak with Americans.
Good morning, Professor Wu. Thank you very much for being here—well not actually here, but via the technology we have today.
I want to ask you two philosophical questions because I think my colleagues have done a very good job getting down to the limitations or implications of net neutrality. Since you're living in the United States—and I lived in Boston for three years when I was a student—the two principles I don't understand, particularly why there has not been a larger backlash to this, are the elements of free enterprise and free speech.
If we look at net neutrality, for the last 15 or 20 years there has been a constant effort to try to diminish that concept, indirectly or directly. If you look at the way the Internet was designed, the end-to-end principle of network design—you mentioned the Madison River case, and if you look at AOL, with their walled garden strategy, and AT&T not having Skype on the iPhone, or Verizon not having a Google wallet—there have been attempts for the last 15 or 20 years to circumvent the rule of net neutrality.
I go back to the debate that you had with Professor Yoo many years ago. One of the things he talked about in that debate was access tiering, which you were against, but the other thing he brought up was Schumpeter's thesis, wherein only large companies could innovate.
If you go back over the last 15 or 20 years, with the advent of the Internet and the technology we have, it's smaller companies that are innovating. You mentioned that very clearly. You said that Bell was great at developing the infrastructure for telephone but wasn't so good at, or came late to, the Internet.
What I fundamentally don't understand, when we look at the American system, is why there has not been a larger outcry, especially when the heart of the American system is being attacked, which is free enterprise. I don't understand that, because the country and its systems of government and the economy have been built on the concept of free enterprise, yet there has been no large outcry.
We are discussing this issue in Canada, although it has happened in another country. Can you explain what's happening in the United States? Is it that people don't know, that they don't understand the implications? Even for business people—small, large, medium—it's going to have an implication.
Thank you for that question. I think it's a good one. Let me say two things.
First, on how this could even come out of the United States given that it's a free enterprise country that is interested in entrepreneurship, I think there's a very big difference between being pro-market and being pro-business. There are a lot of members of both parties, let's say, particularly the Republican Party, who claim to be pro-market but actually are pro-business: in other words, they're pro the businesses that are there already and against their disruption by newer businesses.
It is telling, as I said. In its original form, this was pushed by the early Bush administration, in the sense that they could see what was going on, and I think it is really breaking.... It's not just this loony, left-wing thing. It is a pretty important principle that businesses, to get their start, need to be able to reach their consumers, and if they get blocked by bigger businesses, that's a bad thing.
Why is there not more backlash? I wouldn't say there's none. There is an effort in Congress to reverse this. Maybe I'm in the middle of it; I hear it all the time. It has a bit to do with our current political situation, where there are so many daily acts of outrage that I think people find it challenging. I think in a quieter environment.... This is a big one. Speaking as a resident of the United States, we have this prospect of nuclear war with North Korea, and we have an investigation into the President's lawyer paying off a porn star, and these things are a little hard to compete with when you're talking about telecom policy. It has rarely been as sexy as that—
I have a final question for you on the second point that I wanted to bring up.
We talked about free enterprise, but the other very basic and very strong principle in the United States is free speech. When you look at free enterprise, you look at free speech.
You have companies now, such as Comcast, for example, which owns NBC, and other broadband carriers that have other news elements. Here's my question. If that happens, then even in the concept of free speech, which is so clearly defined in the constitution, you're limiting free speech because, depending on which program you get, which package you get, and whatever is being steered toward you, that's the only stream of information you're going to get. Even that principle nobody has cried out over, whether it be free enterprise or free speech.
Yes, the language of net neutrality specifically is not in the act. We've talked about enshrining the principle, perhaps, although it seems more symbolic than anything because when you look at section 36 of the act, you see that “a Canadian carrier shall not control...or influence the meaning or purpose of telecommunications carried by it for the public”. That's one important component of it.
The second important component is subsection 27(2), which is that a Canadian carrier cannot “unjustly discriminate or give an undue or unreasonable preference toward any person, including itself, or subject any person to an undue or unreasonable disadvantage”.
Those twin provisions in the Telecommunications Act seem to, based on all the testimony we've heard, cover all the ground necessary to protect net neutrality, and all we would be doing is enshrining this general principle as a preamble of sorts. How effective do you think that is?
It's a very good question.
Can I say one thing on your previous comment before I get away from it?
Mr. Nathaniel Erskine-Smith: Sure.
Prof. Timothy Wu: I think the reason to do it by means of legislation in Canada is not that you don't cover it, but that someone or a future CRTC would say, “This is all fine, but broadband is not telecommunications”. Do you see what I'm saying? That was the approach taken in the United States, to say we have all these non-discrimination rules, but broadband is completely different and it has nothing to do with telecommunications. Telecommunications is telephones, and broadband....
It's a different legal manoeuver. You don't say, oh, this is not about...; you just pull it out of the statute all together and say the statute doesn't apply at all.
It could be. That's the American legal manoeuver that was used in this one. That's what's been challenged in the court.
As for this question of the FTC's authority. There's a lot to say about that. I worked at the FTC myself. I spent a lot of time thinking about the statute's section 5. There, the FTC would answer what you just said by saying that the broadband is no longer a common carrier because of this reclassification; because of what the FTC is doing, it's no longer a common carrier and therefore we do have jurisdiction over it.
Now someone could challenge that, relying on the ninth circuit, and say it's still kind of a common carrier, but they are taking it out of the common carrier category in order to give the FTC jurisdiction.
You're right that the idea of unfair acts and practices has been used in a lot of different ways. I think it has its limits. It's one of those things. It's like this tiny bit of authority that's been stretched pretty far. The main problem it has is that it basically creates regimes that are like click-through regimes. You just have to give notice of things. You can do anything you want; you just have to have a lot of fine print. I think that has not been good in privacy, frankly. You've probably heard this. I think the Canadian approach of privacy by design is better, if I can call that a Canadian approach, as opposed to...and I think most American academics think that the approach of just giving notice has failed. I mean, nobody reads the stuff. They never negotiate. I mean are you going to negotiate with Facebook when you have to see your grandkids? I know you don't have grandkids, but you know what I mean. It's an absurd fiction. That's how I feel about that.
We very much appreciate your expertise in this area.
I'd like to go to something you said about the censorial power. This is quite alarming, I think, to most Canadian citizens. When we talk about this issue, a lot of the discussion is more around the free market as opposed to free speech—the idea of antitrust, anti-monopolies, and making sure that new players have access to the market—but for most of the public, this is about free speech. This is about being able to have open access for ideas and the flow and exchange of communication.
You talked about Wikipedia. The ISPs here who came to see us talked about the fact that they are just the channel. If they were to block content, they said they'd wait for a court order. They don't block what goes through, and it sounded as if they were being quite strict in when and if they would do that. My understanding, from what you just said, is that's not the case in the United States.
Assuming that this new Trump administration policy goes through, they could block any website they wanted to. It gives them the power that the Chinese government has over speech, frankly. If you ever spend time in China, you'll notice that the Internet's very different. You can't visit any Tibetan independence sites; you can't visit Taiwanese sites; Wikipedia is blocked; Facebook is blocked. It's a completely different.
After this there's nothing stopping an American carrier from doing the same thing based on their idiosyncratic preferences, or maybe based on what the government tells them to do. Because the Americans have this blind spot toward private censorship, let's say the Trump administration says it wants you blocking all these sites that are saying nice things about North Korea, and everyone says, yes, why should we hear good things about North Korea, let's block all of those sites. They say that they agree that these sites are irresponsible; they're helping the enemy.
I'm not sympathetic, obviously, to the North Korean position, but I am sympathetic to free speech. They have the power. What you're hearing from the ISPs is basically some version of “Trust us”. As the last member suggested, I think Canadian ISPs are still bound by the telecom act, but for the United States, after this rule there are no holds barred, and it's open season for private censorship.
It's the elimination of net neutrality, of the rule that said no blocking. In other words, the old rule said that when a customer asked for something, you had to deliver it; there was no blocking of websites, IP addresses, or anything like that.
I worked in the industry. It's not hard to block sites. Some sites are blocked already. They tend to be by court order, of child pornography sites usually and things like that, so there is some blocking already. It creates an open season.
The American ISPs come to us and to the U.S. government and say, “Trust us, we're not censors, we're not interested in that”. However, my grave concern is what happens when they are encouraged by, let's say, the Trump White House to start blocking or slowing down all the anti-Trump sites or CNN or MSNBC or something like that. They might then think, why do we not just make sure they're a little more annoying to use than other sources of information? The capacity is very powerful for some real manipulation of the system.
The United States has a serious speech problem already, which is to say there are increasing numbers of new challenges to free speech. We're not very well meaning. For example, I'm talking about the harassment of journalists by online trolls, propaganda, fake news.... We have all these problems. The end of net neutrality in some ways makes them worse.
I want to just talk about the larger picture beyond the issue of net neutrality. In terms of questions of antitrust, which Americans tend to have been better at than Canadians in some areas, I was thinking of the Microsoft antitrust case and the issue of the bundling of services with Microsoft Office and Windows and all that. You'd mentioned the rise of very strong monopolies, which was certainly unexpected in the development of the Internet. Are we now also reaching that point with mobile devices and the enforced lack of compatibility, like the Apple Store, Google Play, and Amazon tablets? We're dealing with really dominant control of the market, and they're giving us all the great toys we can use, but we have to use them on their terms. In light of the net neutrality ruling, is there some question as to whether there will be be less of a desire to go on antitrust after them, or do we need to start breaking apart some of these monopolies?
I think in the United States there has been an impressive revival of antitrust thinking. I don't know if this has reached Canada. I think the pressure and the drumbeat to do something, to take seriously the market power expressed in some of the ways you described, has definitely built. I don't know quite what the target will be, but I think there's been a shift.
This is not a party thing. The Trump administration's Department of Justice has an aggressive lawsuit against AT&T right now, one of the biggest lawsuits in a long time, to try to prevent a big merger. At the end of the Obama administration, when I was in the White House, I didn't do these cases but there was a series of blocked mergers. I
I think antitrust is on the march again. I think people are saying, why not break up Facebook or something? What would be the downside? Instagram has managed to buy up all their rivals. Wouldn't it be better to have some competition in that space? Yes, I think that drumbeat is very strong right now.
I'm interested because we have similar issues in Canada, but we just take them from a different point of view, which is, again, that of protecting our basic industries and how we have to save them.
I remember that when I was first elected there was still a discussion about media monopoly. There was still a discussion about limiting the power of one or two or three players from owning all of the newspapers in a given area or owning all of the media markets. Then we were told time and time again that if they were given more and more of that monopolistic control, they would reinvest locally and we would have a much broader field of voices. What they ended up doing, of course, was firing all the local editors and local journalists, and then they pumped in the editorial content from Sun Media or Torstar. Now, once again, they're coming back and saying that we need to help them.
I'm looking at this in terms of the telecoms, because in Canada they are controlling more and more of the market in terms of the app services and the online devices. They pretty much run all the big sports networks and you can get them on your phones. We have dealt with them throttling and cutting off competition because they brought forward this issue.
Therefore, I want to go back to the issue of needing to actually put in legislation on net neutrality, because there is an interpretation that we're okay here, but there's always pressure in Canada to say that these giants are now too big to fail in our Canadian market. We can't get Americans to come in and take over. We have to protect them. We've created oligopolies. We have not based it on consumer competition. I think we are susceptible.
Given your experience in the United States with the power of the oligarchies there, do you feel that we do need to have some kind of written definition to protect consumers?
Sure. I'm open to my national duty.
By the way, when are you guys going to hold a hearing on the NHL and the Olympics? I want to know about that.
Some hon. members: Oh, oh!
Prof. Timothy Wu: That's what I'm upset about. I have an editorial in today's New York Times asking the Canadian Parliament to allow Canadian athletes to play if they want to, and proposing a law for the Canadian Parliament.
I know that's aside from net neutrality, but it's an issue that concerns me very deeply.