Re-engineering Canada’s digital legislation

“Should Canada approach internet regulation with a greater sense of humility? Do such policies sufficiently consider whether they are imposing or relaxing barriers to innovation and investment?”

Those were questions I asked a year and a half ago in “Cross subsidies in a competitive marketplace”, when the previous government looked at the first iteration of its new media legislation.

Currently, Parliament has two pieces of digital economy legislation before it:

  1. Bill C-11 is “An Act to amend the Broadcasting Act and to make related and consequential amendments to other Acts”, otherwise known as the “Online Streaming Act” [First Reading].
  2. Bill C-18 is “An Act respecting online communications platforms that make news content available to persons in Canada”, otherwise known as the “Online News Act” [First Reading].

In reading the Acts, we find legal linguistic gymnastics, attempting to define what groups pay into various funds and what kind of groups are able to benefit from these pools. For example, The Online Streaming Act summary starts off with

This enactment amends the Broadcasting Act to, among other things,
(a) add online undertakings — undertakings for the transmission or retransmission of programs over the Internet — as a distinct class of broadcasting undertakings;
(b) specify that the Act does not apply in respect of programs uploaded to an online undertaking that provides a social media service by a user of the service, unless the programs are prescribed by regulation;

Got that? Streaming includes certain things, but excludes other things, unless those other things are included.

The term “social media service” appears 8 times in the body of the legislation, but I found it interesting that the term is not defined.

Both Acts refer to a sense of fairness in contributing to Canadian in a digital economy. In the Online News Act, the Summary opens with “This enactment regulates digital news intermediaries to enhance fairness in the Canadian digital news marketplace and contribute to its sustainability.”

Why is the government regulating certain internet services, news agencies, and distributors?

It’s all about money. And it’s the wrong approach.

Through the weekend, writing in the Globe and Mail about Bills C-11 and C-18, Andrew Coyne said, “This elaborate sham is intended to apply a veneer of due process to what is in fact nothing more than a crude revenue grab.”

For decades, successive Canadian governments have funded certain social objectives “off the books”, without touching the federal treasury. Canadian content production is funded by broadcast distribution companies; local phone service was subsidized by long distance calling; residential phone service was subsidized by business; rural phone service subsidized by urban.

As I wrote a year and a half ago,

The government has long used the communications sector as an alternate tax and wealth redistribution system, with fees from urban phone subscribers subsidizing rural, business subsidizing residential, broadcasting subsidizing content production. In a monopoly era, there was little harm and great political benefit. Social objectives could be attained without impact on the government budget. Politicians could take credit for achieving goals with others footing the bill. Inflated communications bills could be blamed on the industry.

As monopolies were replaced by competitive markets, artificially inflated prices got arbitraged, leading to a collapse in the funding of these programs. In 2014, I wrote “The future of communications cross-subsidies”, expressing concern about the unsustainability of the system.

As end users transfer from legacy, subsidy-paying services to applications and service providers that are outside the system, the burden increases for those who remain. As the burden gets spread across a shrinking base of users remaining, the taxation rate can increase, creating even greater opportunities for arbitrage, unless there are changes to the funds being drawn.

There are some who question whether the Canadian creative community or news agencies should receive government funding. I’m not going to wade into that area of policy. [See the piece by Howard Law on for an interesting perspective.]

My focus is on the questions at the top of this article. Should Canada approach internet regulation with a greater sense of humility? Do we really need to create such a regulatory system to handle the issue of funding certain social objectives?

Is it overly simplistic to ask why the government isn’t simply adding these programs to the budget, and funding them out of general revenues? If there is a view that global technology companies are extracting profits from Canadians and are not being taxed sufficiently, isn’t that more of a general taxation issue?

Are we casting an overly broad regulatory net because we are perpetuating an off-the-books cross-subsidy system?

Does the legislation, and the cross-subsidy system itself, appropriately consider the potential impact on innovation and investment?

I have no problem with taxing companies if they should be taxed; and governments should fund social programs if they merit funding. But why make one dependent on the other? Isn’t it unnecessarily complex?

Can this legislative activity lead to artificial distortions in the marketplace, and government interference in places and activities government simply doesn’t belong?

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