CRTC Powerless To Regulate Internet

Commentary, Frontier Centre, Regulation, Uncategorized

The Canadian Radio-Television and Telecommunications Commission, has carved out a contentious niche for itself as the protector of Canadian culture. It is now turning its attention to the Internet.

Cutting off written submissions this week, the CRTC is now scheduling public hearings, to begin next month in Hull, Québec. The issue? Whether the agency should regulate new media like the Net.

In its oversight of the radio, television and cable industries, the CRTC mandates both Canadian ownership and content and forces licensees to air a certain percentage of locally produced programming.

On the radio, the rules have guaranteed millionaire status for performers like Anne Murray and Gordon Lightfoot. Regular television broadcasters, at least in the heavily populated strips that hug the American border, struggle to maintain market share against U.S. competitors who don’t have to report to Ottawa. Cable companies respond to the bean counting with unwatchable community access shows and dodges like the History Channel — a pale imitation of its Yankee counterpart — which replays American movies interspersed with inane and uninformed Canadian commentary.

An attempt to impose such controls on the Internet has a zero chance of success. The owner of a Brockville, Ontario telecommunications firm recently dismissed the idea as "ridiculous": "The long regulatory arm cannot reach out into digital space." Reflecting on the speed of change in cyberspace technology, the co-author of the 1998 Canadian Internet Handbook says, "We run the risk of creating a colossal report that will be out of date before the commission’s final report is released."

The CRTC knows all this, but has allies in some parents’ groups anxious to restrict their children’s access to smut on the Internet. Fact is, currently available software can do the job for those who wish to filter out obscene web pages, and the RCMP already has laws in place to charge pornographers in any medium.

One trial balloon floated by the CRTC deserves comment. One way to promote Canadian culture, they say, might be to force Internet access companies to pay into a fund for developing home-grown Internet pages. In other words, a new tax.

This option is feasible. But then the law of "unintended consequences" would kick in.

Roughly a third of Canadians are now "wired". That means they have the capacity – a computer and a modem – to hook into the Internet. The rate of access increases every year. From 1996 to 1997, the percentage rose from 23% to 43%. About 12% of us now conduct business on the Net. Internet commerce throughout the world already adds up to US$8 billion a year, and current forecasts predict exponential growth over the next decade.

Here’s the problem. If the server for these transactions locates in Canada, they are taxed at very high rates. According to the Financial Post Magazine, "If a company puts this server in Barbados, its Canadian shareholders get to keep about 97 cents of each dollar in profits, versus roughly 54 cents if they were operating out of Toronto – and that’s before dividend taxes. . . . Internet merchants can boost their profits up to 60% by making the move."

A built-in competitive disadvantage of this size means that Canadian Internet Service Providers are crippled from the outset. To widen the gap with a "Canadian culture tax" just as Internet commerce is taking off makes no sense at all. We might as well kiss the nascent industry goodbye.

In this decade, the CRTC bowed to reality and political pressure by deregulating the telecoms. So far, long distance rates have plunged 70% as a consequence. New taxes on the Internet go in the wrong direction.

They should keep their hands off the Net. How about declaring all Internet commerce a tax-free zone? All of Canada would be wired in no time flat.