Canada is taking a much stronger stand against data cap exemptions than the United States.

In the US, the Federal Communications Commission's new Republican leadership signaled that it won't enforce net neutrality rules against zero-rating, the practice of favoring certain Internet content by exempting it from customers' data caps. The FCC made that clear when it rescinded a determination that AT&T and Verizon Wireless violated net neutrality rules by letting their own video services stream without counting against customers' data caps while charging other video providers for the same data cap exemptions.

Canada is also taking a case-by-case approach to zero-rating instead of banning it outright. But yesterday, the Canadian Radio-television and Telecommunications Commission (CRTC) ordered changes to one carrier's zero-rating program and announced that it will enforce stricter guidelines for determining whether zero-rating programs are discriminatory.

Zero-rating "generally gives an unfair advantage or disadvantage to certain content providers and consumers," CRTC said in an announcement. The group said that it is "strengthen[ing] its commitment to net neutrality," and it also published detailed guidelines and its decision against Videotron, a telecom whose "Unlimited Music" program exempts certain online music providers from data caps of subscribers with certain mobile data plans.

Zero-rating music or video not allowed

The new policy "supports the freedom of consumers and citizens to access the online content of their choice without being unduly influenced by the marketing strategies and pricing decisions of ISPs with respect to the transmission of specific content," the CRTC said. "It also supports the ability of all content providers to innovate and encourages ISPs to compete and innovate based on the capabilities of their networks, as well as to offer a range of speed- and volume-based data packages to provide better choices to Canadian consumers."

The CRTC says that zero-rating should be open to all types of online services. Thus, zero-rating programs that exempt a broad category of content—such as video—would likely violate the CRTC policy even if the programs are open to all video providers and even if the video providers don't have to pay the ISP.

Canada's stance against zero-rating (which Canada also refers to as "differential pricing practices") appears to be even more strict than the FCC's was under former Chairman Tom Wheeler. Wheeler, a Democrat, determined that paid data cap exemptions as implemented by AT&T and Verizon were discriminatory. But he gave the green light to T-Mobile's zero-rating programs that exempted a wide range of video and music services from data caps without requiring payment.

Ajit Pai, the new Republican chair of the FCC, argues that free data is good for consumers even when carriers are exempting their own online services while charging competitors for the same data cap exemptions. Pai is also reportedly developing a plan to eliminate the FCC's net neutrality rules and replace them with "voluntary" commitments that would be enforced by the Federal Trade Commission.

Canada, on the other hand, found that Videotron's program was discriminatory even though the carrier said it wasn't charging music providers for the data cap exemptions. (Videotron did require music streamers to meet certain technical requirements.) Zero-rating based on "content/application categories raise significant concerns regarding the selection, definition, and implementation of the categories, in addition to... likely negative impacts on competition, consumer choice, and innovation," the CRTC said. "The Commission therefore considers that content categories, even broad, apparently all-encompassing ones, would not mitigate the negative impacts of content-based differential pricing practices."

Videotron was ordered to change its Unlimited Music program by July 19 to bring it into compliance. The company had argued that Unlimited Music is "a democratic program that allows participation by any music streaming service provider that meets the program’s technical criteria," and that "wireless service providers like itself must adopt new strategies to improve and differentiate their services in order to attract new customers," according to the CRTC decision.

"Proponents of differential pricing—which include Bell, Telus, Videotron and Facebook, which relies on zero-rating to offer its social network for free around the world—argued that the practice was good for innovation and would mean more choice and lower costs for consumers," the CBC wrote.

Complaints-based system

The Canadian regulator said that ISPs don't need to seek permission from the government before implementing zero-rating programs. But if an ISP is unsure about whether a program violates the rules, it can ask the CRTC for a decision on whether the program would be allowed before launching it. After programs are launched, the CRTC will use a complaints-based system to determine whether a zero-rating program is discriminatory.

The CRTC will judge programs based on four criteria: "the degree to which the treatment of data is agnostic (i.e., data is treated equally regardless of its source or nature); whether the offering is exclusive to certain customers or certain content providers; the impact on Internet openness and innovation; and whether there is financial compensation involved."

Of those, "the degree to which the treatment of data is agnostic will generally carry the most weight," the CRTC said. "In any evaluation, the Commission will also consider whether there are any exceptional circumstances that demonstrate clear benefits to the public interest and/or minimal harm associated with a differential pricing practice."

The CRTC said it can impose monetary penalties for violations, and that it will try to address complaints quickly in order to "minimize the risk of regulatory gaming."

ISPs will be allowed to zero-rate administrative functions that let their subscribers monitor data usage and pay bills online. The CRTC rejected calls to allow zero-rating for short-term marketing programs, such as trial periods for video games, saying that such an exemption "would lead to a risk of regulatory gaming and would not mitigate the negative impacts of such practices." The CRTC also rejected the idea of allowing zero-rating for social needs because "defining a content category is problematic; it is all the more so if the category is meant to define something as broad and subjective as 'social good.'"

OpenMedia, an advocacy group that submitted comments in the CRTC proceeding, praised Canada's decision, saying that "telecom companies use zero-rating schemes to artificially pick winners and losers online, and to deflect pressure from customers for larger and more affordable data caps, or an end to data caps altogether."

OpenMedia is satisfied even though the CRTC did not ban zero-rating entirely. "The onus is still on consumers and advocacy organizations like OpenMedia to complain to the regulator if any service offered by a provider violates the new framework, but the new rules cover 99 percent of the problematic cases we've seen emerge in markets like the US," OpenMedia Campaigns Director Josh Tabish told Ars. So far, the CRTC "has shut down every instance of an anti-competitive zero rating scheme" in Canada, and the new framework should speed up the complaints process, he said.

Canada is trying to encourage carriers to offer unlimited data plans, particularly on home Internet service. The CRTC recently declared that all Canadians should be able to purchase home Internet with 50Mbps download speeds and 10Mbps uploads, and it created a $750 million fund for areas where that level of Internet service isn't available. The money can also be used to boost mobile networks but without any requirement for unlimited mobile data.