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In a win for the country’s biggest phone and cable companies, a court has ruled that Internet service providers don’t act as broadcasters by offering connectivity to television and movie Web sites.

“In providing access to ‘broadcasting’, ISPs do not transmit programs,” a three-member panel of the Federal Appeal Court said Wednesday. Therefore they cannot be regulated under the Broadcasting Act.

However, it added, the court’s conclusion is “based on the content-neutral role of ISPs and would have to be reassessed if this role should change.”

In practical terms, it means ISPs – including BCE Inc.’s Bell Canada, Telus Corp., Rogers Communications Inc, Shaw Communications Inc. and dozens of small providers – can’t face a proposed Canadian content levy urged by a number of cultural groups.

But if ISPs get into a broadcast service, that might change their status.

The ruling may also benefit the Harper government’sattempt to liberalize foreign ownership in the telecommunications industry. Critics have wondered how telecom companies that are both broadcasters and ISPs – like Rogers Communications, Bell and Shaw – could see increased foreign ownership.
However, Industry Minister Tony Clement has said broadcasting and telecom entities are separate, so increasing foreign ownership limits of telecom companies only won’t diminish the Canadian content requirements of broadcasters.

The federal appeal court ruling could vindicate him.

Officials of two cable companies and a telco involved in the case were delighted. “We’re very pleased,” said Michael Hennessy, Telus’ senior vice-president of regulatory and government affairs. Chris Peirce, chief corporate officer of Manitoba’s MTS Allstream called it a “right-minded decision. A public affairs spokesperson for Rogers also said the company is happy, as did Tom Copeland, who heads the Canadian Association of Internet Providers, a group of mainly small ISPs.

A coalition of cultural groups that argued ISPs are broadcast undertakings because they transmit content could appeal the decision to the Supreme Court.

The issue was referred to the Federal Court of Appeal by the federal telecommunications regulator, the Canadian Radio-television and Telecommunications Commission (CRTC), after the commission updated its policy in 2009 on new media, which includes the Internet and wireless data.The CRTC oversees certain aspects of Internet service providers under the Telecommunications Act. However, since subscribers have the ability to watch TV over the Internet and on wireless devices there’s been a question of whether the ISPs also fall under the Canadian content rules of the Broadcasting Act, which governs TV and radio stations.

At the 2009 CRTC hearing, cultural groups urged the commission to impose a levy on wireline and wireless Internet providers under the Broadcasting Act to help pay for new media Canadian content. The commission didn’t see a need, nor was it sure if ISPs are broadcast undertakings, so asked the federal appeal court for an interpretation.

That court’s ruling doesn’t affect the CRTC’s updated new media policy to continue refraining from regulating new media through the Broadcasting Act. However, to keep an eye on how much Canadian content is pouring over the Internet and wireless, it ordered new media outlets to report details of their broadcasting activities, including revenues and expenditures. It is at the moment honing what it will require. As a consequence of the appeal court ruling it seems likely there will be no reporting requirements for ISPs that are solely access providers. That would leave only ISPs that are content providers or aggregators.
 

For Telus, the appeal court decision wipes away the fear the CRTC will impose a cultural levy on ISPs, said Hennessy.

On the other hand, he said, offering a service like Hulu, a U.S. online portal to TV shows, movies and sports, might be considered a broadcasting undertaking of an ISP because the ISP chooses the programming. The revenues from that portal might be subject to a CRTC levy under the Broadcasting Act, Hennessy said, but not all of the ISP’s revenue.

“You’re going to see more and more issues where ISPs that are more integrated may decide to offer their cable service online as well as through a linear channel. When they do that they’re no longer acting as solely ISP,” Hennessy said. The court, he added, wasn’t asked to address that, he added. But it did say as long as the business is only connectivity, the ISP only comes under the Telecommunications Act.

MTS Allstream’s Peirce said the decision was the “natural successor” to Supreme Court decisions. The ISP industry prefers to be under the Telecommunications Act, which he said is about “competition, innovation and choice,” whereas the Broadcasting Act deals with Canadian culture and other matters “which are not about competition.”

Had the court ruled otherwise it would have thrown a wrench into the telecommunications marketplace, he said.

As for the question of whether carriers of content – ISPs — can be regulated separately from content creators carried online –such as TV stations and specialty cable channels – Peirce said the court has answered with “an emphatic yes.”