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Canada's telecommunications sector is bracing for an uncertain regulatory future as the federal government increasingly undermines its watchdog.

What began with a simple Twitter post by Industry Minister Tony Clement late Wednesday - he pledged to block a ruling on Internet pricing by the Canadian Radio-television and Telecommunications Commission - has morphed into a controversy over the independence and future of the regulator.

The latest development could turn out to be the second time in two years that Ottawa overturns a major CRTC decision. And for the regulated industry, already in the middle of rapid convergence and technological change, the move translates into new uncertainty for the multibillion-dollar sector.

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But with two crucial, landscape-shifting political decisions looming ahead - how Ottawa decides to loosen foreign ownership rules in the sector, and how it structures the next auction for wireless spectrum licences - the industry is certain of one thing only: That it can't be certain of anything.

"When it comes to politics, there are no rules for this industry, they'll be made up on the fly," says Michael Hennessy, senior vice-president of regulatory affairs at Telus. "That's unfortunate, but that's the way it seems to be."

It's the latest indication of how Prime Minister Stephen Harper's minority government is increasingly willing to step in and override the telecommunications regulator on decisions that become politically unpopular.

In 2009, it overturned a CRTC ruling on whether one of the new entrants in the wireless field, Globalive, met foreign ownership rules. The CRTC decided it didn't, while Ottawa, eager to see new competition, decided it was acceptable.

On Thursday, CRTC chairman Konrad von Finckenstein said he would review and delay the decision on Internet pricing. It would allow large Internet providers such as BCE Inc. and Rogers Communications Inc. to charge small players, which lease space on their networks, on the basis of how much data their customers use, effectively killing their popular "unlimited" download plans.

"We are convinced that Internet services are no different than other public utilities, and the vast majority of Internet users should not be asked to subsidize a small minority of heavy users," he told a hearing, adding he had decided to delay the ruling on his own the day before.

By the time Mr. von Finckenstein spoke publicly, Mr. Clement had already said on Twitter that he would send the CRTC "back to the drawing board."

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Recently, this previously obscure regulatory change on pricing exploded into a full-scale battle over Internet charges, with all three major political parties criticizing the CRTC for delivering what they called an anti-competitive ruling that allowed large telecom companies to skewer consumers on price.

Now, with Industry Minister Tony Clement urging the regulator to reconsider, and warning he will overturn any decision that limits use, the industry is tense, awaiting the possible disruption of the Canadian Internet business.

Executives and analysts are now trying to determine what sort of politicized telecom policy making is in store for the industry.

The two acts that oversee the CRTC are at the crux of the tension. The CRTC is required to follow the Telecom Act and Broadcast Act, and must rule solely on what is allowed under those regulations in evaluating mergers, takeovers, ownership or any other key industry issue. Mr. von Finckenstein has long wanted to update those acts - arguing they are behind the times - but the government has so far not wanted to do so.

After the regulator has arrived at a decision, it is within the government's power to refer a decision to cabinet if it believes the CRTC erred. The lever has been available since the creation of the regulator, but has just never been used to this extent.

"If that's the way this government wants to play, they should do it like in some countries, where it's the minister who makes the decision," said former CRTC vice-chair Michel Arpin. "Get rid of the CRTC and make it a pure political play - I don't think Canadians want that, I don't think the players want that. But we're going to a situation where Canada led the world with an independent tribunal. We've been the model for decades. This government is trying to kill that reputation."

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Few governments until now have intervened so often on crucial decisions.

Richard French, a former vice-chair of the CRTC, noted that it usually takes months for a formal review of a CRTC decision. The rulings themselves usually take months of deliberation and days of hearings, and involve hundreds of detailed documents.

"Now it takes three days. They decide to review it on Monday, and Wednesday night they tweet that they're going to send it back. It's government by tweet," Mr. French said.

The message to the industry, it seems, is that complicated telecom policy can be subject to a political whim that many feel has turned acutely against big telecom players in recent years, in favour of popular moves like approving Globalive and overturning a decision that could raise Internet prices. Both the foreign ownership issue, which could lead to a dramatic reshaping of the sector, and the wireless spectrum auction, which is for valuable airwaves, are on the horizon - and the general sentiment about them from big telecoms is pretty grim.

Dvai Ghose, an analyst who follows telecom and cable companies for Canaccord Genuity, said the signal sent by the government could have major implications for the industry. "It could be a much bigger issue than the Street suggests."

With files from reporter Steve Ladurantaye



The 1993 Telecommunications Act lays out the federal government's powers to alter or overrule decisions by the CRTC. The Harper government has clashed with the broadcasting regulator several times in the past five years, including its decision this week on usage-based Internet billing.

Local forbearance (2006)

CRTC rules: The CRTC lays out a plan to loosen regulation of local telephone service in specific areas of the country (dubbed "local forbearance regions"), depending on the market share of the service providers there.

Government overrules: Then-industry minister Maxime Bernier, wanting to speed the deregulation process, overturns the CRTC's criteria for forbearance, replacing them with new criteria based on "competitive infrastructure."

VOIP (2006)

CRTC rules: Seeking to foster competition in phone services run over the Internet, the CRTC decides to regulate voice over Internet protocol services by telecom companies.

Government overrules: Mr. Bernier blocks the decision, arguing that less price regulation will mean more and better competition.

Globalive (2009)

CRTC rules: The regulator forbids Globalive Wireless Management Corp. from starting a new cellphone brand, Wind Mobile, in Canada. It argues that Globalive violates foreign ownership rules because most of its equity is owned by Orascom Telecom Holding of Egypt.

Government overrules: Industry Minister Tony Clement decides that Globalive passes the Canadian ownership test and allows Wind Mobile to proceed.


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