Internet packages that offer unlimited video or music streaming while putting data caps on everything else are controversial. In some circumstances, that kind of "differential pricing" should be banned, says Canada's competition watchdog.

But in other cases, it may not be harmful, said the Competition Bureau in a submission to Canada's telecommunications regulator this week.

The comments were submitted in response to the Canadian Radio-television and Telecommunications Commission's consultation on differential internet pricing.

Differential internet pricing occurs when an internet or mobile provider effectively charges different rates for data used by certain applications or to consume certain kinds of content.

For example, a wireless provider might charge a certain fee for five gigabytes of mobile data when you're using Skype or watching YouTube, and a surcharge or "overage fee" if you go over.

But it might offer unlimited Netflix streaming that doesn't count toward that five gigabyte cap. In that case, watching Netflix would essentially be free — a special case called "zero-rating pricing" — while Skyping or watching YouTube would not.

The review was launched by the CRTC earlier this year in response to complaint about Quebec-based internet service provider Videotron's "Unlimited music" internet plan, which allows its customers to stream music from certain third-party services without it counting toward their monthly data cap.

The complaint was filed by the Public Interest Advocacy Centre, which says the practice, sometimes called "zero-rating" pricing, allows Videotron to discriminate against other music-streaming services in favour of the ones it has agreements with.

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The Public Interest Advocacy Centre says Videotron's 'zero-rating' pricing for Unlimited Music allows the internet provider to discriminate against other music-streaming services in favour of the ones it has agreements with. (Q/CBC)

The Competition Bureau says differential pricing of internet data doesn't raise concerns so long as the cheaper content, such as video or music, is unaffiliated with the internet provider. However, it added that differential pricing should be banned in cases where internet providers receive financial benefit from content providers favouring their content.

Those arguments may support Videotron, which says participation in Unlimited Music is open to all streaming providers that meet Videotron's technical criteria, and Videotron is not receiving any compensation from any provider.

If the internet provider isn't receiving compensation, then its motive for differential pricing "can only be to strengthen its competitive offer vis‑à‑vis its competitors," the bureau wrote. That may benefit some and injure others "but, on balance, increases the overall efficiency of the economy."

Stifling innovation

On the other hand, in cases where the internet provider receives a financial benefit for favouring certain content, that can "harm competition, stifle innovation and increase prices for consumers," the bureau says.

In that case, the customer's product choice may be influenced by the different price of a certain product rather than its quality, removing the incentive for competing content providers to offer a superior product, the bureau argues.

That's why it's advocating for a ban on that kind of differential pricing.

The CRTC has previously disallowed such a pricing model for Bell's Mobile TV app, which allowed users to view 10 hours of Bell's own TV content per month for $5, regardless of the amount of data they used, while charging regular rates for data when users streamed video from other services.

Earlier this month, the Federal Court of Appeal dismissed Bell Mobility's attempt to overturn the CRTC ruling.

Not everyone agrees that differential pricing is OK in cases where the internet provider receives no compensation for favouring certain types of content or applications.

"In point of fact, the bureau doesn't get it," Pete Nowak, a former CBC journalist, wrote on his technology blog Alphabeatic.

Videotron's Music Unlimited favours streaming services such as Spotify over online radio stations and other kinds of audio streaming, "which seems to have anti-competitiveness written all over it," Nowak added. "Moreover, allowing ISPs and wireless carriers to choose which services to exempt from data caps – even without any financial considerations – inevitably makes it harder for non-chosen services to arise and compete."