As reported in the December 2006 issue of The Competitor, the Canadian government recently launched several initiatives with a view to fostering increased reliance on market forces in Canada’s regulated telecommunications industry. In November 2006, the federal Cabinet exercised its power under the Telecommunications Act to vary the Canadian Radio-Television and Telecommunication Commission’s (the CRTC) 2005 Voice over Internet Protocol (VoIP) decision (see the December 2006 issue of The Competitor). As discussed in more detail below, in December 2006, the federal government tabled telecommunications-specific amendments to the Competition Act (the Act) designed to give the Act more "teeth" should a dominant telecoms provider abuse a dominant position. At the same time, the government announced its intention to vary the CRTC’s local forbearance decision in order to significantly extend local service deregulation, and issued the first-ever policy direction to the CRTC, encouraging greater reliance on market forces.
Bill C-41
On December 7, 2006, Canadian Minister of Industry Maxime Bernier tabled draft telecommunications-specific amendments to the Act. Bill C-411 would amend the Act to allow the Competition Tribunal 2 (the Tribunal) to impose administrative monetary penalties (AMPs) – essentially fines – of up to C$15 million in respect of abuse of dominance by telecommunications service providers regarding services not subject to CRTC regulation.
The Act’s abuse-of-dominance provision, s. 79, applies to one or more persons with market power who engage in a practice of anti-competitive acts that result in a substantial prevention or lessening of competition.3 Currently, where the Tribunal finds there has been an abuse of dominance it may make an order prohibiting the conduct in future and/or directing the infringing person to take such other actions as are "reasonable and necessary" to overcome the effects of the anti-competitive practice, including the divestiture of assets or shares. Where the Tribunal makes an order against an entity operating a domestic air service,4 it may also impose an AMP against the entity of up to C$15 million. Bill C-41, therefore, will extend the Tribunal’s power to order AMPs in respect of abuse of dominance to telecommunications services providers.
In support of its proposed amendments, the government cited the March 2006 report of the Telecommunications Policy Review Panel (the TPR Panel).5 However, the TPR Panel did not recommend that AMPs be made available to the Tribunal, but rather suggested them as an enforcement mechanism for the CRTC and the Panel’s proposed "Telecommunications Competition Tribunal."6 Furthermore, in proposing amendments specific to the telecommunications industry, Bill C-41 runs counter to the notion of the Act as generally applicable framework legislation and is contrary to recent statements by the Commissioner of Competition against sector-specific provisions.7 Although fines for abuse of dominance generally, as proposed by the previous government in the now-defunct Bill C-19 (2004), are opposed by many, empowering the Tribunal to impose stiff fines for abuse of dominance by telecom service providers may be seen as the quid pro quo for the proposed deregulation of local exchange services covering some 60% of the population (see below), and is consistent with the Bureau’s historic support of AMPs for abuse of dominance. As of the time of publication, Bill C-41 had yet to be referred to a Parliamentary committee for in-depth review.
Local Forbearance
On December 11, 2006, Minister Bernier announced the federal government’s proposed variation of the CRTC’s local forbearance decision, which had been issued back in April.8 In its April 2006 decision, the CRTC had determined that it would forbear from regulating retail local exchange services offered by an incumbent local exchange carrier (ILEC) where the ILEC could demonstrate, among other things, that it had suffered a 25% market-share loss in the relevant market for which forbearance was sought.
The government proposes replacing the CRTC’s market-share test with a "competitive facilities test." This test would require forbearance in respect of residential services in markets where at least three non-affiliated facilities-based service providers offer local services (two of which, including the ILEC, are wireline providers and one of which is a wireless provider). As the Minister explains, "[t]his means that in regions where consumers have access to telephone services from a traditional telephone service, a cable company and at least one non-related wireless provider [approximately 60% of the Canadian population], deregulation will occur."9 Forbearance in respect of business services would be required where at least two wireline network operators (including the ILEC) are present.
Alternatively, where the requirements of the competitive facilities test are not met, an ILEC would be permitted to apply to the CRTC for forbearance based on competition principles if at least two independent facilities-based service providers are present – the ILEC and a facilities-based entrant – and the ILEC does not have market power. The government is also proposing the elimination of CRTC "winback" restrictions, which limit the ability of ILECs to market their services to customers who have switched to alternative service providers. The government published its variation proposal for public consultation. Comments were due by January 15, 2007.10
Policy Direction
Finally, on December 18, 2006, Minister Bernier announced that the federal government had issued a policy direction to the CRTC under the Telecommunications Act. The policy direction, which was first proposed in June 2006 and recommended by the TPR Panel,11 requires the CRTC to "rely on market forces to the maximum extent feasible as the means of achieving the telecommunications policy objectives" [set out in the Telecommunications Act] and, when relying on regulation, to use measures "that interfere with the operation of competitive market forces to the minimum extent necessary to meet the policy objectives."12 The government has stated that the policy direction "represents an initial step towards greater regulatory change in telecommunications."13
Canada’s telecommunications regulatory framework, as embodied in the Telecommunications Act, was last modernized in 1993. The government’s recent market-based reform initiatives, along with ongoing efforts by the CRTC to decrease regulatory burden, aim to accelerate the shift towards reliance on market forces and to improve the competitiveness of the Canadian telecommunications industry.
Footnotes
1. An Act to amend the Competition Act, 39th Parl., 1st Sess., 7 December 2006.
2. The Competition Tribunal is a specialized adjudicative body that hears and decides all applications with respect to the reviewable practices, mergers and civil deceptive marketing practices provisions of the Act, including allegations of abuse of dominance.
3. Section 78 of the Act provides a non-exhaustive list of business practices that constitute anti-competitive acts for the purposes of the abuse of dominance provision, which acts have been described as involving an element of "purpose, object or design to undermine competition" (Competition Bureau, Enforcement Guidelines on the Abuse of Dominance Provisions, July 2001, at 10).
4. "Domestic air service" is defined in the Canada Transportation Act, S.C. 1996, c. 10, s. 55(1), as "an air service between points in Canada, from and to the same point in Canada or between Canada and a point outside Canada that is not in the territory of another country."
5. See Industry Canada, News Release, "Minister of Industry Moves to Promote the Interests of Canadian Consumers of Telecommunications Services," 7 December 2006.
6. Telecommunications Policy Review Panel, Final Report, March 2006, at 12 and 291-292.
7. See Speaking Notes for Sheridan Scott, Commissioner of Competition, Canadian Bar Association Fall Conference on Competition Law, Hotel Lac-Leamy, Gatineau, Quebec, Canada (28 September 2006), at 9: "Sector-specific focus is the exception rather than the rule for us."
8. Telecom Decision CRTC 2006-15, Forbearance from the regulation of retail local exchange services, 6 April 2006.
9. Industry Canada, Speaking Points for the Honourable Maxime Bernier, 11 December 2006. See also Industry Canada, News Release, "Canada’s New Government Proposes to Accelerate Deregulation of Local Telephone Service in the Interests of Canadian Consumers," 11 December 2006.
10. See Canada Gazette, Part I, Vol. 140, No. 50, 16 December 2006, at 4312.
11. TPR Final Report, at 3-39.
12. Order Issuing a Direction to the CRTC on Implementing the Canadian Telecommunications Policy Objectives, SOR/2006-355.
13. Id., Regulatory Impact Analysis Statement.
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