Telecom Regulation and Competition Law in Canada

1. Telecom Regulation and Competition Law in Canada American Bar Association -Telecom Antitrust Fundamentals II – Globalization and Telecom June 27, 2007 – Washington, D.C. David Teal Mergers Branch, Competition Bureau of Canada (Teal.david@cb-bc.gc.ca)

2. Overview • Overview of the Canadian telecom sector • Canadian regulatory environment • Recent developments

3. Overview - Canadian Telecom Sector • 2005 revenues of $34.5 billion. • ILECs = 65%; • out-of-territory ILECs = 11%; • facilities-based competition = 19%; • resellers = 2%. • ILECs serving territories are provincially based. • 2005 ILEC share of retail local – 92% of revenues and 90% of lines (vs. 2004: 94% of rev. and 94% of lines).

4. Overview - Canadian Telecom Sector (cont.) • 95% of population lives in a cable serving territory. • 89% are in a high speed cable serving territory. • 64% of households have Internet access. • 51% subscribe to high speed Internet - 54% of that total is with cable. • 3 national wireless carriers - 2 ILEC owned and 1 cable; small number of wireless resellers.

5. Regulatory Overview • Within the federal government, the Minister of Industry (Industry Canada) is responsible for: • Telecom policy and legislative initiatives involving the Telecommunications Act. • Regulation of spectrum management (under the Radiocommunications Act). • Policy/legislative initiatives involving the Broadcast Act are responsibility of the Minister of Canadian Heritage. • Canadian Radio-television and Telecommunications Commission (CRTC) is the regulator responsible for the regulation of both the telecom and broadcast sectors.

6. Regulatory Overview (cont.) • Canadian antitrust legislation is the Competition Act. • Enforcement is the responsibility of Competition Bureau • an independent agency within Industry Canada, reporting to Parliament through the Minister of Industry.

7. Regulatory Overview (cont.) • Law of general application - applies to all sectors, including the telecommunications sector. • Contains both civil provisions (e.g., merger review, abuse of dominant position, refusal to deal, exclusive dealing, tied selling) and criminal prohibitions against anti-competitive conduct (e.g., conspiracy, bid rigging, predation, resale price maintenance).

8. Regulated Conduct Defense • S. 34 of the Telecom Act: the CRTC: • may refrain from regulation when it is consistent with objectives of Telecom Act; or • shall forbear from regulation of specific provisions of the Act where competition is sufficient to protect the interests of users. • forbearance may be either conditionally or unconditionally. • forbearance power addresses the requirements to file tariffs, conditions of service, approval of agreements.

9. Regulated Conduct Defense (cont.) • To the extent that the CRTC has forborne from regulating conduct relating to a telecommunications service or class of services, anti-competitive conduct can be dealt with under the Competition Act.

10. Recent Developments in Canadian Telecom - Telecom Policy Review Panel • Telecommunications Policy Review Panel (TPRP) • Panel of three industry experts, appointed by the Minister of Industry, to review Canada’s telecommunications policy framework. • Final report March, 2006 -127 recommendations. • Underlying theme of the report: • “Canada's telecommunications markets have evolved to a point that justifies replacement of the current legislative presumption favouring regulation with one favouring reliance on market forces.”

11. Recent Developments in Canadian Telecom – Policy Direction to CRTC • S. 9 of the Telecom Act sets out 9 objectives for the TelecommunicationsAct. • Pursuant to theme of the TPRP recommendations, Minister of Industry issued a policy direction to the CRTC pursuant to S. 8 of the Telecom Act. • “rely on market forces to the maximum extent feasible and regulate, where there is still a need to do so, in a manner that interferes with market forces to the minimum extent necessary.”

12. Recent Developments in Canadian Telecom – CRTC Local Forbearance • CRTC regulatory proceeding to establish necessary conditions for forbearing from continued regulation in local telecom markets. • CRTC Decision 2006-15: established a market share loss threshold of 25% (and various quality of service requirements) for forbearance. • April 18, 2007 - Governor in Council Order varied the decision. • Market share loss test dropped in favour of one of two tests: alternative competitive presence test or competitive market analysis proposed by the Bureau.

13. Recent Developments in Canadian Telecom – Draft Telecom Abuse Bulletin • Sept./06 - Bureau issued a Draft Bulletin on the Abuse of Dominance Provisions as Applied to the Telecommunications Industry” (TAB). • Developed following TPRP report and with input from staff from CRTC. Consistent with the Bureau’s general Abuse Guidelines. • Part of the Bureau’s ongoing effort to maintain a transparent and predictable enforcement policy.

14. Recent Developments in Canadian Telecom – Draft Telecom Abuse Bulletin (cont.) • Describes the Bureau’s approach under the abuse of dominance provisions to the telecom industry. • Discusses market definition, examples of anticompetitive practices likely in telecom and the test for a substantial lessening or prevention.

15. Recent Developments in Canadian Telecom – CRTC Proceeding on Essential Facilities • CRTC PN 2006-14 – initiated a review of the regulatory framework for wholesale services and definition of essential service. • Bureau position: primary objective underlying the regulation of wholesale telecom services should be the development of competition between networks. • Effective competition is most likely to come from independent, facilities-based providers that control their own networks.

16. Recent Developments in Canadian Telecom – CRTC Proceeding on Essential Facilities • Bureau’s test for determining whether a facilityis essential considers whether: • the firm controlling the facility is dominant in both the upstream (wholesale) market for the facility and the downstream (retail) market in which it is used as an input, and • assesses the competitive impact in the downstream market of mandating access to the facility. • Proceeding is ongoing - decision expected April, 2008.

17. References • Commissioner Scott’s speech to the ABA’s 55th Antitrust Law Spring Meeting: http://www.competitionbureau.gc.ca/internet/index.cfm?itemID=2301&lg=e • CRTC Monitoring Reports: http://www.crtc.gc.ca/dcs/eng/pub_arch.htm • Telecommunications Policy Review Panel Final Report: www.telecomreview.ca • Governor in Council Policy Direction to the CRTC: http://canadagazette.gc.ca/partI/2006/20060617/html/regle5-e.html

18. References • Governor in Council Order Varying Telecom Decision CRTC 2006-15: http://canadagazette.gc.ca/partII/2007/20070418/html/sor71-e.html • Draft Telecom Abuse Bulletin: http://www.competitionbureau.gc.ca/internet/index.cfm?itemID=2180&lg=e • CRTC Public Notice PN 2006-14, Review of regulatory framework for wholesale services and definition of essential service: http://www.crtc.gc.ca/PartVII/eng/2006/8663/c12_200614439.htm