Bell fights back against competitor concerns over CSA application

Bell Canada has responded to concerns raised by competitors regarding its application asking the CRTC to change the way it treats Type 2 customer specific arrangements (CSAs). The incumbent telephone company states that there is substantial competition in the enterprise segment, reason enough for the commission to change the rules. The following is an edited excerpt of Bell’s reply comments. The competitors defend the current bundling rules on the basis that they are a necessary competitive safeguard, notably in light of alleged ILEC anti-competitive practices and an alleged limited level of competition in the large business customer environment. Bell Canada denies that the ILECs have a history of anti-competitive behaviour. In support of their allegations, the competitors allege in their comments that Tariff Notice Nos. 791, 793 and 796 demonstrate the potentially discriminatory and anti-competitive effects of the ILECs’ provision of services under Type 2 CSAs. In this regard, the competitors present a comparison of certain terms and rates offered to customers under the contracts associated with these tariff Notices as an indication of the propensity of CSAs to foster discriminatory pricing. Not only do the competitors fail to explain how these CSAs may have been anti-competitive, but they also note that MTS Allstream was offered a service nearly identical to the service proposed in TN 796; it is difficult to fathom what is discriminatory in MTS Allstream and the recipient of the TN 796 services obtaining these on nearly identical terms. In any event, none of the CSAs which were the subject of the tariff notices raised by the competitors was found to be anti-competitive. The competitors have also alleged that the commission’s findings in Decision 2002-76, Regulatory safeguards with respect to incumbent affiliates, bundling by Bell Canada and related matters, and in particular its findings in relation to the former activities of Bell Nexxia, demonstrate the need for the continued application of the current bundling rule in the context of mixed CSAs. The competitors’ reference to Bell Nexxia and Decision 2002-76 is a convenient smokescreen used by them to obscure the real issues raised by Bell Canada’s application. This is not the appropriate place to address the activities of Bell Nexxia. Decision 2002-76 was a complex decision involving not only the application of the bundling rules but also a change in the affiliate rule which, prior to the decision, had permitted resale on an unregulated basis of an ILEC’s tariffed services by an affiliated carrier of the ILEC. Moreover, it is an unfair and sweeping characterization to suggest, as the competitors have, that the activities which led to Decision 2002-76 were anti-competitive in nature or effect. In fact, the vast majority of CSAs entered into prior to Decision 2002-76, and subsequently filed in response to the Commission’s clarification of the rules in this decision, complied with regulatory requirements set out in the decision, including the imputation test. There is no evidence that any of these arrangements had any anti-competitive effect. The more important point, however, is that the extent to which the company was or was not compliant with the bundling rules at the time of Decision 2002-76 is irrelevant to a determination as to whether and to what extent these rules remain appropriate at this particular time in the context of the particular facts and circumstances set out in the current application. In this regard, the company’s application demonstrates that the current bundling rules are not a necessary or appropriate competitive safeguard in the current context of mixed CSAs. As evidenced by the expert reports of professor Donald G. McFetridge and of professors Frank Mathewson and Neil Quigley submitted in support of the application, the risks that the company, or other ILECs, could engage in anti-competitive bundling or predation are negligible. The conditions for anti-competitive bundling do not exist in Canadian telecommunications services as tariffed services must be made available on a stand-alone basis. Furthermore, ILECs must permit the resale of their tariffed services. Accordingly, the possibility that bundling would result in anti-competitive effects in the Canadian telecommunications context is remote. Concerns over predatory pricing are equally misplaced. Predation involves losses, attributable to pricing that is below some measure of the predator’s cost, in the expectation that this sacrifice can be recouped by charging supra-competitive prices in a less competitive market in the future. In telecommunications markets, ILECs neither have an incentive nor an opportunity to engage in predatory pricing. Should ILECs engage in predatory pricing, they have no opportunity to successfully sustain price increases after the fact in order to recoup their losses; tariffs prevent any unapproved price increase for tariffed services, while forborne and non-telecom services would remain, in the presence of low barriers to entry, competitive enough to defeat the ILECs’ recoupment strategy. Recoupment is simply out of the question for ILECs. Bell Canada would also point out that, under its proposal, the commission could still deal on an ex post basis with any complaint that a particular mixed CSA that satisfied the proposed test had an anti-competitive purpose and effect or otherwise was part of a practice to circumvent tariffs. If the commission, despite the remote risks, nevertheless found that an ILEC had engaged in anti-competitive conduct, the commission would have the authority under sections 24 and 25 of the Telecommunications Act to take remedial action. With respect to the degree of competition in the large business segment, the competitors argue that "the size and level of sophistication of the purchaser as well as the number of providers that are responding to demand as communicated via the purchasers’ RFPs" or purchasers’ "leverage" have little or no relevance in assessing market power (and thereby presumably the need for competitive safeguards). The competitors rely on the commission’s local competition data, presenting market share figures from 2003 and 2004, and on the Price Floor Decision’s reference to the ILEC’s 98% market share in network access used by business customers, as evidence of the weak state of competition for large businesses’ integrated solutions. The competitors’ focus on the degree of competition for certain tariffed services misses the point. The application does not seek forbearance for any stand-alone service that is currently tariffed; it does not seek to remove commission oversight over individual telecommunications services before they may be forborne. However, given that the tariffed components of a mixed CSA have already received approval from the commission when they are offered on a stand-alone basis, it should be unnecessary to require separate approval when they are offered in conjunction with non-tariffed services, especially when the tariffed services remain offered on a stand-alone basis at commission approved rates, terms or conditions.

Bell fights back against competitor concerns over CSA application

News | 11/23/2005 5:00 am EST

To keep reading, get a free trial.

Already a Subscriber?

Reuse & Permissions

Inside The Wire Report

Information

Hill Times Publishing

Get in Touch With Us