Representatives from Bell and MTS debate merits of Competition Bureau’s new stance

Two of the most outspoken regulatory officers have sent mixed messages regarding the Competition Bureau’s decision to clarify and define what its role will be in a forborne telecommunications market. Lawson Hunter, executive VP and chief corporate officer at BCE Inc. and Bell Canada, and Chris Peirce, chief regulatory officer at MTS Allstream Inc., spoke with Network Letter earlier this month. Both agree that the bureau’s move is a step in the right direction. "It’s a positive development, and the bureau is doing what the TPR recommended they do," Hunter tells Network Letter. "Our own submission stated that the industry should move to a more economic treatment of the industry as a whole. The bureau needs to be prepared for when the industry gets forborne so this is a welcome step." Peirce agrees that the bureau should define what its role will be in a more open market. "There has been a notion about how MTS Allstream would react, that these initiatives would be bad for us but that’s not the approach we’re taking on this," he says. "Interest by the bureau in properly describing how anti-competitive behaviour should be pursued by them is a good thing." For example, both carriers concur that the CRTC will continue to regulate some aspects of the telecommunications industry, even after widespread forbearance. "The CRTC will continue to have that role on the consumer side and with the technical aspects, such as with the CISC interconnection issues," says Hunter. Peirce agrees but goes further, stating that, "If you look at the TPR report, the commission will be regulating essential facilities for some time to come, as there is significant market power there." In a draft information bulletin published in September, the bureau laid out its intentions and thoughts on the issue of how it will apply the abuse of dominance provisions of the Competition Act to the telecommunications industry. It worked intensively with CRTC staff over the summer of 2006 to flesh out the final document. Stating that the bulletin "is part of the Competition Bureau’s continuing effort to maintain a transparent and predictable enforcement policy," the bureau also outlines how it would attempt to define the product and geographic markets, determine competitive price levels as well as the role of market power and market share, and define anti-competitive acts in the telecommunications industry. While both Bell and MTS Allstream appear to agree with the overall initiative of the bureau, the two carriers differed on just about everything else the bureau proposed. On the different approaches used by the commission and the bureau to assess evidence of anti-competitive conduct, and the fact that the commission has traditionally been quicker in resolving disputes while the bureau has not, the two carriers had clear opinions. "The industry has conditioned that they can run off to their friendly regulator and get a timely decision," says Hunter. "But what is timely is up for debate given their incredible discretion on when they decide to deal with issues." Peirce has a different view. "The bureau tends towards highly theoretical, highly after the fact and a high hurdle to get over for the claimant. The real fear from competitors is that those three things lead to the incumbents prevailing. That oft-trotted out metaphor of the body being dead and cold before the bureau would act is apt," he says. Pricing is also a touchy issue with the two carriers, particularly the bureau’s approach in focusing on price increases above the competitive price rather than the prevailing price. "It’s complicated by the fact that the starting point for us is a regulated price, not a market price, so that’ll be an interesting issue for the bureau to deal with," says Hunter. MTS Allstream’s Peirce is more nuanced on the issue of predatory pricing. "I think that predatory pricing is really not the evil you would expect to find in telecom," he says. "But pricing control at the downstream end and what your competitor can offer up what control there is at the upstream end and that is what we need to work on. Work needs be done to separate the upstream end to ensure that access can be guaranteed for all players." The two companies are also divided on issues around the bureau’s definition of the appropriate geographic market. "The bureau has much…more expertise at defining geographic markets than the CRTC does," says Hunter. "You may recall that in response to the local forbearance decision, I termed the commission’s definition of a local market as ‘economically illiterate.’" He adds that the incumbent carriers are currently bedevilled by multiple definitions of a geographic market. "I think we’ve got no less than 13 different definitions of geographic market and they all overlap at one point or another," Hunter says. "You pull on one definition over here and it reverberates over there. It will be much clearer if we have one definition." MTS Allstream is more critical of the bureau’s abilities to define a geographic market for telecommunications. "The conversation in the bulletin discusses the issues related to geography that could quite easily lead to an absurd outcome, such as the market coming down to a building perhaps," says Peirce. He instead praises the commission for getting it right in the recent local forbearance decision, saying that "What the commission has done is not a perfect result, but the CRTC came to a decision that comes pretty close to working well." The bulletin states that while market share is important, the bureau will also rely on other factors, such as barriers to entry and technological change in its assessment of market power. Bell support this . "The bureau has a much better grasp of the market and facilities issues" says Hunter. "I think the commission is making it too easy for the competitors and by doing so, the government may actually be fostering a market that is not as competitive as it could be, which is not good for the consumer." Peirce doesn’t agree. "One should always be careful when one is challenging common sense, and common sense would tell you that market share is important. If one supplier has 90% and the other has 10%, that’s an important issue," he says. "For the bureau to be interested in a merger transaction, the market share figure they use is 35%, and in telecom we are so far from that right now." In addition, Peirce is less confident than the bureau about the effect of technological change on disciplining anti-competitive behaviour. "Technological change is the dominant wolf in the high-tech sheep’s clothing," he tells Network Letter. "It has not demonstrated to be an effective brake on incumbent market power. Technological change has not proved to be an impediment, particularly in the business markets."

Representatives from Bell and MTS debate merits of Competition Bureau’s new stance

News | December 8, 2006

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