Competition Bureau and Wireless Communications

Presentation by André Lafond
Deputy Commissioner of Competition
Civil Matters Branch, Competition Bureau

Spectrum Conference 20/20
November 30, 2000

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Good afternoon ladies and gentlemen. First of all, I would like to thank the conference organizers for inviting me here today. The topic for this afternoon's session deals with regulations, from the regulator's perspective.

Some of you may be somewhat surprised to see a representative of the Competition Bureau participate in this session, since the Bureau is not a regulator and has no intention of becoming one. However, in our intervention work, which I will describe later in my presentation, we do deal with regulatory agencies. It is in this context that I am participating in this session.

My presentation will essentially provide a general overview of the Competition Act and of the Bureau, and will outline the guiding principles that govern our work, how the Bureau's activities relate to wireless communications, and the key challenges we are facing in the administration of the Act.

The Competition Act is a law of general application that applies to all sectors of the Canadian economy, with two exceptions: 1) those sectors that are specifically exempted from the Act and 2) those that are subject to specific regulation (Union Activities /Amateur Sport).

The Competition Act is a framework law: it sets broad parameters within which businesses operate.

The Act is administered by the Competition Bureau but adjudicated by the Competition Tribunal (in civil matters) and the courts (with respect to criminal anti-competitive practices).

The objective of the Act is to safeguard and enhance the competitive system. Its purpose is to protect competition, not individual competitors.

The Bureau is headed by the Commissioner of Competition who is independent in terms of decision making. He has the responsibility of informing the Minister of Industry of certain decision, but there is no ministerial intervention in the administration of the Act .

The Bureau is part of Industry Canada for administrative and budgeting purposes.

All the Bureau's work is guided by five governing principles.

FAIRNESS refers to striking the right balance between voluntary compliance and enforcement, while responding to many competing interests (e.g. consumers and producers, wholesalers and retailers, dominant players and minor players, public interest and private interest).

TRANSPARENCY means that the Bureau will be as open as the law and confidentiality requirements permit. If we communicate what we do, we can send a signal that may deter those who might otherwise engage in anti-competitive behaviour.

TIMELINESS demands that decisions as to whether to proceed or discontinue a matter be made as quickly as possible to avoid costly delays.

PREDICTABILITY involves providing appropriate background material on Bureau positions to assist the business community in conducting its affairs in a manner that complies with the law.

The final principal, CONFIDENTIALITY, requires that the Bureau use all available means appropriate to the circumstances, in order to protect confidentiality or commercially sensitive information provided by the business and legal community, or by an other source.

These five governing principles form the foundation on which the Bureau seeks compliance with the legislation. This approach has evolved over time and is generally described as: conformity through education, facilitating conformity, and response to non-conformity.

Conformity through education represents a fundamental element of the Bureau's compliance strategy. We believe that, if the business community is informed about its obligations, the majority of businesses will comply with the legislation. To this end, several instruments have been developed which include the publication of informative documents, direct communications and advocacy for a pro-competitive marketplace.

Facilitating conformity includes both general application activities, such as monitoring the marketplace to detect and prevent anti-competitive conduct, and specific application, which includes providing advisory opinions, and advance ruling certificates. These elements enable businesses to ensure conformity before there is a need to remedy anti-competitive activity through enforcement action.

Responses to non-conformity become necessary when voluntary compliance with the law is not forthcoming. Such responses can be grouped into three categories: suasion, consent, and adversarial instruments. These categories consists of various components.

The Conformity Continuum contains various instruments which provide the Bureau with a wide variety of choices in seeking compliance with the legislation. The most appropriate instrument or set of instruments varies according to the specific circumstances.

The Bureau has five main roles:

The first one relates to criminal law enforcement. The principal concerns of our Criminal Matters Branch relate to price fixing, bid-rigging and price maintenance. Sanctions with respect to the criminal provisions are: fines, imprisonment and prohibition orders. It is the responsibility of the Attorney General of Canada to prosecute these cases.

Our second role relates to informing, educating and protecting consumers. The Fair Business Practices Branch's principal concerns relate to telemarketing, misleading advertising and pyramid selling. There are two types of sanctions for such offences: criminal sanctions for egregious cases and civil sanctions for other cases.

Our third role relates to the merger provisions of the Act administered by our Mergers Branch. Too much concentration leads to market dominance and the possible temptation for firms to abuse their market power.

Firms must notify the Bureau if the sales or assets of the firm being acquired exceeds certain thresholds (i.e. if sales or assets of the firm being acquired exceed $35M and if the sales or assets of both companies exceed $400M).

We have performance standards with regard to our review of proposed mergers and the Bureau can challenge a transaction ex ante or up to three years after closing.

It is important to note that the Bureau does not approve mergers; our role is to challenge mergers before the Competition Tribunal if we believe that a proposed merger will have a detrimental effect on the marketplace.

Our fourth role is one of a referee, in terms of determining what action or activity constitutes vigorous competition or anti-competitive conduct.

For the Civil Matters Branch, our principal area of concern relates to abuse of dominance in the market place, tied selling, refusal to deal and exclusive dealing.

The Bureau challenges potential cases in front of the Competition Tribunal; sanctions are injunctions and prohibitions orders.

Our fifth and final role relates to advocacy, also the responsibility of the Civil Matters Branch. In this regard, the Bureau has the statutory power to intervene before federal boards, commissions or other tribunals, and with leave, before similar provincial bodies.

Principal areas where we have intervened in recent years include the telecommunications and energy (electricity and gas) sectors.

The Bureau's advocacy role provides us with a unique opportunity to influence regulatory policy. Over the years, we have intervened in numerous proceedings dealing with the deregulation of industries and our message to regulatory authorities has centered on five key objectives.

The first is to promote competition in all aspects of the sector being deregulated, except those in which competition is clearly not appropriate for achieving an economic or social policy objective. The second is to ensure that regulation, in cases where it is necessary, takes the form that least restricts or distorts competition.

Our third objective is to promote the use of mechanisms for rapidly removing any remaining regulation, once the need for it disappears.

The fourth objective is to ensure that there is an effective set of regulatory and competition law restraints to prevent anti-competitive activities during the transition from regulated to competitive markets.

Finally, we want to ensure that where there is effective competition, the Competition Act, not regulation, will be relied on to ensure that the public interest in maintaining competition is protected. This is the approach we have been advocating in front of the regulatory authorities and it represents the Bureau's views with respect to regulations.

In November 1999, the Competition Bureau and the Canadian Radio-television and Telecommunications Commission agreed on a document which describes the responsibilities and the authorities of both organizations under their respective legislation.

The objective of the documents is to give industry stakeholders greater clarity and certainty as to the overall regulatory and legal framework governing the telecommunications and broadcasting sectors. The interface document deal with a range of issues and is available on the Bureau's Web site.

As I have indicated, the Competition Act governs, with some exceptions, all business conduct in Canada. One such exception relates to a legal doctrine called the Regulated Conduct Defence which was developed through jurisprudence.

In a nutshell, where a business conduct is subject to oversight by a valid federal or provincial regulatory authority, such conduct is deemed to be in the public interest, and therefore, beyond the application of the Competition Act.

It is important to note that this is not a "regulated industries" defence. The defence applies only where a specific business conduct/activity is approved by a regulatory authority.

Consequently, the Competition Act would apply in situations where the conduct is not regulated or when the regulator has forborne from regulation.

Two points need to be clarified with regard to the regulated conduct defence. First of all, what about Conditional Forbearance by the CRTC? Where the Commissioner has forborne only in part or has exempted or forborne conditionally, it is our view that the Competition Act would apply to the activities exempted or conditionally forborne from regulation.

The second point relates to license transfers. Licence transfers involve a dual approval process. Under the Radio Communications Act, the Minister may issue and transfer ownership of spectrum licenses. It is our view that the Minister's role relates only to the actual licence transfer. Consequently, the sale of business assets would remain subject to a full review under the merger provisions of the Competition Act.

The Bureau has been a strong supporter of open communications markets, deregulation and the use of spectrum auctions. Competition and auctions are important tools for achieving Canada's economic growth and international competitiveness objective.

My colleagues at Industry Canada and the CRTC have both been promoting competitive communications markets. As a result of their efforts, Canadian consumers and businesses now have greater choice, lower prices, and higher quality communications services.

As indicated earlier, under the Bureau's advocacy role, we have intervened in numerous CRTC proceedings and made submissions on telecommunications and broadcasting issues.

We have also provided advice to our colleagues at Industry Canada on the competition policy rationale for spectrum auctions and the process to be used to allow for a competitive outcome.

(a) For example, we have provided advice on mechanisms to be used to both guard against and detect bid rigging of auctions:

(b) To guard against re-monopolization of telecommunications services by established incumbents, we have provided advice on whether or not spectrum caps on incumbents are required. For example, we believe they are not necessary in the upcoming PCS auction since a number of firms are already providing service in each region of the country.

With respect to our enforcement activities, we monitor auctions and would investigate any allegations of bid-rigging or collusion by bidders to fix prices or share markets.

We also monitor the transfer of licenses and review the transfer of business assets under the Bureau's merger provisions.

In conclusion, the Competition Bureau faces a number of challenges in the years ahead. First, we must continue to review in a timely way proposed mergers among industry players. Second, deregulation means that we can expect an increase in our enforcement activities to deal with complaints under the Act.

Third, like the major anti-trust authorities around the world, we will need to ensure that we have the necessary tools at our disposal to address competition issues in new media and electronic commerce.

Finally, international cooperation will continue to be a key priority in order for the Bureau to deal with cross border competition issues.