Annual Report 1994/95 - The Telecommunications Sector

The Information Highway is well and truly here. New technologies are emerging daily. Words such as "convergence" and "networks" are taking on new meanings, and we're discovering that DTH, fibre optic communications and wireless cable are with us now or coming soon no longer part of some future distant scenario.

Ours is increasingly an information-dependent economy. No one can fail to see the connection between economic health and a vigorous, confident telecommunications sector.

Here are some of the significant telecommunications activities in which we were involved during 19941995.

Rogers Communications Inc. and Maclean Hunter Limited

On March 31, 1994, Rogers Communications Inc. (Rogers) agreed to purchase Maclean Hunter Limited (Maclean Hunter) for a total of approximately $3.1 billion. I examined the likely impact of the proposed transaction on a number of markets, including cable television distribution, radio and television broadcasting, radio paging, newspaper and magazine publishing and commercial printing.

As Rogers did not own any newspaper, magazine or commercial printing operations, I concluded that the addition of the Maclean Hunter operations would not affect concentration in these markets. Similarly, the proposed transaction did not raise concern in radio and television markets because each firm owns broadcasting stations that do not compete in the same geographic market. I also concluded there would be effective competition in radio paging remaining from Bell Mobility and from a number of other regional firms participating in the paging markets where Rogers and Maclean Hunter competed.

In cable markets, Rogers is Canada's largest cable television distributor with 14 systems in and around metropolitan areas of Southern Ontario, Alberta and British Columbia. Following the pro posed transaction with Maclean Hunter, Rogers would increase its share of the total
number of cable subscribers in Canada from 26 percent to 36 percent.

I concluded that the proposed transaction would not likely lessen or prevent competition substan tially in any local cable market at this time. This finding was based in large measure on the long-standing policy of the Canadian Radio-Television and Telecommunications Commission (CRTC) to grant cable licences on an exclusive basis, creating territorial monopolies for cable service across the country. As a result, Rogers and Maclean Hunter do not and cannot compete in the provision of cable services to consumers. This policy also ensures that Rogers and Maclean Hunter do not compete in the purchase of programming from program suppliers for any local market. I also noted that the potential emergence of competitive alternatives, both from wired competitors, such as telephone companies, and from wireless technologies, such as direct-to-home (DTH) broadcast satellites and multipoint distribution systems, was an important factor in my assessment of the long term competitive effect ofthe proposed transaction.

It is important to note, given the considerable public comment on this issue and the size of the companies involved, that neither the Act in general, nor its specific merger provisions, deal with issues such as the concentration of media ownership.

I will closely monitor the effects of the Rogers/ Maclean Hunter transaction on the delivery of programming services, non-programming services and other informational and transactional services to consumers and business customers during the three-year period for monitoring setout in the Act.

Balloting Proceeding/(Telecom Public Notice CRTC 94-19)

On May 20, 1994, I provided a written submission to the CRTC with respect to an application by Unitel Communications Inc. for a balloting process for long distance telephone service. Under Unitel's proposal, telephone subscribers would select their preferred long distance service provider in a public balloting process. Such balloting procedures for long distance service have been held in the United States and Australia. I supported Unitel's application on the grounds that balloting could be an effective means of stimulating competition by facilitating the entry and growth of competitive providers of long distance service. In my view the one-time costs of the ballot would be outweighed by the benefits to the public of increased competition and earlier forbearance from regulation of long distance services. The Commission's decision was awaited at the end of the fiscal year.

Directory Database Information/(CRTC 94-3) .

In January 1994, the CRTC issued a public notice (CRTC 94-3) with respect to the provision of directory database information. I intervened in the matter and made a formal submission to the CRTC in June 1994. Consistent with our submission, the CRTC's March 1995 decision required that the telephone companies under CRTC jurisdiction make available non-confidential residential and non-residential information unbundled bygeographic region. It also established interim rates for the information. In March 1995, an independent publisher filed an application for alimited variance of the order with respect to a subscriber opting out provision.

Direct-to-Home (DTH) Satellite Distribution Consortium-Expressvu Inc. .

On May 17, 1994, Shaw Communications Inc. (Shaw), Astral Broadcasting Group Inc. (Astral), Canadian Satellite Communications Inc. (Cancom), WIC Western International Communications Ltd. (WIC), Rogers Communications Inc. (Rogers), BCE Inc., CFCF Inc., and Labatt Communications Inc. (Labatt) announced their intention to form aconsortium to deliver DTH satellite broadcast services. In July, 1994, Tee-Comm Electronics Inc. (Tee-Comm) joined the consortium discussions.

I commenced an examination of the proposed consortium under the merger provisions of the Act as the consortium included many of the current and potential competitors within a single enterprise, including the major cable companies, thus raising concerns on my part as to the state of competition in this emerging market.

On October 17, 1994, the consortium announced that Rogers, Shaw and CFCF Inc. were withdraw ing from the arrangement. On December 7, 1994, agreement was reached among WIC, Cancom, TeeComm and BCE Inc. to form a DTH satellite distribution company called Expressvu Inc. My examination was ongoing at the end of the fiscal year.

Long Distance Competition-Saskatchewan .

On June 4, 1994, the Government of Saskatchewan released a White Paper outlining the potential conditions under which Saskatchewan would consider allowing competition in the long distance telephone market. SaskTel, the provincially owned telephone company will not be subject to federal regulation by the CRTC until October, 1998. The Minister responsible for SaskTel invited comments on the discussion paper from all interested parties. On August 5, 1994, I provided written comments to the Saskatchewan Government encouraging the introduction of long distance competition on terms and conditions modeled on those contained in Telecom Decision CRTC 92-12. On September 20, 1994, I made further written representations to Saskatchewan. A policy statement from the Province on long distance competition was awaited at the end of the fiscal year.

New Brunswick Telephone Company (NBTel) .

I commenced an inquiry on August 28, 1994, following the receipt of information that the New Brunswick Telephone Company (NBTel) was engaging in a practice of anti-competitive acts by restricting the use of fibre optic and coaxial cable owned or leased by the New Brunswick Cable Television Association (NBCTA) members so as to prevent their entry into telecommunications, data transmission and multi-media markets in potential or actual competition with NBTel in the province of New Brunswick. Our examination led me to conclude that grounds existed for an application to the Competition Tribunal for a remedial order under the refusal to deal and abuse of dominant position provisions of the Act. Accordingly, on September 23, 1994, I wrote to NBTel to express my concerns with their restrictive use policies. I requested that NBTel reconsider its position on the continued use of restrictive covenants in its support structure agreements with cable companies and respond by October14, 1994.

In a letter dated October 14, 1994, NBTel undertook to remove immediately all restrictive use covenants on fibre optic and coaxial cable owned by provincial cable companies. At the same time NBTel wrote each of the NBCTA members and advised them of its change in policy.

On the basis of NBTel's positive and timely response to resolving the concerns which gave rise to this inquiry under the Act, I concluded that it was not necessary to apply to the Tribunal for a remedial order. On January 6, 1995, I advised NBTel in writing that I intended to keep my inquiry open and would monitor developments in New Brunswick to determine the effectiveness of the resolution of this matter pending a CRTC decision.

Concern over restriction of access to necessary infrastructure was also significant in my review of the Edmonton Telephones Corporation/TELUS Corporation transaction.

Acquisition of Edmonton Telephones Corporation by TELUS Corporation .

On November 18, 1994, the Edmonton City Council voted to accept an offer by TELUS Corporation (TELUS) to acquire Edmonton Telephones Corporation (ED TEL). TELUS controls AGT Ltd., the major telecommunications provider in the Province of Alberta. The transaction was reviewed under the merger provisions of the Act to determine whether the merger would prevent or lessen competition substantially.

Since ED TEL and TELUS/AGT had overlapping operations in only a few geographic areas and ononly certain product offerings, I was satisfied that it was unlikely that the proposed transaction would result in a substantial lessening of competition.

The primary focus of the examination was on whether the proposed merger would result in a prevention of competition in either the local or long distance telephony markets. As part of the examination, I considered the competitive implications of the possibility that at some point in the future, ED TEL and TELUS could, in the absence of the merger, compete with each other and also that the changing regulatory environment will allow others to more easily enter these markets to compete with the incumbents during the same period. The fact that the telecommunications industry is currently emerging from an environment of substantial regulation into one which is relying increasingly on the disciplines of competitive forces, was a significant factor in the assessment.

Another important consideration was that TELUS had indicated that it would allow access to its support structures so that coaxial and/or fibre optic networks owned by another party could be placed in or on any available space anywhere in Alberta. This access should encourage new entrants to compete within this market.

In light of these and other considerations, I announced on February 28, 1995, that I would not challenge the transaction. Given the rapidly changing regulatory and technological environment, I also announced that I intended to closely monitor the effects of this transaction, including access to support structures, during the three-year period set out in the Act.

DTH Policy Review Panel .

During the year, I participated in the Government's review of DTH satellite policies. In my view, a number of the terms and conditions of the DTH satellite distribution Exemption Order issued by the CRTC on August 30, 1994, substantially limited the prospects for meaningful competition among DTH service providers. I submitted detailed comments to the DTH Policy Review Panel charged with making recommendations to the Government on DTH policy.

On April 6, 1995, the DTH review panel issued its report, recommending that a competitive model be adopted for DTH services. The panel adopted many of my recommendations, including the recommendation that DTH firms be allowed to use foreign as well as Canadian satellites in the delivery of their services.

Information Highway Proceeding/(Telecom Public Notice CRTC 94-130) .

On October 11, 1994, the Government issued Order in Council 1994-1689 directing the CRTC to study and report on issues regarding facilities, content and competition as they relate to the Government's policy for the development of Canada's information highway. On October 20, the Commission issued a Public Notice establishing a public process involving two stages of written submissions by interested parties and an oral public hearing.

On January 16, 1995, I filed a comprehensive written submission together with two expert reports, one by Professor Steven Globerman of Simon Fraser University and the other by Dr.Robert Crandall of the Brookings Institution and J. Gregory Sidak of the American Enterprise Institute for Public Policy Issues. On February 13, 1995, I filed with the Commission substantive comments in reply to the submissions of other interested parties and on March 16, testified at the public hearing along with Professor Globerman and Dr. Crandall.

This was an extremely important proceeding in which I advocated regulatory reform which would allow for an immediate market-driven transition to competition in the distribution of information highway and broadcast services. I also recommended that there be no mandated interconnection between cable and telephone networks, that foreign ownership restrictions in the communications industry be relaxed, that subscribers be given ownership of telephone and cable inside wiring, and that the present structure for promoting the production and distribution of Canadian cultural products be reviewed and replaced with a program of targeted subsidies. The CRTC's report to the Government was issued in May 1995.

Forbearance of Non-Dominant Carriers/(Telecom Decision CRTC 94-19) .

In response to CRTC Notice 94-19, I filed a submission on December 12, 1994, advocating that the Commission forbear from the regulation of non-dominant carriers. I advocated forbearance on the grounds that these carriers do not possess sufficient market power to warrant regulation, that they do not control essential bottleneck facilities and that forbearance would further the competition and regulatory efficiency objectives of the Telecommunications Act.

Satellite Master Antenna Systems/(Telecom Public Notice CRTC 94-20) .

On January 27, 1995, I provided comments to the CRTC with respect to Notice of Public Hearing 94-20 regarding the operation of a satellite master antenna system (SMATV) at the Pacific Place site in Vancouver. I highlighted the benefits to the public arising from competition to the cable television industry from alternative service providers. I also encouraged the Commission to interpret its exemption criteria for SMATV and terrestrial relay distribution undertakings in a manner which would allow for increased competition in the distribution of broadcasting services. The Commission's ruling was awaited at the end of the fiscal year.

Long Distance Competition and Consumer Choice .

Another area calling for special attention in the period was the marketing practices of some providers of long-distance telephone services. As a result of information received, I have commenced various examinations and inquiries. My officials and I have also participated in conferences and encouraged increased industry awareness of the Act. In addition, I continue to explore means to provide practical consumer advice to encourage shopping for long-distance phone services like other products and to ensure that consumer expectations are satisfied. I hope that these efforts will help ensure that it is informed consumer choice that determines the winners and losers in this newly competitive market, and not deceptive marketing practices.