• Overview of the Competition Act
• Enforcement Role – Abuse of Dominance
• Advocacy Role

• Law of general application - applies to all sectors, including the telecommunications sector.
• Purpose is to maintain and encourage competition to:
  • Promote the efficiency and adaptability of the Canadian economy;
  • Expand opportunities for Canadian participation in world markets while recognizing the role of foreign competition in Canada;
  • Ensure that small and medium-sized enterprises have an equitable opportunity to participate in the economy; and
  • Provide consumers with competitive prices and product choices

• Contains both civil and criminal prohibitions against anti-competitive conduct.
• 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.

• Prevent conduct that lessens competition:
  • Abuse of dominant position
  • Refusal to deal
  • Exclusive dealing
  • Tied selling
  • Mergers

• Three elements for abuse of dominance under section 79 of the Competition Act:
  • The firm is dominant in a properly defined product and geographic market.
  • The firm has engaged in a practice of anti-competitive act(s) that are intended to be exclusionary, predatory or disciplinary towards a competitor.
  • The effect of the act(s) is or is likely to substantially lessen or prevent competition in that market.

• Draft Bulletin on the Abuse of Dominance Provisions as Applied to the Telecommunications Industry" (TAB)
  • Describes the Bureau's approach under the abuse of dominance provisions to conduct in the telecom industry.
• The TAB is part of the Bureau's ongoing effort to maintain a transparent and predictable enforcement policy.

• Market power is defined as the ability to impose a small but significant non-transitory increase in price (SSNIP) without fear of competitive reaction.

• Three steps: Define product market, define geographic market and assess market power.
• Defining product and geographic markets
  • Product market definition requires identifying all close substitutes for the product in question to which buyers would switch in the event of a SSNIP.
  • The relevant geographic market is the smallest region within which buyers are able to switch to alternative providers of the product in the event of a SSNIP.

• For many telecom services, the provision of service is tied to a specific location.
• To simplify analysis, where appropriate the Bureau will aggregate all locations where consumers face the same competitive alternatives.
• "Holes" may exist where there is only one supplier. These may be treated as separate markets.

• Market shares:
  • high market share is usually necessary, but not sufficient, to establish market power.
• Barriers to entry:
  • economies of scale; sunk costs; regulatory barriers; long-term contracts; market maturity; IP; reputation of incumbents.
• Other market characteristics:
  • the extent of countervailing power; technological change and innovation.

Capacity to supply, where available, will be an important measure of market power.

• S. 78 of Act sets out non-exhaustive list of acts.
• Anti-competitive act = "one whose purpose is an intended negative effect on a competitor that is predatory, exclusionary or disciplinary." (Canada Pipe)
• TAB addresses a number of common areas of complaint in the telecom sector:
  • Margin squeezing, predatory pricing, targeted pricing, bundling and denial of access to facilities.

• S. 78 "squeezing by a vertically integrated supplier, of the margin available to an unintegrated customer who competes with the supplier, for the purpose of impeding or preventing the customer's entry into, or expansion in, a market."
• Margin erosion is not sufficient to establish that a dominant firm has engaged in margin squeezing.
• The Bureau will examine the underlying purpose of the alleged squeeze:
  • Is it a business practice that would be justified in other competitive markets?

• The Bureau will examine whether:
  • price is below the complainant's avoidable cost;
  • price is below the alleged predator's avoidable costs;
  • there is opportunity for recoupment should the predation strategy succeed.
  • Requires assessment of entry barriers (notably the sunk costs of entrants).

• Offering certain customers better prices than those offered to other customers.
• Challenge: establish objective criteria to distinguish between truly competitive conduct (and resultant lower prices) from actions designed to induce exit and/or hinder entry of competitors.
• Preventing targeting could chill price competition

• Generally bundling raises enforcement issues only in limited circumstances
• Bundling could raise issues if used as means to:
  • Raise rivals' costs: may meet the competition law definition of tied selling that impedes entry or expansion of firms offering some or all of the bundled services.
  • Predate: when a firm offers below avoidable cost pricing for the bundle of products.

• A firm is dominant in two markets: the upstream market (or wholesale market) for the facility and the downstream market (or retail market) in which the facility is an input. Dominance in the upstream market requires that competitors cannot practically or feasibly duplicate the facility in question.
• The dominant firm has denied access to the facility for the purpose of excluding competitors from entering or expanding in the downstream market.
• The denial has had, is having or is likely to have the effect of substantially lessening or preventing competition in the downstream market.

• Focus at this stage is on the impact of anti-competitive practices on competition, not on competitors
• The Bureau uses a "but for" test:
  • "but for" the practice in question, would there be substantially greater competition in the relevant market, in the past, present, or future?
  • Not necessary to show that the prevailing level of competition is sufficient, only that the market would be substantially more competitive in the absence of the impugned practice (e.g., lower prices, better service, more choice).

• Where the Competition Tribunal finds that all three elements of s.79 are met, it may:
  • Make an order prohibiting the conduct.
  • Where such an order is not likely to restore competition, the Tribunal may direct any such actions, including the divestiture of assets or shares, as necessary to overcome the effects of the practice in the market.
  • Bill C-41 – If passed, would allow the Tribunal, where it has made an order against a telecommunications service provider, to also order payment of an administrative monetary penalty of up to $15M.

• TAB was published for public comment
  • Comments received from a number of telecom services providers; the National Competition Law Section of the CBA; and the ABA Sections of Antitrust Law and International Law.
  • The Bureau is incorporating comments and expects to issue the final TAB later in the spring.

• S. 125 of the Competition Act allows the Commissioner to make representations to federal boards, commissions or tribunals in respect of competition.
• The Bureau has used this power extensively in relation to telecommunications.
• The Bureau's objective is always to encourage the adoption of regulatory/policy approaches that rely to the greatest extent possible on market forces.