Speaking Notes for Sheridan Scott Commissioner of Competition

Competition Bureau

The 2007 Canadian Telecom Summit

Toronto, Ontario

June 13, 2007
(Check against delivery)

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British Prime Minister Harold Wilson famously observed that "A week is a long time in politics."

Well, 156 weeks have passed since I first addressed this Summit. And in terms of your industry, that has been an eternity. Companies and technologies have been invented, marketed and become mature parts of the system. Market structures have undergone seismic shifts. The regulatory landscape has been transformed both in terms of substance and – in at least one case, you may have noticed -- in terms of the personalities involved.

Despite all of these changes, a point I made in my speech to you three years ago remains true today – and when I forecast something correctly, I make sure that no one forgets. So let me remind you of that point: "…the transition from regulated to deregulated markets can cause upheaval and change in organizational cultures; can introduce whole new unanticipated business models and can lead to the destruction of well-known and established brands."

Of course, this quote has stood the test of time not due to prescience on my part but because it is a straightforward description of the transformative effects of competitive markets. In the immortal words of the Daleks in Doctor Who, "Resistance is useless", especially against the combined effects of competition and transformative technologies. Indeed, survival and prosperity come only to those who best embrace change.

So today, I want to focus on how the Competition Bureau will work to make the changes your industry is undergoing more embraceable for you and all Canadians.

Before I get into specifics, I want to deal with the role of the Bureau in comparison to other key players in the telecom world, and I want to address two questions of perception that have arisen of late.

First, about the role of the Bureau. Simply put, we do two things. We enforce the Competition Act as a law enforcement agency, with investigatory powers and recourse to the Competition Tribunal for civil prosecutions, or the criminal courts as appropriate.

The second part of our mandate is to act as an informed advocate on matters affecting competition in Canadian markets, including on many issues affecting the telecommunications industry.

This advocacy takes two forms. Most of it is conducted in public with our formal submissions to Governments, such as the comments on the upcoming framework for the auction of Advanced Wireless Spectrum which we submitted to Industry Canada on May 25. We have also intervened in formal hearings. In fact, we recently intervened in respect of the CRTC's local forbearance proceeding and before the Telecom Policy Review Panel. And we are participating in the ongoing essential services proceeding.

Our second form of advocacy happens within the Government where we attempt to ensure that government actions are as competition friendly as possible.

Despite the simplicity of this dual role, and despite our successes to date, there remain two key misperceptions that I want to get out of the way.

First, there is a widespread view that the Competition Bureau should play a role in protecting consumers and competitors in the marketplace.

Not so.

It is not the Bureau but an efficient, competitive marketplace which provides the space in which consumers benefit from competitive prices and innovative products and services.

And it is not the Bureau but a competitive marketplace which offers competitors the opportunity, but not the guarantee, to succeed.

To be even clearer about this, whether a competitor succeeds or fails is not our concern – although we greatly prefer success. We will always maintain a stance of studied neutrality.

Our job is to ensure that both consumers and competitors have available a healthy marketplace free from anti-competitive practices and agreements, and unburdened by unnecessary, anti-competitive regulations.

So let me leave you with a few take-away messages before I turn to some more detailed elements:

To the new entrants on the telecom scene, and to the incumbents, I have one message: We protect competition, not competitors. We will protect you from anti-competitive practices, as I will spell out shortly, but we will not protect you from competition.

Similarly, I want to assure consumers that we are vigilant against anti-competitive practices which can prevent you from enjoying the fruits of a competitive marketplace, including false and misleading advertising.

To my government colleagues, I want to assure you that we will continue to promote policies and regulatory changes which foster more open, effective and efficient marketplaces.

And to all of you whose tax payments help support the work of the Bureau, I want to promise you that the Bureau will embrace change ourselves. We are constantly looking for ways to work smarter, with better information sources, and analytical tools. And, where necessary, we will seek to have the enforcement mechanisms to meet the needs of the evolving Canadian marketplace.

Now this last take-away message is not to suggest we are not now able to do our job. In fact, this is the second misperception that I want to address, that the Bureau is not equipped to deal with your industry. Wrong, wrong, wrong.

True, we cover the Canadian economic waterfront and cannot be specialists on everything. True, your sector is complex and changing.

But let's do a Five Point reality check on this perception.

First: We have a long history of dealing with telecommunications issues. We have made over 65 interventions before the CRTC. We have conducted many complex merger reviews. We have also made numerous appearances before Parliamentary committees, and other fora.

In each of these cases, we have done our homework, gained experience and knowledge, and established a basis of competence for the future.

Second: As Commissioner of Competition, I have the legislated, independent authority to hire the best and brightest experts from Canada or around the world to advise and assist our work. We have done this in the past, and will do so in the future.

Third: we make a concerted effort to learn from and share experiences with our international counterparts. Virtually every country in the world is dealing with the emergence of competitive telecom markets from the protection of regulated natural monopolies. And every competition agency is dealing with this transformation. We have a lot too learn from each others' experiences and are not shy about sharing our experiences. In fact, I co-chaired a working group of the International Competition Network on the transition in the telecom industry from regulation to competition. And the Bureau works closely with the OECD, including on the analysis of dynamic efficiencies – an important issue in many telecom markets.

My fourth point is that, simply put, telecoms are a priority. Due to the size, importance and status of the sector, the Bureau has devoted considerable resources to address competition issues, especially in local telephone markets post-forbearance. I can assure you, we will continue to use our resources to improve our capacity.

And my fifth and final check point is that we are addressing an issue that I identified at this Telecom Summit three years ago – more effective and efficient cooperation between the CRTC and the Competition Bureau.

Such cooperation has always been potentially useful, but as we undergo the transition to competitive, de-regulated markets, it is of even greater importance to ensure that both agencies understand and respect each other's mandates and capacities, and that we make the best use of the information and expertise available.

I am happy to report that we have made significant progress in this regard. Last year, at this Summit, Charles Dalfen announced the formation of the CRTC-Competition Bureau Working Group. This group was instrumental in the development of the Telecom Abuse Bulletin and is an ongoing mechanism through which to share expertise.

And with Konrad von Finckenstein, the new Chairman of the CRTC from whom you heard from this morning, we are extending our cooperation, sharing expertise and seeking to further clarify our roles.

Now all is not perfect – it never is. For example, it is true that the Competition Act should be strengthened, including the addition of administrative monetary penalties for abuse of dominance. But the bottom line from the five point check-up is clear: we have the mandate, the will and the means to fulfill our roles as law enforcers and advocates for competition in telecom markets.

Still, we are not complacent. We know that we face considerable challenges arising from the network structure of your industry, often featuring large sunk costs and significant economies of scale, density, and scope. Interconnection, both among competitors in the same market (e.g., local telephone service) and across market boundaries (e.g., long distance call termination), is widespread and usually necessary for firms to compete. And critical to any competition analysis, the proper definition of the relevant market in the telecommunications industry poses particular challenges because of the rapidly evolving product and technology base and shifting consumer interests.

In the past, certain of these structural factors led to the natural monopolies we all grew up with. And even now, we have a sector that is, in many markets, still in transition from monopoly to duopoly, with the fate of that transition uncertain in some minds.

Naturally, there are serious questions as to whether a duopoly itself is adequately competitive, especially given the large market shares of some participants.

Let me respond to that doubt with a very clear -- maybe. Or if you prefer, it all depends on the circumstances.

The number of competitors in a market is not by itself the sole determining factor in assessing competitiveness. One does not have to go any further than to look at the Coke/Pepsi rivalry to understand that even duopolies can be extremely competitive under certain conditions. For example: Do the competitors have similar or lower costs? Is bundling a feature of the market? Is the market static or continuing to grow? Is competition driven more by technological innovation than the packaging of products? Can third parties enter the market? What is the rate at which technology changes or evolves in the market?

At the inaugural session of this summit, Ian and Liz Angus identified the most basic characteristics for attracting new entrants to the local telecom market. With great prescience they stated:

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"Every successful new wave of telecom competition for 25 years has been accompanied by - in fact, usually preceded by - a wave of technological change that altered the industry's cost-structure in fundamental and profound ways.

In fact, we would argue that the main reason why local residential competition has not succeeded is the absence of any such technological change…

Regulators and policy makers can permit competition, but they can't create it…

Successful introduction of telecom competition requires customer demand, and technological change, and capital to finance new companies. Unless all three are present, competition will not develop, no matter what the CRTC and Industry Canada may wish."

We are now benefitting from precisely the change that was absent five years ago and that has now enabled a second network altering the telecom industry's cost structure for offering local residential telephony.

But naturally, many Canadians are concerned that we continue to have a small number of competitors operating in increasingly deregulated markets. They simply do not feel comfortable with this situation.

Should they be? We know that market shares by themselves do not necessarily determine the degree of marketplace competition. For example, a new entrant with lower costs or better products and services can provide effective competition even to a much larger incumbent.

But where few competitors exist, there will be ongoing concerns. Mergers, for example, will be particularly sensitive issues and the Bureau will be assiduous in conducting our reviews.

We will also continue to advocate for the removal of any barriers to entry by new players, including foreign entrants who would provide Canadians not only with the benefits of an additional competitor or competitors, but also with access to the innovative services and business acumen that characterise their success.

Believe me, I am well aware of the sensitive nature of this debate in Canada – it has been raging for well over a century. And I am aware of economic, social and other concerns that underline the debate.

But it is critical that we continue to seek ways to ensure that Canadians can benefit from globally innovative companies, their technologies, efficiencies and linkages to the rest of the world. We must recognize fully the very real costs that are imposed on our markets by barriers to the flow of people, technology and capital. And we need to recognize that a globally competitive, globally prosperous economy is unlikely to emerge from behind the burdensome walls of protectionism.

There are also concerns over the impact on competition of marketing techniques in the industry, including such practices as bundling of diverse services, long term contracts, promotional pricing, and non-portable products, such as cell phones which are exclusive to a given service provider.

In general, we encourage innovative and aggressive marketing practices. They can and do often benefit competition and are part of the standard business arsenal.

But we are also aware and will respond vigorously to such practices in situations where they serve to erode or prevent competition. And to assist business to avoid such transgressions, we are developing an Information Bulletin on the Abuse of Dominance Provisions as applied to the Telecommunications Industry. We are currently assessing industry comments on our draft of the Bulletin and will be issuing the final version shortly.

Now I began today with the quote that "A week is a long time in politics". But I also know that 30 minutes can be a long time in a conference setting.

So let me wrap up.

I have talked in large measure today about what the Bureau is and will be doing to enhance competition in telecom markets. But our efforts are just one element that is needed to preserve and reinforce the momentum toward competition.

Intellectually, we all know that the move from regulation to competition will bring enormous benefits to Canadian consumers, investors and employees. But some perceive a regulatory environment as more secure than the world of competition. Where we see a straightjacket, they may perceive a security blanket.

For some Canadians, including many consumers and some competitors, change brings uncertainty. And clearly, we are not all equally able to cope with uncertainty and risk. For others, change threatens investments and jobs. And for others, some sort of nostalgia gene provokes antipathy to anything which would threaten sepia toned memories.

Of course, for some market participants, the resistance to change is much more personal: they see the benefits they currently enjoy from their protected status, and prefer these safe harbours to taking their chances on the open seas of competition.

Such societal angst and self-interests can produce pressure to resist change, to slow down, to seek more certain, secure footings against the winds of change. Machiavelli recognized these very same challenges when he noted that:

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"There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success than to take the lead in the introduction of a new order of things."

But Machiavelli recognized that such challenges are also the source of great benefit. Or as he put it:

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"Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage."

I hope we can all be such entrepreneurs and turn the challenges of change to our advantage.

And do so with some speed. For the short term, our economy may be able to accept some delays. But this will come at the expense of the benefits that change brings, with the loss of the learning that comes from progressively adopting to new circumstances, and at the risk falling back while other nations surge forward.

We must embrace and support competition, and demonstrate the benefits it can bring. Competitors must avoid practices which will cast doubt on the move from the straightjacket of regulations to the more beneficial world of competition.

We should, to the extent possible, ensure that advocacy efforts to protect transitory self-interests do not undermine the need for informed and balanced debate on the way ahead.

And we need to accept and even delight in the inevitability of change, immersing ourselves in what David Bowie called "the stream of warm impermanence".

The Competition Bureau can and will play a role in this effort to strengthen Canadian markets. But we cannot be alone. All of us in this room have work to do, and I hope I can count on your continued support to ensure that Canada and Canadians benefit from world leading, competitive telecommunications markets.

Thank you.