Submission by the Interim Commissioner of Competition — Telecom Notice of Consultation CRTC 2018-246 — Retail Sales Practices of Canada’s Large Telecommunications Carriers
August 30, 2018
- Pursuant to section 125 of the Competition Act,Footnote 1 the Interim Commissioner of Competition (“Commissioner”) wishes to intervene in this proceeding, and is pleased to submit these comments of the Competition Bureau (“Bureau”) in response to Telecom Notice of Consultation CRTC 2018-246 (“Notice of Consultation”), published by the Canada Radio-television and Telecommunications Commission (“CRTC”) on July 16, 2018.Footnote 2
- In this proceeding, the CRTC examines the retail sales practices of Canada’s large telecommunications carriers. In particular, this proceeding will study reports of potentially misleading or aggressive retail sales practices, and report to the Government on appropriate steps that could be undertaken to “strengthen or expand the scope of existing consumer protections”.Footnote 3
- The Bureau was asked to assist the CRTC in this proceeding in a June 14, 2018 letter from the Honourable Navdeep Bains, Minister of Innovation, Science and Economic Development.Footnote 4
- As noted in that letter, the Bureau has expertise and experience with respect to misleading sales practices. In fact, the Bureau receives thousands of complaints every year from consumers or industry participants relating to false or misleading representations, of which hundreds relate specifically to the telecommunications industry.Footnote 5
- This submission is organized as follows:
- first, it sets out the Bureau’s role in administering and enforcing the deceptive marketing provisions of the Competition Act. In this section, the Bureau outlines the relevant legal standards that must be met for conduct to become addressable under the Competition Act;
- second, it provides a brief overview of past Bureau cases related to deceptive marketing practices in the Canadian telecommunications industry. In this section, the Bureau characterizes the types of concerns that, in the past, have resulted in enforcement actions pursuant to the deceptive marketing provisions of the Competition Act;
- third, it distinguishes between the types of sales practices at issue in this proceeding that may fall outside of the Competition Act’s remit. In this section, the Bureau notes that at least some of the conduct at issue in this proceeding may not be addressable under the Competition Act; and
- finally, it sets out a series of principles, based on international best practices, that should govern the CRTC’s actions in the event that the CRTC determines that additional measures are needed to address potential harm to consumers or competition.
III. The Bureau’s Role in Administering and Enforcing the Competition Act
- The Bureau is an independent law enforcement agency responsible for the administration and enforcement of the Competition Act. The Competition Act includes provisions that prohibit deceptive marketing practices. The Bureau administers and enforces these provisions with a goal of ensuring that consumers receive accurate information to make informed purchase decisions.
- This section of the submission sets out the substantive elements that must be met for the Bureau to take enforcement action pursuant to the deceptive marketing provisions of the Competition Act. It also discusses the penalties that can apply under these provisions.
The Competition Act Prohibits Deceptive Marketing Practices
- The Competition Act contains both criminal and civil provisions that prohibit the making of representations that are false or misleading in a material respect.Footnote 6
- In general, for conduct to be addressable under these provisions, a representation must be "false or misleading in a material respect”. A representation is said to be material when it could reasonably be expected to influence consumer behaviour, such as a consumer’s decision whether to purchase a particular service.Footnote 7 In determining what is false or misleading, the Competition Act sets out that the general impression conveyed by the representation, as well as its literal meaning, shall be taken into account.Footnote 8
- The Competition Act also prohibits certain specific forms of deceptive marketing practices, including several that may be of particular relevance to the telecommunications industry. These include prohibitions on:
- false or misleading electronic messages. Competition Act provisions regarding deceptive marketing practices specifically address representations made through electronic means;Footnote 9
- unsubstantiated performance claims. A representation cannot be made about the performance, efficacy, or length of life of a product unless it is based on an adequate and proper test;Footnote 10 and
- false or misleading representations relating to ordinary selling price. A representation must meet specific criteria before it can properly claim that a product or service is available at a discounted price.Footnote 11
- The provisions of the Competition Act dealing with deceptive marketing practices generally apply to past or ongoing conduct. As such, the Bureau generally does not pre-emptively (ex-ante) proscribe sales practices. Instead, as an enforcement agency, the Bureau investigates potential contravention of the Competition Act on a case-by-case (and typically ex-post) basis. This fact may be relevant to the CRTC when considering the best approach to remedy any finding that current industry sales practices may harm consumers or competition.
Penalties for Contraventions of the Competition Act Relating to Deceptive Marketing Practices
- The Bureau resolves issues relating to deceptive marketing practices in many ways. It may seek legal action by referring criminal matters to the Director of Public Prosecutions of Canada for possible prosecution. Non-criminal matters may be referred to the Competition Tribunal or other courts for decision. The Bureau may also reach settlements with parties, or issue public alerts to educate consumers and businesses about certain anti-competitive practices.
- Potential penalties for contraventions of the civil deceptive marketing provisions of the Competition Act include orders to end the conduct, publication of corrective notices, and payment of administrative monetary penalties ranging from up to $750,000 for individuals and up to $10 million for businesses on a first order, and up to $1 million for individuals and up to $15 million for businesses on a subsequent order. Parties found in contravention may also be required to pay restitution to consumers in certain circumstances.Footnote 12
- With respect to criminal deceptive marketing provisions, those found guilty are subject, on summary conviction, to fines up to $200,000, a term of imprisonment up to one year or both, or in case of a matter which proceeded by indictment, to fines at the discretion of the court, or to a term of imprisonment up to a maximum of 14 years, or both.
- The targeting of vulnerable populations may inform the seriousness of a contravention in determining whether a matter should be pursued under the civil or criminal provisions of the Competition Act. It may also be considered by the Competition Tribunal or court when determining the sentence or administrative remedy to impose.Footnote 13
IV. The Bureau’s Experience with Telecommunications-Related Deceptive Marketing Cases
- Deceptive marketing practices can have serious economic consequences, particularly when directed towards large audiences or when they take place over a long period of time. For instance, where such practices are employed, consumers may be influenced into purchasing services that do not fully meet their needs or that may be less desirable than available alternatives. In addition, these practices can also harm competitors who are engaging in honest promotional efforts and discourage them from trying to compete on the merits of their service offerings. As such, deceptive marketing practices risk depriving consumers, businesses, and the Canadian economy of the beneficial effects of competition in the telecommunications industry, including lower prices, higher quality services, and greater innovation.
- The Bureau has historically taken enforcement action in a number of telecommunications-related deceptive marketing matters. This section of the submission sets out the Bureau’s efforts in identifying conduct that may contravene the Competition Act, and characterizes the types of deceptive marketing practices in the Canadian telecommunications industry that have concerned the Bureau in the past.
How the Bureau Becomes Aware of Deceptive Marketing Practices
- The Competition Act is a law of general application to the Canadian economy. The Bureau often becomes aware of marketplace issues relating to deceptive marketing practices through complaints received from consumers or industry participants.
Concerns in Past Telecommunications Enforcement Cases
- The Bureau’s past cases involving deceptive marketing practices in the Canadian telecommunications industry have focused on a range of fact-specific concerns. However, within these cases, there are similarities in the types of conduct that have motivated enforcement action.
- The Bureau’s concerns in these cases have typically focused on representations, made by telecommunications firms, regarding:
- the pricing of services. In particular, the Bureau’s cases against Comwave (2016) and Bell Canada (2011) both related to “hidden” fees in excess of advertised amounts. In both of these cases, the Bureau concluded that advertised prices were not actually attainable by consumers, owing to mandatory fees that had to be paid in order to receive the services (e.g., modem rentals). In the Bell Canada (2011) case, even though these “hidden” fees were disclosed in fine print disclaimers, the Bureau found that the disclosure was not sufficient to change the general impression that was conveyed to the consumer by the advertisement as a whole;Footnote 14 and
- the quality or level of service delivered. In particular, the Bureau’s case against Comwave (2016) involved a representation that the company provided “unlimited” services when, in fact, usage of these services was subject to monthly caps. The Bureau’s case against Rogers (2010-2014) involved performance claims made in respect of Rogers’ Chatr wireless brand that the court concluded were not based on adequate and proper tests sufficient to substantiate Rogers’ claims in certain markets.
- The Annex to this submission lists and describes specific enforcement cases undertaken by the Bureau in the past 10 years relating to deceptive marketing practices in the Canadian telecommunications industry.
V. The Boundaries of the Competition Act
- The provisions of the Competition Act are aimed at preventing the use of deceptive marketing practices. However, not all aggressive sales practices involve consumer deception. Rather, certain sales techniques may intend to pressure the consumer into a purchase decision, often through the use of emotional appeals or demands for immediate decisions before the consumer has had a chance to reflect on the offer or conduct additional research.Footnote 15
- The Competition Act typically does not prohibit the use of aggressive sales practices where they are not deceptive. Accordingly, the Bureau generally does not have the ability to bring cases or obtain remedies in situations where conduct is purely aggressive, and not deceptive.Footnote 16 This fact may be relevant to the CRTC when considering the best approach to remedy any potential finding that current industry sales practices may harm consumers.
VI. Striking the Right Balance
- The Bureau is mindful that both the Order in CouncilFootnote 17 and the Notice of Consultation in this proceeding contemplate the imposition of regulation to address any harm resulting from the use of misleading or aggressive sales practices.
- The Bureau generally advocates that regulation should be used only where market forces will not achieve policy objectives and, even then, only to the extent necessary to address those objectives. This perspective recognizes that regulation can place limits on the role of competition in determining marketplace outcomes.
- However, it can be difficult to translate that general principle into real-world applications. As such, the Bureau has developed a set of four principles, based on international best practices, to assist regulators in balancing the role of legitimate regulatory rules with the operation of market forces.Footnote 18 If, in this proceeding, the CRTC determines that regulatory measures are necessary to address misleading or aggressive sales practices in the telecommunications industry, it should consider the four principles set out below.
Regulation Should be no Broader than Necessary to Achieve Policy Objectives
- Regulation can be appropriate where market forces are insufficient to achieve a regulator’s legitimate policy objectives, but should be used as sparingly as possible. Market forces are the best way to determine how products should be provided, and should be deviated from only in exceptional circumstances where there is documented evidence that market‑based competition would run counter to a regulator’s policy objectives.
- Accordingly, in the present consultation, the CRTC should determine, as a threshold question, whether the use of aggressive sales practices is harming consumers or competition in the telecommunications industry. If there is little evidence of harm, it may not be appropriate to put in place a regulatory framework governing the use of such practices. If the CRTC concludes that there is harm and that further measures are needed to address it, the Bureau advises that any resulting regulatory framework should be narrowly tailored to address only those practices that can be shown to be harmful, in order to preserve the role for market forces to allow competition to flourish.
- For example, advertisements can provide consumers with the information they need to make their best choice, and promotional efforts can provide an important means for competitors to differentiate their service offerings. Consumers may also benefit from promotional discounts or offers that may not otherwise be made available to them. Overly restrictive regulations that prohibit advertisements and promotional offers may have the unintended effect of discouraging competition and innovation in telecommunications services.Footnote 19
Regulation Should be Based on the Best Available Evidence
- While industry experience can be necessary to frame the relevant issues for regulation, empirical evidence can provide an objective measure of what is occurring on a broad scale across consumer groups.
- The Bureau expects that the CRTC will receive evidence from a wide variety of stakeholders during the course of its inquiry, including consumers, telecommunications service providers and their current or former employees, public advocacy groups, and other interested parties. This information will allow the CRTC to determine whether aggressive sales practices are widespread in the Canadian telecommunications industry, and whether these practices are hurting consumers or preventing them from making informed decisions about their telecommunications services.
- If the CRTC decides that further regulatory measures are necessary, previous frameworks implemented by the CRTC itself and other agenciesFootnote 20 may constitute valuable natural experiments that could inform the design and effectiveness of such measures. In particular, exploring the real world effects of existing frameworks may help the CRTC determine both their efficacy and any unintended consequences for consumers or businesses.
- For example, some provincial consumer protection legislation includes a mandatory “cooling off” period for door-to-door sales, in which consumers have a certain number of days to reconsider their choice if they feel that they have been misled or pressured into a contract.Footnote 21 The Wireless Code of Conduct similarly requires that wireless service providers who use contracts with early termination fees must offer customers a 15-day trial period so that they can determine whether the service fits their needs.Footnote 22 In a situation where the CRTC considers implementing cooling off periods in this proceeding, a review of the marketplace effects of similar measures may help the CRTC determine their efficacy in addressing aggressive sales practices used by telecommunications service providers.
Regulation Should be Proportionate to Harm
- Regulation must balance the benefits of the policy goals that it seeks to achieve with the costs it imposes on consumers, businesses and other parties. As such, the CRTC should ensure that the costs associated with any changes made to its regulatory framework are proportionate to the harms that these changes seek to address.
- In exploring the potential costs of regulation, it is important to consider how the incentives of various stakeholders may be impacted, as there may be a risk of creating unintended consequences and unforeseen costs. In the case of aggressive sales practices, the CRTC should consider the incentives that any new regulation creates for both consumers and telecommunications service providers to ensure that neither is inadvertently encouraged to engage in opportunistic behaviour, as this could increase costs or render the regulation ineffective.Footnote 23
Regulation Should be Regularly Reviewed to Reflect Market Conditions
- As the Canadian telecommunications industry continues to innovate and change, the CRTC should ensure that its regulatory framework for sales practices is reviewed and updated. Such a review may also offer an opportunity to assess the extent to which consumers are aware of their rights and obligations under existing frameworks.
- The Bureau notes that the CRTC periodically reviews its wholesale regulations, and has recently done the same with the Wireless Code of Conduct.Footnote 24 In the present matter, if the CRTC decides that further regulatory measures are necessary, it should similarly commit to periodic reviews of such measures to ensure their efficacy and applicability into the future.
- The Bureau welcomes the opportunity to comment on misleading or aggressive sales practices as part of the CRTC’s consultation.
- The Bureau enforces the provisions of the Competition Act that prohibit deceptive marketing practices to ensure that consumers are provided accurate information. The Competition Act, however, does not contain provisions prohibiting purely aggressive sales practices.
- The CRTC should first determine whether aggressive sales practices are causing harm to consumers or competition in the telecommunications industry such that further measures are needed. The Bureau encourages the CRTC to reference the framework set out in this submission to achieve outcomes that are sufficient to remedy any potential harm, while maintaining a key role for marketplace competition among telecommunications service providers.
- The Commissioner, or his authorized representative, is prepared to attend any oral hearing in person if the CRTC so requests.
- For the purposes of this proceeding, the designated representative of the Bureau is:
- Leila Wright
Associate Deputy Commissioner of Competition
15th Floor, 50 Victoria Street
Gatineau, Quebec K1A 0C9
- Leila Wright
- The Bureau regularly deals with allegations of false, misleading or deceptive marketing practices in the telecommunications industry. Specific cases include:
- Comwave in relation to level of service and pricing claims (2016): In 2016, the Bureau reached a settlement with Comwave Networks Inc., through which the company agreed to pay an administrative monetary penalty of $300,000 for making what the Bureau concluded were false or misleading representations regarding charges and level of service for internet and home phone connections. The Bureau found that Comwave’s advertisements misrepresented the charges that consumers would pay for services, as the advertised prices were not attainable because of additional non-optional fees. In addition, the Bureau concluded that Comwave misrepresented its internet and home phone services as “unlimited” when in fact, there were monthly caps on usage. While this information was disclosed in fine print disclaimers, and Comwave’s staff was instructed to provide some of this information to consumers who phoned the call centre, the Bureau concluded that this was not sufficient to prevent the advertisements from being misleading. Comwave also agreed to establish a compliance program designed to help prevent similar issues in the future.Footnote 25
- Bell, Rogers and Telus in relation to false or misleading representations in advertisements (2015-2016): The Bureau reached agreements with Bell, Rogers and Telus in relation to these carriers making, or permitting to be made, false or misleading representations to customers in advertisements for premium text messages appearing in pop-up ads, apps, and social media. The Bureau also determined that wireless customers were charged by third parties on their wireless phone bills for premium text messaging services, such as trivia questions and ringtones, which they did not intend to purchase and for which they had not agreed to pay. The companies involved agreed to issue up to $24 million in rebates to customers and donate approximately $1 million for consumer advocacy and research groups.Footnote 26
- Bell in relation to false or misleading representations in reviews and ratings (2015): The Bureau reached an agreement with Bell Canada concerning situations in which Bell employees were encouraged to post positive reviews and ratings of certain Bell-owned apps in app stores, without disclosing that they worked for Bell (a practice sometimes referred to as “astro-turfing”). While Bell acted quickly to remove these ratings when it became aware of the matter, the Bureau determined that these reviews and ratings nevertheless created the general impression that they were made by independent and impartial consumers, and temporarily affected the overall star rating for the apps. Bell agreed to enhance and maintain its corporate compliance program to address the practice, as well as pay an administrative monetary penalty of $1,250,000.Footnote 27
- Bell in relation to pricing representations (2011): The Bureau reached an agreement with Bell Canada relating to allegations that, over a four-year period, Bell charged higher prices than advertised for many of its services, including home phone, Internet, satellite TV and wireless. The Bureau determined that the advertised prices were not in fact available, as additional mandatory fees, such as those related to TouchTone, modem rental and digital television services, were hidden from consumers in fine-print disclaimers. As an example, Bell's Web site had been advertising a bundle for home phone, Internet and television services starting as low as $69.90 per month. However, it was impossible for customers to buy the bundle for the advertised price. In fact, the lowest possible price, including the mandatory fees, was $80.27—approximately 15% higher than advertised. As part of the settlement, Bell was prohibited from making similar representations in the future, and agreed to pay an administrative monetary penalty of $10 million.Footnote 28
- Rogers in relation to inadequately tested performance claims (2010-2014): In 2010, the Bureau began legal proceedings against Rogers, alleging that the company’s Chatr advertising campaign had made false or misleading representations about the number of dropped calls. The Bureau considered that the representations were false or misleading and were performance claims that were not based on adequate and proper tests. The court ultimately found that although the representations were not false or misleading, Rogers had not performed adequate tests to substantiate its claims in certain markets. It ordered the company to pay an administrative monetary penalty of $500,000.Footnote 29
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