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Proactive Disclosure
Annual Report 1997/98 - Promoting Competition
Telecommunications | Energy Sector
| Other Interventions |
Alternate Case Resolutions | Financial Markets Policy Review |
Competition and the International Agenda
The Competition Act's main objective is to encourage and uphold
competition in the Canadian marketplace, so that consumers can enjoy lower
prices and greater product choice. However, while maintaining a competitive
economy is essential to our continued participation in the global market, there
are times when direct regulation of marketplace activity is both necessary and
warranted. The Bureau makes its interventions in regulated industries while
remaining mindful that, in regulating certain industries, the government may
want to meet other objectives. This, however, never relieves us of the
responsibility to promote competition policy, and to consider the associated
costs of economic regulation.
As mentioned earlier, the Bureau has the authority to make representations concerning competition issues before federal and provincial boards, commissions and tribunals to protect the public interest. We also collaborate with other government bodies to develop competition policy and participate in government policy-making initiatives.
The Bureau has mounted a vigorous program of interventions before the Canadian Radio-television and Telecommunications Commission (CRTC) to advocate the opening of telecommunications and broadcasting markets to competition, and, where market forces are effective, the deregulation of these industries. The success of these interventions is borne out by the substantial benefits that Canadian businesses and consumers enjoy. In telecommunications, all markets from local phone service to long-distance service, overseas international calling, wireless communications and Internet access are now open to competition. In addition, the entry of direct broadcast satellite service providers and the emergence of other wireless and wireline competitors is providing consumers with competitive alternatives to the cable industry.
Local Telecommunications Competition (CRTC 95-36)
Opening up local telecommunications markets to competition will bring about substantial benefits for Canadian businesses and consumers by providing them with new and improved products and services.
In August 1996 the Bureau participated in the CRTC's public hearings concerning opening up the local telecommunications market to competition. The Director filed a final written argument in October of that year. The CRTC's decision (Telecom Decision CRTC 97-8), issued in May 1997, adopted many of the Bureau's submissions with respect to the terms and conditions of interconnection and access required to facilitate competition in local telephone services (including number portability to allow consumers to change local service providers while retaining their existing telephone number). The Bureau advocated no regulation of new entrants, minimized regulation of the incumbent service providers, and the introduction of an economically efficient pricing structure for wholesale and retail prices to enable market forces to be effective. The Commission's decision reflects the competition principles advanced by the Bureau.
Regulatory Forbearance on Long-distance Services (CRTC 96-26)
This intervention advocated the deregulation of long-distance rates charged by the Stentor group of companies.
The thrust of the Bureau's submission was that competition and market forces were sufficient to protect the public interest and that long-distance rates should be deregulated. The intervention was filed in November 1996; the CRTC's decision (Telecom Decision CRTC 97-19), issued on December 18, 1997, deregulated the Stentor member companies' rates for long-distance service. The Commission agreed with the Bureau's submission that competition in long-distance markets, and relatively low barriers to entry, negated the need for regulation of the discount toll and toll-free rates of the Stentor companies. The Commission also agreed that a price floor or imputation test for deregulated services was no longer necessary, given the highly competitive conditions in the long-distance market. In terms of pricing flexibility and the regulatory burden, the effect of this decision is to place the Stentor companies on a closer footing with their unregulated long-distance competitors.
International Telecommunications (CRTC 97-34)
Opening up international markets to competition will bring about substantial benefits for Canadian businesses and consumers who use international voice and data services. Competition will expand product choice, improve service quality, introduce innovative services and lower prices.
A written submission filed by the Bureau in March 1998 targeted the new regulatory framework for competition when Teleglobe Canada loses its monopoly in international calls in October 1998. As part of the World Trade Organization Agreement on Basic Telecommunications signed in February 1997, Canada agreed to open its overseas long-distance market to competition.
The purpose of this proceeding was to establish a regulatory framework, including a licensing regime, to facilitate market liberalization in this sector. The Bureau advocated minimal regulation of new entrants, and rapid deregulation of Teleglobe's services as soon as effective competition develops. We also advocated an end to all call routing or bypass restrictions.1
NBTel Application for a Broadcast Distribution Licence
(Notice of Public Hearing CRTC 1998-1)
NBTel is the first telephone company to apply for a cable licence. Granting NBTel a broadcast distribution licence will provide New Brunswick consumers with a third choice for their broadcasting services (cable and direct broadcast satellite are already available). The Bureau supported the application with a written submission to the CRTC in March 1998; at the end of the fiscal year, the CRTC's decision was pending.2
Local Pay Phone Competition (CRTC 97-26)
The Bureau filed a submission with the CRTC in July 1997 concerning the local pay phone market. The Bureau contended that it was time to break up the monopoly of the Stentor group of companies and open up the local pay phone market to competition. The Bureau submitted that competition in the local pay phone market was in the public interest; that apart from minimal consumer safeguards, there should be no regulation of new entrants; and that the rates for local pay phone services should be deregulated when effective competition develops. At the end of the fiscal reporting period, the Commission's decision was pending.3
Satellite Relay Distribution Licensing (CRTC 97-14)
This intervention, filed on January 30, 1998, concerns competition against Cancom's monopoly for wholesale distribution of broadcast signals to cable companies via satellite. The Bureau supported competitive licensing of two new national applicants. The CRTC's decision was pending at the end of the fiscal reporting period.4
Allocation of Satellite Capacity (CRTC 97-13)
This intervention was directed at ensuring that competitors in the broadcasting and telecommunications industry will have equitable access to Telesat's satellite facilities.
The Director filed a submission in June 1997; in February 1998, the CRTC released its decision, which adopted the recommendations of the Director for greater transparency in the allocation of transponder capacity (Telecom Order CRTC 98-186). The next step in the process will be an intervention concerning forbearance in regulating Telesat's rates when its monopoly mandate ends in 2000.
Joint Marketing and Bundling (CRTC 97-14 and 97-21)
This intervention concerned the removal of regulatory restraints on the telephone companies to jointly market or bundle wireless and wireline services. In a decision issued on March 24, 1998 (Telecom Decision CRTC 98-4), the CRTC agreed with the Bureau's argument to remove restrictions on joint marketing and bundling of competitive services. The Bureau had cautioned that removing restrictions on bundling monopoly and competitive services before the local exchange market is open to competition would entrench the dominant market position of the telephone companies in local services. However, the Commission decided to allow such bundling, subject to certain conditions. This decision will give the telephone companies greater flexibility in offering consumers bundled or packaged services, single billing and common points of sale.
Ontario Electricity
In the fall of 1997, the Ontario government released a White Paper for restructuring the Ontario electricity sector to open it to wholesale and retail competition in 2000. On January 31, 1998, the Bureau delivered presentations to senior officials of the Ontario Ministry of Energy, Science and Technology and to the Ontario Energy Board outlining our views concerning the White Paper and the requirements for competitive and efficient Ontario electricity markets.
The Bureau supported opening the electricity generation and retail markets to competition. Competitive markets will promote both the efficient use of resources and lower prices. In its presentations, the Bureau stressed the importance of implementing a number of market structure elements in order to maximize the benefits of competition for Ontario businesses and consumers. As for any deregulating market, it is important to establish an effective market structure at the outset to avoid market power problems that may arise after deregulation.
Key market structure elements stressed in the presentations included the following:
- Structural remedies (such as divestitures) rather than behavioural remedies (such as price regulation) will provide the most effective mechanism for ensuring competitive and dynamic electricity generation, and will provide the maximum benefits to Ontario businesses and consumers.
- Owners of transmission and distribution facilities should be required to set up separate affiliate companies for their competitive business. This will ensure that they cannot use their monopolies to discriminate against competitors or to gain a competitive advantage in other markets.
- The Ontario Energy Board should regulate the pricing of, and access to, electricity transmission and distribution facilities to prevent monopolistic pricing of the facilities and to ensure all electricity market competitors have non-discriminatory market access.
- There should be a level playing field for public and private sector companies with respect to taxes and financing to ensure that companies succeed or fail in electricity markets based solely on their ability to meet consumer demands at the lowest price, rather than on the basis of preferential tax and financing arrangements.
- The responsibility for ensuring the safe and reliable operation of the Ontario electricity system should be given to a fully independent market operator. This will ensure that all generators have non-discriminatory access to the electricity system through an independent organization.
- There should be parallel regulatory structures for the Ontario natural gas and electricity sectors to create a level playing field for inter-fuel competition.
The Bureau's presentations also focussed on the links between competition law and regulation during the transition to fully open and competitive wholesale and retail electricity markets in Ontario. The presentations stressed that competition law effectively prevents anti-competitive business practices that businesses may use to entrench or enhance their market position. The Competition Act should apply to emerging electricity markets unless it can be clearly shown that regulatory oversight would be more effective in preventing a particular type of anti-competitive business practice. To promote the timely transition to competition law oversight, it was further recommended that Ontario electricity legislation include provisions requiring the Ontario Energy Board to abstain from regulation where there is effective competition. We also recommended that the legislation should explicitly state that competition law will apply where the Ontario Energy Board has abstained from regulation.
As of the fiscal year-end, the Competition Bureau was continuing to monitor the restructuring of the Ontario electricity market, particularly the work of the Market Design Committee established by the Ontario government in January 1998. The Bureau will continue to provide input as required to promote the development of competitive and efficient electricity markets, and the appropriate interface between competition law and regulation.
Ontario Natural Gas
With the aim to increase deregulation and competition in the Ontario natural gas market, the Ontario government intends to revise regulatory legislation, including legislation outlining the role and powers of the Ontario Energy Board (OEB). In August and September 1997, the Bureau filed submissions and appeared before the OEB to provide advice on the changes that would be necessary for further deregulation.
Key recommendations made in the intervention included the following:
- The Ontario Energy Board Act should have a specific objective to foster competition and economic efficiency in order to ensure that related matters are taken into consideration in regard to all OEB decisions.
- The OEB should have the authority to determine whether and on what terms gas distribution companies should be allowed to supply gas to consumers.
- Ontario natural gas legislation should require the OEB to forbear from regulation where there is effective competition, to promote the orderly and rapid transition to unregulated markets.
- The OEB or another body should be given the authority to order that the necessary structural changes be made to implement competition in other potentially competitive areas of the natural gas sector, such as storage and metering, where net economic benefits are likely.
- The OEB should have the authority to order structural separation between competitive and regulated natural gas sector activities.
As of the fiscal year-end, the Competition Bureau was continuing to monitor the restructuring of the Ontario natural gas market and provide input as required to promote the development of a competitive and efficient natural gas market.
Columbia House/Warner Music
All Canadians are paying less for compact discs and cassettes as a result of an application filed to the Competition Tribunal in the Columbia House/Warner Music case, which enabled BMG Direct Ltd. ("BMG") to remain in the mail-order record club business.
In September 1997, an application under the refusal to supply provisions of section 75 of the Competition Act was filed with the Tribunal against Warner Music Canada Ltd. and its U.S. affiliates, Warner Music Group Inc. and WEA International Inc. ("the Warner companies"). This application was for an order requiring the Warner companies to supply their music reproduction and sales licences to BMG on usual trade terms. The Tribunal concluded that the Copyright Act places no limit on the sole and exclusive right to licence, and that section 75 of the Competition Act did not grant the Tribunal the jurisdiction to issue the order sought. Shortly after the Tribunal's decision, the Warner companies and BMG reached an agreement for supply of the licences in question.
BMG's substantial entry has provided competitive benefits to the Canadian marketplace in the form of lower prices, increased product choices and a distribution alternative for record companies and recording artists. The market also witnessed further competition from a new entrant, CDHQ, which is owned by Columbia House.
The Bureau's application was intended to remedy a specific refusal to supply in the mail-order record club business in Canada. Warner companies were supplying licences to the record club Columbia House, of which they are also a 50 percent owner, while refusing to supply the new entrant, BMG. A Tribunal order in this case would have only affected the Warner companies in their dealings with BMG and would not have provided a general right of supply to other parties from the Warner companies or from other holders of intellectual property rights. Accordingly, the Competition Bureau will continue to investigate and seek remedies to anti-competitive situations, including those cases where the relevant products enjoy some form of intellectual property protection.
The Bureau has developed a wide range of tools to assist in compliance and enforcement. One of these tools is called alternate case resolution, which seeks compliance with the law without having recourse to contested enforcement measures. Given that our investigations and examinations are conducted in private and that the Bureau did not file any pleadings or documents of a "public" nature, the companies or individuals involved as parties in the following examples of alternate case resolutions are not named.
Refusal to Deal (Section 75)
A distributor of video cassettes was cut off by a major supplier, who, according to the complainant, threatened the viability of the business under the refusal to deal provision of the Competition Act. The Bureau entered into discussions with legal counsel for the supplier, who eventually resumed supplying the complainant.
In another case, a major manufacturer of specialized plumbing supplies refused to deal with a regional distributor who had been supplied in the past. Given that the product line involved was of a highly specialized nature, the Bureau entered into discussions with the manufacturer; these discussions eventually led to the manufacturer resupplying the complainant.
Exclusive Dealing (Section 77)
A major advertising company concluded an exclusive agreement with a chain of convenience stores to only carry its magazine. A competitor of the magazine, who was being excluded from the convenience stores, filed a complaint. The company involved had already given written undertakings to the Director in 1994 promising not to demand exclusivity clauses from its customers for the following 10 years. In April 1997, after discussions with the Bureau, the company agreed to comply with the original undertakings and the competitor's magazine was reintroduced into the convenience stores.
Conspiracy (Section 45)
In March 1997, the Director began an inquiry into the business conduct of a major Canadian airport and two taxi companies under the conspiracy provision of the Competition Act. The two taxi companies were alleged to have agreed on the fares to be charged to taxi passengers for trips originating from the airport.
This pricing agreement was later incorporated into a contract between the taxi companies and the airport for the exclusive right to service the airport taxi stand. The matter was resolved by way of negotiations with the three parties, who promised to terminate all agreements alleged to be contrary to the Act. The Bureau discontinued the inquiry in April 1997.
Financial Markets Policy Review
In 1997-98, the Bureau prepared a comprehensive submission to the Task Force on the Future of the Canadian Financial Services Sector. The task force received a mandate from the Minister of Finance to provide recommendations to the federal government on regulatory reforms needed to ensure that this vital sector of the Canadian economy remains viable. In its submission, the Bureau advocated relying on competition and market forces to the maximum extent possible. We stressed that the public policy objectives underlying the review of the financial sector would be better achieved this way, rather than through continued or increased regulation. The Bureau also recommended regulatory changes that can increase flexibility and facilitate competition without concurrently compromising the stability of the financial system. Included as an appendix to the submission was a preliminary draft for consultation purposes of the Merger Enforcement Guidelines: as Applied to Bank Mergers, Consultations and Submissions. 5
Competition and the International Agenda
The Bureau is dedicated to promoting competition policy within Canada and abroad, and to supporting the development of cooperation among competition authorities. We exchange notifications pursuant to the 1995 Revised OECD (Organisation for Economic Co-operation and Development) Recommendation on cooperation and the Canada-U.S. Cooperation Agreement regarding the application of their competition and deceptive marketing pratices laws. We are also increasingly involved in coordinating with agencies investigating cross-border anti-competitive activities.
For example, during meetings on April 8 and 9, 1997, in Washington, D.C., U.S. President Bill Clinton and Prime Minister Jean Chrétien directed officials to conduct a joint study examining ways to counter the serious and growing problem of cross-boarder telemarketing fraud. Given the Bureau's important role in combatting deceptive telemarketing, we participated in the resulting working group, which recommended, among other things, further exploration of the legal and technical potential and limits of electronic surveillance (wiretap), as a tool against telemarketing fraud.
On the international front, we have succeeded in finalizing the negotiations of the Draft Agreement between Canada and European Communities regarding the application of their competition laws. The Bureau has also developed a position for the OECD and the World Trade Organization on how we feel competition fits into the trading regime and how it should be adopted, and has participated in issues related to the Free Trade Agreement of the Americas.
What follows are some highlights of our international initiatives.
Free Trade Agreement of the Americas (FTAA)
Canada has played an important role in the identification, development and discussion of competition issues relevant to the FTAA. The Bureau participated in creating the FTAA Working Group on Competition Policy established at the Summit of the Americas, Second Ministerial Trade Meeting in Cartagena, Columbia, on May 21, 1996. Its goal is to promote understanding and development of competition law and policy within the free trade area. The working group has produced inventories of competition laws and international cooperation arrangements, identified areas of commonality and divergence, and sought to promote understanding of the objectives and operation of competition policy.
The working group recommended the creation of a negotiating group on the development of an appropriate framework for the application of competition policy in the FTAA and on the interaction between trade and competition policies.
Organisation for Economic Co-operation and Development (OECD)
At the 1997 OECD ministerial meeting, ministers agreed to launch a major regulatory reform project on how governments can improve their regulatory processes. The OECD will begin to review regulatory reform in member countries in 1998. The review process is interdisciplinary and combines self-assessment with peer review. It will focus on whether governments have the necessary instruments to improve their own regulatory processes, and will include an examination of specific sectors.
The Bureau views this project as complementary to its domestic regulatory reform initiatives. From the outset, we have been active in the project by providing advice to the Regulatory Reform Report and to the Competition Law and Policy Committee of the OECD (CLP). As well, we have participated in various activities of the CLP by providing written submissions and making interventions. On March 25, 1998, the Council of the OECD adopted a recommendation concerning action against hard-core cartels. Canada has consistently supported the efforts of the OECD in developing this recommendation. We also contributed to the development of a draft common prenotification framework for transnational mergers. The final framework is expected in the fall of 1998.
World Trade Organization (WTO)
A working group was established to look at the interaction between trade and competition policy. As part of the delegation for Canada, the Bureau has made written submissions and interventions at WTO meetings.
We are pleased with the pace and progress of the Working Group on the Interaction between Trade and Competition Policy. Its discussions have identified issues arising from the interaction between trade and competition policy, and a consensus has been reached on a number of these issues, including the key role competition law can play in ensuring that gains from liberalized trade are not undermined by private anti-competitive conduct.
