1 Telecom Regulation and Competition Law in Canada American Bar Association -Telecom Antitrust Fundamentals II – Globalization and Telecom June 27, 2007 – Washington, D.C. David Teal Mergers Branch, Competition Bureau of Canada

2 Overview Overview of the Canadian telecom sector Canadian regulatory environment Recent developments

3 Overview - Canadian Telecom Sector 2005 revenues of $34.5 billion. –ILECs = 65%; –out-of-territory ILECs = 11%; –facilities-based competition = 19%; –resellers = 2%. ILECs serving territories are provincially based ILEC share of retail local – 92% of revenues and 90% of lines (vs. 2004: 94% of rev. and 94% of lines).

4 Overview - Canadian Telecom Sector (cont.) 95% of population lives in a cable serving territory. –89% are in a high speed cable serving territory. 64% of households have Internet access. 51% subscribe to high speed Internet - 54% of that total is with cable. 3 national wireless carriers - 2 ILEC owned and 1 cable; small number of wireless resellers.

5 Regulatory Overview Within the federal government, the Minister of Industry (Industry Canada) is responsible for: –Telecom policy and legislative initiatives involving the Telecommunications Act. –Regulation of spectrum management (under the Radiocommunications Act). –Policy/legislative initiatives involving the Broadcast Act are responsibility of the Minister of Canadian Heritage. Canadian Radio-television and Telecommunications Commission (CRTC) is the regulator responsible for the regulation of both the telecom and broadcast sectors.

6 Regulatory Overview (cont.) Canadian antitrust legislation is the Competition Act. Enforcement is the responsibility of Competition Bureau – an independent agency within Industry Canada, reporting to Parliament through the Minister of Industry.

7 Regulatory Overview (cont.) Law of general application - applies to all sectors, including the telecommunications sector. Contains both civil provisions (e.g., merger review, abuse of dominant position, refusal to deal, exclusive dealing, tied selling) and criminal prohibitions against anti-competitive conduct (e.g., conspiracy, bid rigging, predation, resale price maintenance).

8 Regulated Conduct Defense S. 34 of the Telecom Act: the CRTC: –may refrain from regulation when it is consistent with objectives of Telecom Act; or –shall forbear from regulation of specific provisions of the Act where competition is sufficient to protect the interests of users. –forbearance may be either conditionally or unconditionally. –forbearance power addresses the requirements to file tariffs, conditions of service, approval of agreements.

9 Regulated Conduct Defense (cont.) 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.

10 Recent Developments in Canadian Telecom - Telecom Policy Review Panel Telecommunications Policy Review Panel (TPRP) –Panel of three industry experts, appointed by the Minister of Industry, to review Canada’s telecommunications policy framework. –Final report March, recommendations. Underlying theme of the report: –“Canada's telecommunications markets have evolved to a point that justifies replacement of the current legislative presumption favouring regulation with one favouring reliance on market forces.”

11 Recent Developments in Canadian Telecom – Policy Direction to CRTC S. 9 of the Telecom Act sets out 9 objectives for the Telecommunications Act. Pursuant to theme of the TPRP recommendations, Minister of Industry issued a policy direction to the CRTC pursuant to S. 8 of the Telecom Act. “rely on market forces to the maximum extent feasible and regulate, where there is still a need to do so, in a manner that interferes with market forces to the minimum extent necessary.”

12 Recent Developments in Canadian Telecom – CRTC Local Forbearance CRTC regulatory proceeding to establish necessary conditions for forbearing from continued regulation in local telecom markets. CRTC Decision : established a market share loss threshold of 25% (and various quality of service requirements) for forbearance. April 18, Governor in Council Order varied the decision. Market share loss test dropped in favour of one of two tests: alternative competitive presence test or competitive market analysis proposed by the Bureau.

13 Recent Developments in Canadian Telecom – Draft Telecom Abuse Bulletin Sept./06 - Bureau issued a Draft Bulletin on the Abuse of Dominance Provisions as Applied to the Telecommunications Industry” (TAB). Developed following TPRP report and with input from staff from CRTC. Consistent with the Bureau’s general Abuse Guidelines. Part of the Bureau’s ongoing effort to maintain a transparent and predictable enforcement policy.

14 Recent Developments in Canadian Telecom – Draft Telecom Abuse Bulletin (cont.) Describes the Bureau’s approach under the abuse of dominance provisions to the telecom industry. Discusses market definition, examples of anticompetitive practices likely in telecom and the test for a substantial lessening or prevention.

15 Recent Developments in Canadian Telecom – CRTC Proceeding on Essential Facilities CRTC PN – initiated a review of the regulatory framework for wholesale services and definition of essential service. Bureau position: primary objective underlying the regulation of wholesale telecom services should be the development of competition between networks. Effective competition is most likely to come from independent, facilities-based providers that control their own networks.

16 Recent Developments in Canadian Telecom – CRTC Proceeding on Essential Facilities Bureau’s test for determining whether a facility is essential considers whether: –the firm controlling the facility is dominant in both the upstream (wholesale) market for the facility and the downstream (retail) market in which it is used as an input, and –assesses the competitive impact in the downstream market of mandating access to the facility. Proceeding is ongoing - decision expected April, 2008.

17 References Commissioner Scott’s speech to the ABA’s 55 th Antitrust Law Spring Meeting: mID=2301&lg=e mID=2301&lg=e CRTC Monitoring Reports: Telecommunications Policy Review Panel Final Report: Governor in Council Policy Direction to the CRTC: 5-e.html 5-e.html

18 References Governor in Council Order Varying Telecom Decision CRTC : 1-e.html 1-e.html Draft Telecom Abuse Bulletin: mID=2180&lg=e mID=2180&lg=e CRTC Public Notice PN , Review of regulatory framework for wholesale services and definition of essential service: htm htm