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Telecom Decision CRTC 91-8
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RESALE AND SHARING OF CELLULAR SERVICES
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On 7 May 1990, the Commission received an application from Corpfon Cellular (Corpfon) against Rogers Cantel Inc. (Cantel). Corpfon stated that Cantel had refused to provide it with cellular service pursuant to Cantel's Million Minute Plan, on the grounds that Corpfon was planning to resell the service.
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On 15 June 1990, the Commission received an application from Dial-Mobile Rent-A-Phone Inc. (Dial-Mobile) against Bell Cellular Inc. (Bell Cellular). Dial-Mobile indicated that Bell Cellular had provided notice of intention to terminate cellular service provided to Dial-Mobile pursuant to Bell Cellular's Partner Plan, on the grounds that Dial-Mobile was reselling the service. The Commission indicated, by letter dated 17 July 1990, that Bell Cellular was not to terminate service to Dial-Mobile while the matter was before the Commission.
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On 10 July 1990, the Commission received a further application from Corpfon, this one against Bell Cellular. In its application, Corpfon stated that Bell Cellular had refused to provide cellular service to Corpfon pursuant to its Partner Plan, on the grounds that Corpfon was planning to resell the service.
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On 19 July 1990, the Commission received an application from Cellular Rental Systems Inc. (Cellular Rental) indicating that it was in a situation virtually identical to that of Dial-Mobile and requesting that Bell Cellular treat it in the same manner as Dial-Mobile. By letter dated 30 August 1990, Bell Cellular indicated that it would continue providing service to Cellular Rental pending a final determination by the Commission.
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By letter dated 26 September 1990, the Commission noted that Bell Cellular had permitted Dial-Mobile and Cellular Rental to resell cellular service while refusing to allow Corpfon to do so, and ordered Bell Cellular, on an interim basis, to provide service to Corpfon pending the Commission's final determination in this proceeding.
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On 6 September 1990, the Commission issued Resale and Sharing of Cellular Services, Public Notice 1990-80, initiating a proceeding to determine whether it would be in the public interest to allow the resale and sharing of cellular services. The Commission stated that the documents associated with the applications of Corpfon, Dial-Mobile and Cellular Rental would form part of the record of the proceeding. The Commission also stated that the following companies would be considered parties to the proceeding: Cantel, Bell Cellular, B.C. Cellular Limited (B.C. Cellular), The Island Telephone Company (Island Tel), MT&T Mobile Inc. (MT&T Mobile), The New Brunswick Telephone Company Limited (NBTel) and Newfoundland Telephone Company Limited (Newfoundland Tel) (together, the cellular providers). The cellular providers were required to file the following information:
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(1) their present practices and policies with respect to the resale and sharing of cellular services, identifying all relevant tariff and contractual provisions;
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(2) their positions with respect to whether resale and sharing of cellular services is in the public interest; and
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(3) in the event that the Commission were to find such resale and sharing to be in the public interest, their views on any restrictions that would be appropriate.
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A. Cellular Providers - Initial Submissions
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The cellular providers stated that, in general, they do not allow their services to be resold or shared. They also indicated that, under certain conditions, they do allow resale to fulfil the requirements of the short-term rental market (for example, where a cellular telephone is provided with a rental car). Bell Cellular also noted that it had in the past allowed resale for long-term applications in a limited number of instances, but that its present policy is not to allow this type of resale.
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The cellular providers argued that the present arrangement for the provision of cellular services has served the market well and has resulted in an expansion of cellular services that is as rapid or more rapid than anywhere in the world. They submitted that one of the reasons for this success is the extensive distribution networks that have been established, networks that make use of a large number of smaller local businesses acting as agents for the cellular providers. Cantel noted that this arrangement gives independent businesses considerable opportunity to participate in the cellular service market and to use their entrepreneurial skills to increase market penetration. The cellular providers argued that this agency arrangement is highly responsive to customer needs and ensures strict quality control.
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Several cellular providers argued that the present environment is highly competitive and that the marketplace itself should be allowed to determine whether resale would be an effective distribution strategy. The providers noted that, in Cellular Radio Service, CRTC Telecom Public Notice 1984-55, 25 October 1984, the Commission concluded that the benefits that users may derive from cellular services are likely to be greater if the terms of its provision are governed, as much as possible, by market forces rather than by regulation. Bell Cellular submitted that the success of cellular service development in Canada has proven that the Commission was correct in its conclusion and that it would be inappropriate for the Commission to impose resale and sharing in what is already a healthy marketplace.
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Several cellular providers noted that the cellular industry is still in its infancy, and that the large financial demands caused by the rapid deployment of cellular services have meant that the cellular companies are not yet profitable. They argued that resale would harm the development of cellular services by affecting the profitability of the cellular providers. MT&T Mobile, Island Tel and Newfoundland Tel submitted that this is especially true in their operating territories, since cellular services have only recently been introduced there. Several providers submitted that allowing resale would fragment an already highly competitive market, and could result in a reduction in the revenues needed to maintain the capital expansion of the cellular networks.
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The cellular providers argued that there would be no benefits from allowing the resale of cellular services. They argued that, because of already fierce competition, resale would be unlikely to foster any further innovation. They submitted that resellers would only be interested in offering services in the larger centres and would therefore put pressure on the ability of the cellular carriers to continue their present rates of expansion into new regions. The cellular providers also argued that customer service and quality control would suffer if resale were allowed, because it would result in indirect contact between customers and the carriers.
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Cantel and others submitted that resale could cause an erosion in the network of approved agents, resulting in a loss of extensive investment by both the carriers and their agents.
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NBTel submitted that it is premature for the Commission to consider this issue, since legislation may be imminent that would empower the Commission to deregulate the cellular market.
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Finally, the cellular providers submitted that, if resale and sharing are to be allowed, they should be afforded the opportunity to review their present rate structures, and that resellers should be subject to a number of conditions, including requirements to enter into special agreements with the cellular providers, to be bonded, to provide security deposits and to be subject to performance obligations.
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B. Comments of Interveners
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Several of the interveners, including AGT Limited, a majority of the members of RadioComm Association of Canada, the Consumers' Association of Canada and cellular agents such as Lenbrook Inc. (Lenbrook) and ACM Cellular, argued against allowing resale and sharing, adopting essentially the same position as the cellular providers. The Telecommunications Workers' Union (TWU) opposed any further expansion of competition in the cellular market, pending the development of a national telecommunications policy and a full public debate. TWU submitted that, if resale is allowed, resellers should be required to file tariffs. Lenbrook argued in favour of resale for short-term service, but submitted that resale for longer-term applications would not produce any benefits. Lenbrook further submitted that, if unrestricted resale is allowed, carriers should be allowed to restructure rates, and that the Commission should examine those rates to ensure that they balance the needs of cellular providers, resellers and the public.
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Tel-Loc Inc. (Tel-Loc), the Competitive Telecommunications Association, Corpfon, the Canadian Business Telecommunications Alliance, Dial-Mobile, Cellular Rental, National Paging Corp., the Communications Competition Coalition and Scotpage argued that cellular resale should be allowed. These parties argued that the present duopoly operates in a monopolistic manner; as a result, the full benefits of competition are not being realized. Several parties submitted that consumers would be better served if the marketplace, rather than the cellular providers themselves, was allowed to determine the appropriate mechanisms for the provision of cellular service. Cellular Rental submitted that the federal government has restricted the number of cellular service providers to two only for technical reasons, and that there are no technical reasons to limit the number of sellers of cellular air time. With respect to claims by the cellular providers that the extensive dealer network provides competition at the retail level, various interveners submitted that the cellular providers control the distribution agents to such an extent that the latter do not provide any competition beyond the limited competition provided by the cellular companies themselves.
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With respect to the position of the cellular providers that resale would adversely effect the provision of cellular service, many of the interveners submitted that allowing resale would strengthen the cellular market, which would benefit the cellular providers. They argued that resellers would attract additional users and stimulate usage by serving markets that cannot be served effectively by the cellular providers. Some interveners noted that the cellular providers generally allow resale to serve the short-term rental market. They argued that the benefits that the cellular providers derive from allowing resale in this market would also be realized in other markets if resale were allowed, since resellers would provide new services and distribution methods. Several interveners argued that resellers are in a better position than the cellular providers to serve some markets, because the former are closer to users and, as a result, can better respond to their needs. These interveners also submitted that, being closer to the end users, resellers can improve the quality of cellular service, while reducing the customer service overhead of the cellular providers.
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Corpfon submitted that allowing resale and sharing of cellular services would result in a number of benefits, including (1) a reduction in the current barriers to entry with respect to the purchase of cellular telephones, (2) the development of customized detailed billing, and (3) an improvement in customer service resulting from the fact that resellers serve a smaller customer base. Corpfon also argued that the present restrictions on resale and sharing stifle innovation in the cellular industry.
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Some of the interveners noted that, in various decisions, the Commission has concluded that the resale of certain telephone company services would result in various benefits. They submitted that similar benefits would result from the resale of cellular services.
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Several interveners submitted that the present and past practices of the cellular providers are discriminatory, in that the cellular providers allow resale for short-term uses, but do not permit other forms of resale. Corpfon argued that the application of the current restrictions against resale and sharing are influenced by the desires of the cellular providers to maintain a stranglehold on the market, rather than by competitive forces.
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Tel-Loc submitted that, if the Commission decides not to allow unlimited resale, it should at least allow resale for the provision of short-term service.
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Finally, Cellular Rental, Corpfon and Dial-Mobile requested costs.
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C. Replies of the Cellular Providers
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Cantel and Bell Cellular noted the argument that resale of cellular services would provide benefits such as those that the Commission found would follow from the resale of telephone company private line services. In response, they submitted that the cellular market is quite different from the private line market. Cantel submitted that the cellular market is already highly competitive, and that innovation by resellers would be limited because the latter are unable to provide switching. Cantel submitted that, as a result, cellular resellers would simply trade on the margins between bulk-rated services and retail services. Cantel also pointed out that the negative impact of cellular resale would be different than is the case with private line services, since the cellular networks are still in the midst of development; Cantel argued that unrestricted resale would impede network expansion.
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Bell Cellular noted a further difference in the two situations in that it and Cantel, unlike the private line providers, currently operate in a net loss position. Cantel submitted that, if unlimited resale were allowed, it would have to raise discount plan prices to meet revenue requirements. Bell Cellular submitted that, if unrestricted resale were allowed, there would inevitably be an increase in regulatory involvement, which would distort the realities of what is now a dynamic and competitive marketplace.
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Cantel submitted that it needs the flexibility to continue to develop a distribution system capable of supporting both the rapid pace of growth in the cellular market and the investment needed to finance that growth. Cantel argued that the instability that would be caused by unrestricted resale would threaten the development of the cellular networks.
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With respect to NBTel's argument that it is premature for the Commission to deal with this matter, the Commission notes that it cannot, on the basis of possible legislative changes, decline to consider an issue before it for adjudication.
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In this proceeding, some parties argued that resale competition would provide a number of benefits, including stimulating and strengthening the market as a result of additional customer choice and improved service. The Commission is of the view that resale of cellular services could give rise to certain benefits. However, those benefits must be weighed against the harm that could result if the cellular providers were obliged to permit the resale of their services.
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With respect to that potential harm, the cellular providers argued that cellular service is still in its infancy and that allowing unlimited resale would cause disruptions that would adversely affect the development and expansion of their networks. The basis for this argument is that, by providing discounted rates to smaller users, resale activity would reduce the cellular providers' revenues, thereby affecting development plans such as the conversion to digital transmission. The cellular providers also argued that their expansion plans would be affected because resellers would concentrate their activities in high density areas.
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In the Commission's view, it is important, at this time, that the cellular providers have a stable source of revenues in order to meet the capital requirements of continuing to upgrade and extend the cellular networks. Unless the cellular networks can continue to grow at a reasonable rate, potential customers in areas that are underserved or not served at all will be deprived of the benefits of cellular service. While requiring cellular providers to permit unrestricted resale might increase the choice of supply in existing markets, it would inhibit the upgrading and expansion of the underlying network. In the Commission's view, such concerns will likely diminish as the industry matures.
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In light of the above, the Commission finds that requiring the cellular providers to permit unrestricted resale would not, at this time, result in benefits significant enough to equal or outweigh the harm. Accordingly, the Commission finds acceptable the practice whereby cellular providers may, by specific tariff provisions, permit the resale of cellular service for certain applications, while prohibiting its resale for others.
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Corpfon, Dial-Mobile and Cellular Rental have been reselling Bell Cellular's service, on an interim basis, pending the Commission's determination in this proceeding as to whether such resale is in the public interest. Bell Cellular is to provide the cellular resellers with 45 days notice of any action it intends to take as a result of this Decision.
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On 26 October 1990, the Commission received an application from Bell Cellular to stay and to review and vary the Commission's interim order of 26 September 1990 concerning provision of service to Corpfon. In the subsequent proceeding with respect to that application, Corpfon requested that the Commission order Bell Cellular to pay its costs.
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By letter dated 13 November 1990, the Commission denied Bell Cellular's request that the Commission stay its interim order. It is noted that this Decision disposes of Bell Cellular's request to review and vary the Commission's interim order.
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With respect to Corpfon's request for costs in the proceeding described in the previous paragraphs and the requests by Corpfon, Dial-Mobile and Cellular Rental for costs in this proceeding, the Commission concludes that, as commercial enterprises involved in the telecommunications industry, these parties had ample incentive to participate in this proceeding. Accordingly, consistent with its past decisions concerning the awarding of costs, the Commission denies the requests for costs.
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Allan J. Darling
Secretary General
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DISSENTING OPINION OF VICE-CHAIRMAN BUD SHERMAN
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I do not share the view of my fellow-Commissioners who have decided, in the majority, that it is not in the public interest to allow the resale and sharing of cellular services at this time.
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I believe such resale is justified, and would be fully consistent both with the Commission's intentions as expressed in Decision 90-3, permitting resale of private lines for joint use, and with the Commission's established philosophy in the cellular services market as articulated in Public Notice 1984-55. In that Public Notice, the Commission concluded that the benefits of cellular service are likely to be enhanced for Canadians if its provision is shaped as fully as possible by market forces, rather than by regulation.
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In their opposition to resale, some of the cellular providers have invoked and inverted this conclusion to serve their own argument, representing the current duopoly environment in cellular service as regulatory disturbance if the Commission were to approve resale. I believe the opposite is true, and adhering much more faithfully to the true intent found in Public Notice 1984-55.
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Some cellular providers argue that any goal of expanded cellular service for Canada is well served by, among other things, those distribution networks currently in existence in which a number of small local companies act as agents for providers, thus injecting competition into the market at the retail level. I believe this is a poor substitute, if indeed it a substitute at all, for the dynamics that would be injected into the cellular market by the presence of true resale activity. At best, the existing situation merely represents another level of competition between the existing duopolists. It entirely begs the question of resale.
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In my view, the cellular service market is a specific market in which the benefits of resale clearly outweigh the disadvantages as outlined by the providers. The main benefit lies in the market-shaped arena that would be created, as against the one currently extant.
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Finally, approval of cellular resale would correct a significant inequity that exists in this market: at the present time, there is a sanctioned duopoly structure that confers certain arbitrary powers on the cellular providers. A case in point is the power the providers enjoy to pick and choose the type of resale they will allow, whether long-term or short-term, and potentially to be selective in their individualized treatment of resellers within those categories.
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Approval of resale in the form requested by the applicants would remove this power.
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For the foregoing reasons, I would favor Commission approval of Resale and Sharing of Cellular Services, and I dissent from the Decision of my colleagues in this matter.
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