ARCHIVED -  Telecom Decision CRTC 92-13

Telecom Decision

Ottawa, 29 June 1992

Telecom Decision CRTC 92-13

ROGERS CANTEL INC. V. BELL CANADA - MARKETING OF CELLULAR SERVICE

I BACKGROUND

In the proceeding leading to Cellular Radio - Adequacy of Structural Safeguards, Telecom Decision CRTC 87-13, 23 September 1987 (Decision 87-13), the Commission examined the relationship between Bell Canada (Bell) and British Columbia Telephone Company (B.C. Tel) and their respective cellular affiliates. This examination was undertaken in light of the Commission's previous findings that cellular affiliates should conduct their activities at arm's length from the regulated activities of the telephone company and should not be cross-subsidized by those regulated activities. The Commission's examination included a consideration of issues related to (1) the potential for the cross-subsidization of cellular activities by monopoly telephone revenues; (2) the referral of customers by telephone companies to their cellular affiliates; (3) the joint marketing and advertising of cellular services by telephone companies and their cellular affiliates; and (4) access by cellular affiliates to telephone company customer information.

In order to safeguard against the possibility that cellular activities would be cross-subsidized, Decision87-13 contained certain directions regarding intercorporate transactions involving the cellular affiliates. Among other things, Bell and B.C. Tel were directed to file quarterly reports with respect to such transactions.

During the proceeding leading to Decision 87-13, Bell stated that its policy with respect to customer inquiries about cellular service was to respond that it did not provide such service, without identifying either Bell Cellular Inc. (Bell Cellular), its cellular affiliate, or Rogers Cantel Inc. (Cantel). B.C. Tel stated that its policy was to identify both its affiliate and Cantel. In Decision 87-13, the Commission determined that either a reference to both cellular providers, in a neutral fashion, or to neither, was reasonable.

With regard to certain promotional activities of B.C. Tel, the Commission stated that references to cellular radio in institutional advertising or activities intended to promote the image of the B.C. Tel group of companies did not raise the same concerns as would activities related to the marketing and promotion of particular cellular products and services. Given the nature of the activities examined in the proceeding, and in light of the stated intentions of the companies not to engage in joint activities with their affiliates related to the marketing of cellular products and services, the Commission determined that it was not necessary at that time to impose additional safeguards with respect to joint marketing and advertising.

Finally, the Commission also issued directions restricting the cellular affiliates' access to telephone company customer information.

II CANTEL'S APPLICATION AND THE INITIATION OF THE PROCEEDING

On 7 January 1991, the Commission received an application from Cantel stating that Bell was using the sales facilities and staff of its Phonecentres/Téléboutiques for the promotion and sale of the products and services of Bell Cellular. Cantel requested interim and final orders requiring Bell to cease these activities. Cantel submitted that such conduct was contrary to Decision 87-13 and to section 340(2) of the Railway Act, which states that a company, within the meaning of that Act, may not make or give any undue or unreasonable preference or advantage to or in favour of any particular person or company.

In its application, Cantel stated that Bell's promotion of the services of Bell Cellular consisted of the following activities:

(1) the display of Bell Cellular coverage maps, agent signs and other cellular product information in Bell Phonecentres;

(2) sales representations and promotions by Phonecentre personnel regarding the Bell Cellular network, without any mention of Cantel's services;

(3) entering into cellular telephone service subscription agreements, as the agent of Bell Cellular, on Phonecentre premises; and

(4) the activation at Phonecentres of portable cellular telephones on Bell Cellular's network.

By letter to Bell and Cantel dated 15 January 1991, the Commission established procedures for further submissions with respect to Cantel's application. The Commission also requested that Bell provide certain information with respect to the promotion and marketing of cellular services. The Commission stated that it would issue a decision with respect to the interim relief requested after the receipt of submissions.

In its submission, Bell stated, among other things, that, on 29 October 1990, it had begun offering two models of portable cellular telephones, on an outright sale basis, through its Phonecentres. Bell confirmed that Phonecentre personnel would arrange for activation on the Bell Cellular network.

By letter dated 5 February 1991, the Commission issued its decision with respect to Cantel's application for interim relief. Based on the submissions of Cantel, Bell and Bell Cellular, the Commission concluded that Bell was engaging in joint marketing and promotion of Bell Cellular's services, contrary to Decision 87-13. The Commission ordered Bell, on an interim basis, to cease promoting Bell Cellular by means of its Phonecentre facilities and personnel. In its letter, the Commission noted that the cellular telephone market had evolved in the four years since the proceeding that culminated in Decision 87-13. The Commission concluded that a public proceeding was warranted to examine the marketing of cellular service by the companies under its jurisdiction.

On 28 March 1991, the Commission issued Marketing of Cellular Service, CRTC Telecom Public Notice 1991-17 (Public Notice 1991-17), establishing the proceeding referred to in its letter of 5 February 1991. The Commission invited comment on the following issues:

(1) the need for safeguards with respect to the marketing of cellular services;

(2) the appropriateness of existing safeguards and whether new or additional safeguards should be established;

(3) the nature of any new or additional safeguards; and

(4) whether all companies should be subject to the same safeguards, or whether safeguards should reflect the particular circumstances of each cellular service provider.

In addition to Cantel and Bell, the following were joined to the proceeding: AGT Limited (AGT), AGT Cellular Limited (AGT Cellular), Bell Cellular, B.C. Tel, B.C. Cellular Ltd. (B.C. Cellular), The Island Telephone Company Limited (Island Tel), Maritime Telegraph and Telephone Company Limited (MT&T), MT&T Mobile Inc. (MT&T Mobile), The New Brunswick Telephone Company Limited (NBTel) and Newfoundland Telephone Company Limited (Newfoundland Tel). These companies were requested to file descriptions of their practices with respect to the marketing of cellular products and services and their positions on the issues set out in Public Notice 1991-17.

The Commission also received comments from five interveners on the issues set out in the Public Notice.

III SUBMISSIONS OF PARTIES

A. Current Cellular MarketingPractices

1. Corporate Structure

Newfoundland Tel, Island Tel and NBTel each provide cellular services through a division of the same corporate entity that provides monopoly telephone service. AGT, Bell, B.C. Tel and MT&T stated that cellular service is provided through their respective affiliates, namely, AGT Cellular, Bell Cellular, B.C. Cellular and MT&T Mobile. Cantel is a separate corporate entity from its parent, Rogers Cantel Mobile Inc., which is a subsidiary of Rogers Canada Inc., which in turn is a subsidiary of Rogers Communications Inc. Rogers Cable TV Limited is also a subsidiary of Rogers Communications Inc.

2. Shared Use of Marketing Facilities

B.C. Tel, Bell, MT&T, Newfoundland Tel, Island Tel, and NBTel stated that they do not use their Phonecentres or Phonemarts to market cellular network services, offered either directly or by an affiliate.

B.C. Tel stated that, although it does not use its Phonecentres to market cellular services, its Business Communications Division, called Business Telecom Equipment (BTE), distributes cellular telephone equipment and acts as an agent for B.C. Cellular. B.C. Tel stated that virtually all of this activity relates to arranging for the internal cellular communications needs of B.C. Tel. At the request of an external customer, however, BTE's Product Centre does arrange for the customer's purchase of cellular telephone equipment and for activation on B.C. Cellular's network.

AGT stated that it markets the cellular network service of its affiliate, AGT Cellular, through its Phone Centres.

NBTel stated that, although it does not use its Phonecentres to market cellular services, it does use them to display coverage maps and brochures.

Cantel stated that it markets its services through 32 Cantel Service Centres (CSCs) owned by its parent, Rogers Cantel Mobile Inc.

3. Cellular Distribution Networks and Joint Advertising

Bell Cellular stated that it markets its cellular network services through a distribution network comprising (1) 60 Cellular Plus Centres, as its primary outlets; (2) 750 independent agents, and; (3) over 1000 retail outlets (mostly consumer electronic stores). Until the Commission's interim order of 5 February 1991, it also marketed its services, on a trial basis, in Bell Phonecentres.

B.C. Cellular stated that it markets its services through two classes of independent retail agents, namely, (1) exclusive agents of B.C. Cellular, which benefit from B.C. Cellular joint advertising and referrals; and (2) cellular dealers that provide activation to either cellular service provider.

MT&T Mobile stated that it markets its services solely through a network of exclusive and non-exclusive dealers or agents.

Newfoundland Tel stated that it markets its services through a network of independent agents on an exclusive basis. Newfoundland Tel and its cellular network service division, NewTel Cellular, do not engage in joint advertising.

Cantel stated that it markets its services through a network of exclusive independent agents, the larger of which receive an allowance from Cantel for co-operative advertising. Cantel also conducts joint advertising and marketing with its CSCs, which have exclusive contracts with Cantel. Until
31 December 1990, Cantel engaged in joint marketing with its affiliate, Rogers Cable TV Ltd.

4. Customer Referrals Policy

B.C. Tel indicated that it complies with the referrals policy in Decision 87-13. AGT, NBTel and Newfoundland Tel did not state their customer referrals policy. However, AGT mentioned that any customer that requests to be activated to Cantel's network is referred to a Cantel dealer. Bell stated that, prior to late October 1990 when it began marketing Bell Cellular services through its Phonecentres, its policy was that company personnel receiving inquiries from the public regarding cellular service were to state simply that Bell did not offer cellular service, without identifying who did. From late October 1990 to February 1991, Bell Phonecentre personnel werereferring Bell customers to Bell Cellular, without mention of Cantel.

MT&T and Island Tel did not provide any information concerning their customer referrals policies. Similarly, Cantel made no comment on the referrals policy of its affiliated corporations.

B. Public Notice Issues

1. Joint Marketing/ Referrals

All participating telephone companies and/or their cellular affiliates stated that there is no need to continue the safeguards established in Decision 87-13 with respect to joint marketing and advertising and customer referrals.

Cantel stated that the customer referrals policy should be continued and that all joint marketing and advertising should be prohibited, including the use of Phonecentres for cellular advertising or marketing and any other form of marketing activity that links the monopoly telephone company with the cellular operation.

2. Cross-subsidization

While several of the companies acknowledged that the potential for cross-subsidization of cellular services by monopoly revenues should be of concern to the Commission, only Bell, B.C. Tel and AGT agreed that the safeguards against cross-subsidization set out in Decision 87-13 are appropriate. Newfoundland Tel and Island Tel submitted that their accounting practices ensure that no cross-subsidization of cellular service occurs. MT&T and MT&T Mobile submitted that their subsidiary arrangement and Service Agreement accomplish the same thing.

Cantel argued that the cross-subsidization safeguards in Decision 87-13 are appropriate and should apply to all telephone companies and their affiliates. Cantel also submitted that all monopoly telephone companies should be required to offer cellular services through a separate corporation. Failing this, Cantel argued that telephone companies that provide cellular services in-house should have dedicated sales and marketing staff for their cellular operations.

3. Additional Safeguards

Parties and interveners proposed various new or additional safeguards. Among other things, they submitted that:

(1) where telephone and cellular operations are integrated, telephone companies should be required to file proof that their cellular operations do not have access to monopoly customer information;

(2) "access to customer information" safeguards established in Decision 87-13 should apply to Cantel and its monopoly cable affiliate; and

(3) if Cantel and its affiliates are permitted to engage in joint marketing activities, Cantel should be required to report transactions with its affiliates to the Commission and file floor prices for cellular equipment sales to its affiliates.

4. Application of Safeguards

Newfoundland Tel, MT&T, MT&T Mobile and NBTel submitted that safeguards should reflect the particular circumstances of each cellular service provider. Many of the other companies proposed that safeguards be applied uniformly to the telephone companies, their cellular affiliates and Cantel. Cantel's position was that safeguards should be applied uniformly to all telephone companies and their cellular affiliates, but not to Cantel.

IV CONCLUSIONS

The safeguards in Decision 87-13 with respect to cross-subsidization, customer referrals, access to customer information, and joint marketing and advertising are based on concerns that a monopoly telephone company could potentially (1) cross-subsidize competitive services with revenues derived from its monopoly services; and (2) confer on a cellular affiliate an undue competitive preference or advantage, contrary to the Railway Act.

In the Commission's view, under no circumstances is cross-subsidization of cellular service by monopoly telephone revenues in the public interest. Accordingly, the Commission concludes that the safeguards against cross-subsidization contained in Decision 87-13 are appropriate and should be maintained. Furthermore, these safeguards, which currently apply only to Bell and B.C. Tel, should be extended to AGT and MT&T, the two other telephone companies with separate cellular affiliates.

Accordingly, AGT and MT&T are directed to file with the Commission quarterly reports of intercorporate transactions (1) between themselves and their cellular affiliates; and (2) between their cellular affiliates and any other subsidiaries that the telephone company may control either directly or indirectly. These reports are to include the same type of information as required of Bell and B.C. Tel in Decision 87-13 and are to be filed in the same format (see item (2) at page 27 of Decision 87-13). The first report is to coverthe fourth quarter of 1992. Reports are be filed within 60 days of the end of the quarter to which they pertain. AGT and MT&T are also to file, with each quarterly report, copies of all agreements relating to reported transactions. These companies may, if they choose, incorporate the required information into the quarterly intercorporate transactions reports that they file pursuant to AGT Limited - Revenue Requirement for 1992, Telecom Decision CRTC 92-9, 26 May 1992 and Maritime Telegraph and Telephone Company Limited - Revenue Requirement for 1990 and 1991, Telecom Decision CRTC 90-30, 20 December 1990.

The question of safeguards against the cross-subsidization of cellular activities when those activities are carried on within the telephone company is addressed below.

Since Cantel does not have a source of monopoly telephone revenue from which to cross-subsidize the provision of cellular service, the Commission finds that safeguards governing transactions between Cantel and its affiliates are not required.

In Decision 87-13, the Commission determined that the approach adopted in Bell Canada - Review of Revenue Requirements for the Years 1985, 1986, 1987, Telecom Decision CRTC 86-17, 14 October 1986, should apply to the valuation of assets transferred from Bell or B.C. Tel to their respective cellular affiliates. This approach requires that assets with a readily ascertainable fair market value be transferred at that value. Where it is neither feasible nor practical to determine the fair market value, as in the case of assets such as plant and equipment, the assets are to be transferred at net book value. AGT and MT&T are directed to apply this policy when assets are transferred to their cellular affiliates.

In Decision 87-13, the Commission found, with regard to operating expenses or labour for which fair market value cannot readily be determined, that a 25% mark-up should be charged in addition to causal cost. The Commission stated that such a mark-up would ensure that the price for such transactions includes an appropriate contribution. The Commission considers that these requirements should also apply to AGT and MT&T. In the event that AGT or MT&T considers that exceptional circumstances require a mark-up of less than 25%, the rationale for such treatment should be provided in the quarterly report.

As stated above, certain of the safeguards established in Decision 87-13 are based on concerns that a telephone company might confer on a cellular affiliate an undue competitive preference or advantage through its customer referrals policy, through joint marketing or advertising, or by providing access to customer information. The Commission concludes that these safeguards remain appropriate and should continue to apply to Bell and B.C. Tel and their respective cellular affiliates. Moreover, the Commission is of the view that similar concerns arise whether cellular operations are carried out through a separate cellular affiliate or by a division of the telephone company. Accordingly, the Commission concludes that these safeguards, discussed below, should also apply to AGT, AGT Cellular, MT&T, MT&T Mobile, Newfoundland Tel, Island Tel and NBTel.

The stated intention of the companies that participated in the proceeding leading to Decision 87-13 was not to engage in joint activities related to the marketing of cellular products and services. The Commission remains of the view that telephone company involvement in the joint marketing and promotion of cellular products and services is inappropriate. The Commission notes, as stated in Decision 87-13, that references to cellular radio in institutional advertising do not raise the same concerns as would activities related to the marketing and promotion of particular cellular products and services. Further, the Commission remains of the view (stated in Decision 87-13) that, while the use by a cellular affiliate (or division) of the monopoly telephone company's logo does take advantage of the corporate family relationship, the practice does not confer an undue preference or advantage.

The Commission reiterates that, when responding to customer inquiries about cellular products and services, the telephone companies should refer to both cellular providers or to neither.

In the proceeding leading to Decision 87-13, concerns were raised as to the potential for anti-competitive behaviour where the employees of a cellular affiliate have access to telephone company customer information, particularly other mobile service customer information. The Commission concluded that the staff of cellular affiliates should not have access to telephone company customer information. In the Commission's view, this conclusion remains appropriate, and, as indicated above, should also apply to staff involved in cellular operations when cellular service is provided by the telephone company.

Where cellular activities are carried out through an affiliate, there should be no exchange of confidential information as a result of a director, officer or employee of a telephone company or any of its direct or indirect subsidiaries also serving as a director, officer or employee of a cellular affiliate. Moreover, where such dual responsibility exists, adequate compensation should be provided by the cellular affiliate.

Since neither Cantel nor any of its affiliates controls access to monopoly telephone services or related information, the Commission does not consider it appropriate to apply restrictions such as the above to their activities.

The Commission is not persuaded by Cantel's argument that the telephone companies should be required to offer cellular service through a separate corporate entity. However, for the telephone companies that currently operate cellular services through a division of the same corporate entity that provides monopoly telephone services, the Commission considers that telephone procedures are warranted for ensuring that there is no cross-subsidization from monopoly telephone revenues and that no undue preference or advantage is conferred with respect to cellular operations. Accordingly, Island Tel, NBTel and Newfoundland Tel are directed to file, by 28 August 1992, proposed procedures for ensuring that there is no cross-subsidy, and for ensuring that there is no undue preference or advantage conferred with respect to (1) joint marketing and advertising; (2) exchange of customer information; or (3) customer referrals. Copies are to be served on all parties to this proceeding by the same date. The Commission will determine what further process is necessary after it has examined those filings.

V DISPOSITION OF CANTEL'S APPLICATION

In the Commission's view, Bell's practice of referring customers to Bell Cellular without mention of Cantel contravenes the policies found acceptable in Decision 87-13 and reaffirmed in this Decision, as does Bell's use of Phonecentres for the advertising and sale of Bell Cellular products and services. Furthermore, the Commission finds that these activities constitute the conferring of an undue preference or advantage on Bell Cellular, in violation of subsection 340(2) of the Railway Act.

In light of the above, the Commission grants Cantel's request for a final order directing Bell to cease (1) using its Phonecentres for the advertising and sale of Bell Cellular products and services; and (2) referring customers to Bell Cellular without mentioning Cantel.

Allan J. Darling
Secretary General