ARCHIVED -  Telecom Decision CRTC 96-7

Telecom Decision

Ottawa, 18 September 1996

Telecom Decision CRTC 96-7

TARIFF FILINGS RELATING TO PROMOTIONS

By letter dated 15 September 1995, Sprint Canada Inc. (Sprint) submitted comments objecting to the frequency with which the Stentor telephone companies were filing toll service promotions, especially those promotions targeted at winning back customers from competitors. Sprint alleged that the telephone companies were abusing the exemption from the imputation test requirements that was granted for promotions in Review of Regulatory Framework - Targeted Pricing, Anti-Competitive Pricing and Imputation Test for Telephone Company Toll Filings, Telecom Decision CRTC 94-13, 13 July 1994 (Decision 94-13) and that the result of that abuse was likely anti-competitive pricing.

On 13 October 1995, the Commission issued Tariff Filings Relating to Promotions for Competitive Toll Services, Telecom Public Notice CRTC 95-45 (Public Notice 95-45) providing interested parties the opportunity to comment on specific criteria which could be used to define legitimate promotions as well as on other criteria the interveners considered relevant. ACC Long Distance Inc. (ACC), Cam-Net Communications Inc. (Cam-Net), fONOROLA, Rogers Cablesystems Limited (Rogers), Sprint, Unitel Communications Inc. (Unitel) and Westel Telecommunications Ltd. (Westel) (collectively, the interveners) submitted comments. AGT Limited (AGT) submitted its position on its own behalf. Stentor Resource Centre Inc. (Stentor) filed on behalf of the other Stentor member companies.

A number of other issues were raised during the proceeding, including:

i) ex parte treatment of discount toll and 800 service promotions and promotions for competitive network and basic toll services;

(ii) application of the imputation test to competitive network promotions;

(iii) forbearance from regulating promotions; and

(iv) use of Primary Interexchange Carrier (PIC) change information by the telephone companies.

I DEFINING LEGITIMATE PROMOTIONS

In Decision 94-13, the Commission indicated that it considered that below-cost pricing in the case of market trials and promotions is generally not anti-competitive. The Commission therefore exempted market trials and promotions from the application of the imputation test on the condition that sufficient information is provided by the telephone companies demonstrating that the offering is a legitimate market trial or promotion of limited duration.

In Public Notice 95-45, the Commission requested the Stentor companies and interveners to provide their views on establishing criteria, such as the following, which could be used to delineate legitimate promotions:

(a) the total duration including extension;

(b) the minimum interval permitted between identical promotions in the event that the criterion in (a) was adopted;

(c) the size of the target market;

(d) whether the promotion is a competitive response to an identical program of a competitor;

(e) the number of promotions that can simultaneously be offered in a particular market segment; and

(f) the number or total duration of promotions that can be offered within a given year in a particular market segment.

The interveners were generally of the view that criteria should be established to delineate legitimate promotions of limited duration. Unitel submitted that in light of the Commission's concern over anti-competitive pricing and the steady increase in the use of promotions by the telephone companies, it is time for the Commission to refine its definition of a promotion of limited duration. Many of the interveners were of the view that given their frequency and scope, previous Stentor company promotions have resulted in the approval of pricing initiatives which cannot be legitimately characterized as promotions. The interveners suggested that there is a need to establish rigid guidelines in order to prevent the Stentor companies from inappropriately circumventing the requirement to file imputation test results. Some interveners expressed the view that all or at least certain types of promotions should be subject to the application of the imputation test. For instance, Sprint argued that there must be a presumption that winback promotions are generally anti-competitive and must be supported by an imputation test. ACC suggested that rather than trying to define criteria which would delineate legitimate promotions, the Commission should subject all promotions to an imputation test.

Stentor and AGT submitted that in Decision 94-13, the Commission recognized the need for different regulatory treatment and disposition of promotions. Stentor argued that promotions are a natural consequence of a competitive market and that the frequency and duration of promotional campaigns depend on a number of factors such as marketing objectives, types of promotion, target market and competitor activities. Stentor and AGT were of the view that to establish rigid guidelines limiting the use of promotions would not be meaningful or practical given that promotions are designed to serve varied objectives. Stentor was of the view that promotions should continue to be governed by the regime set out in Decision 94-13 and that an imputation test should not be required for promotions.

Most interveners considered that the total duration of a promotion should not exceed one month, as a pricing initiative in effect for a longer duration cannot be perceived as temporary. The interveners generally commented that the evaluation of legitimacy also requires a determination of the minimum interval permitted between identical promotions as well as regard to the number and overall duration of promotions offered within a market segment. Most interveners were of the view that promotions should be as broadly based as possible. Unitel submitted that promotional offerings are unfair and discriminatory when filed to win the business of a single large customer.

Virtually all interveners, as well as Stentor and AGT, considered irrelevant the question of whether a telephone company promotion is a response to a competitor's offering.

Stentor and AGT considered that given the broad application of promotions and the varied objectives they are designed to fulfill, it is impractical to predetermine many of the criteria considered during the proceeding. However, Stentor submitted that the duration of a promotion, including any extension, would unlikely exceed twelve months. AGT argued that what is not desirable is the highly targeted discounting of price below cost to a single, typically very large customer or to a small group of large customers.

The Commission notes that some interveners suggested that all or at least certain types of promotional filings should always be accompanied by an imputation test. This, in the Commission's view, implies that contrary to Decision 94-13, the Commission should be concerned as to whether promotions result in below-cost pricing. It remains of the view that below-cost pricing in the case of legitimate promotions of limited duration is generally not anti-competitive.

To date, the Commission has evaluated whether promotions are legitimate and of a limited duration on a case-by-case basis. Some interveners supporting the establishment of criteria did not offer specific proposals, and those that were put forward were often not comprehensive and not well supported. While interveners have generally held the view that there are problems with the Stentor companies' use of promotions, their rationale for imposing criteria, in the Commission's view, was not compelling.

The Commission considers that generally, proposed promotions have been appropriate and notes that it has denied those that were either not legitimate or of limited duration. In the absence of good reasons for doing so, the Commission is of the view that regulation of the toll market should not be made more restrictive. The Commission notes that in Forbearance from Regulation of Toll Services Provided by Dominant Carriers, Telecom Public Notice CRTC 96-26, 24 July 1996 (Public Notice 96-26), it initiated a proceeding to consider forbearance from regulation in that market.

The Commission considers that the primary consideration in assessing whether a promotion is a legitimate promotion not requiring an imputation test is the duration of the promotion or of like promotions. However, on the basis of the record of this proceeding, the Commission is not persuaded that it would be beneficial to establish a priori criteria defining legitimate promotions of limited duration. The Commission considers that, given the necessarily arbitrary and inflexible nature of such criteria, they may not be a more accurate method for the prevention of anti-competitive pricing than a case-by-case analysis. Furthermore, the imposition of such criteria would, in the Commission's view, constrain the delivery of pricing options to customers that might otherwise be appropriately characterized as legitimate.

II EX PARTE TREATMENT OF PROMOTIONS

Stentor and AGT requested that ex parte promotional tariff applications not be placed on the public record until the date of implementation and that ex parte tariff applications that have been denied not be placed on the public record.

Unitel supported the first request of Stentor and AGT but opposed the second. Westel was of the view that if interveners were not to have notice of a filing until a program was implemented, substantial damage could be done before the Commission could respond to interveners' submissions. Westel submitted that it is inconsistent with the role of the Commission to accede to the request for secrecy where a tariff filing is denied. Westel stated that if the public cannot have access to the supporting information on which the Commission has based its decisions in order to assess the reasonableness of those decisions, confidence in the regulatory process will be significantly eroded.

In Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994 (Decision 94-19), the Commission recognized that there are several considerations to be balanced in a determination to permit ex parte tariff filings. These include traditional public interest concerns, such as the procedural rights to notice of interveners adverse in interest, the public interest in an open regulatory process and the benefit to the regulatory decision-making process derived from comment by interveners. Relevant considerations relating to the public interest in the effective operation of the competitive marketplace were also identified, including, (1) the desirability of relying to a greater extent on market forces, minimizing the extent to which the regulatory process provides market participants with a competitive advantage and permitting the telephone companies to benefit from superior performance, new service/marketing ideas, etc. to the greatest extent possible, and (2) the potential for harm or prejudice to the competitive position of the telephone companies.

In Decision 94-19, the Commission indicated that the harm to the telephone companies from a lack of an ex parte process could take the form of the creation of a competitive disadvantage, due to advance knowledge of telephone company initiatives by competitors or to a longer period between the date a filing is placed on the public record and the date of its implementation. The Commission noted that the advance notice to competitors can be broken down into two components: (1) the interval from the date of filing to the date of interim disposition, and (2) the interval from the date of interim disposition to the date of implementation. Decision 94-19 indicated that because the public interest clearly requires that tariff applications, once granted interim approval, be placed on the public record, any ex parte tariff process would address only the interval from date of filing to date of interim disposition. The Commission considers that subsequent to such disposition, placement of applications on the public record is governed by the rules of confidentiality.

The Commission found it appropriate to consider an ex parte process for interim disposition only for discount toll and 800 Service tariff filings, and only if they meet all the Commission's tariff criteria concerning the imputation test, bottleneck services, consumer safeguards and privacy.

The Commission is of the view that the balance between public interest concerns and the effective operation of the competitive toll market has evolved due to a number of factors, including forbearance from the filing of tariffs by the facilities-based competitors, the more ready access to telephone company tariff filings afforded by their placement on the public record in electronic form and, in general, the evolution of competition in the toll market segments. Consequently, the Commission considers that the harm to the telephone companies due to advance knowledge of their initiatives is now greater, particularly in the case of promotional filings. Accordingly, the Commission is of the opinion that an amendment to the filing process, similar to that proposed by Stentor, is warranted.

The Commission remains of the view, as indicated in Decision 94-19, that an ex parte process is appropriate for discount toll and 800 Service promotional filings that meet all the Commission's tariff criteria during the interval from the date of filing to the date of interim disposition. In addition, for the reasons stated above, the Commission generally considers confidentiality to be appropriate for the specific details describing ex parte discount toll and 800 Service applications during the interval from interim disposition to the effective date of the amendments. In such cases, the Commission will issue an Order granting the revisions interim approval. The companies will be required to provide a copy of the application for the public record in all relevant public examination rooms within two business days in situations where the date of the Commission's Order coincides with the effective date. In other cases, the companies are required to provide a copy of the application for the public examination room on the same day the amendments take effect. The Commission notes that parties' ability to participate in a final decision will not be prejudiced, as the 30 day comment period will commence upon placement of the application on the public record.

In the case of denied ex parte filings for discount toll and 800 Service promotions, the Commission is of the view that maintaining confidentiality for the specific details of the promotion in the circumstances of the current competitive market is generally appropriate and is in the public interest. Accordingly, in cases where the Commission denies an ex parte promotion, it will generally issue an Order and direct the company to file, within two business days, an abridged version of the application.

Stentor also requested that promotions for competitive network and basic toll services be eligible for the ex parte tariff filing process.

The Commission notes that no party argued against establishing an ex parte regime with specific reference to competitive network or basic toll tariff filings. The Commission is of the view that it would be appropriate to extend the ex parte regime, as modified above, to promotional filings for competitive network and basic toll services.

III COMPETITIVE NETWORK PROMOTIONS

With respect to competitive network promotions, Rogers contended that in the absence of an imputation test, there is no information available to the Commission to determine whether or not the prices are non-compensatory and whether the telephone companies are acting in an anti-competitive manner. Rogers was of the view that Bell's Competitive Network Phase III results for 1995 create concern for the viability of competition in private line and data services. Rogers requested that the Commission require an imputation test for competitive network promotions.

The Commission notes that in Decision 94-19, it indicated that it was appropriate to extend the application of the imputation test established in Decision 94-13 to include competitive network tariff filings. The Commission considered that it was appropriate to treat the competitive network market segment in the same manner as the other interexchange market segments from the perspective of ensuring competitive equity and defining anti-competitive pricing. Accordingly, as with toll filings, the Commission is of the view that below-cost pricing in the case of competitive network market trials and promotions is generally not anti-competitive and therefore competitive network market trials and promotions are exempted from the application of the imputation test on the condition that sufficient information is provided by the telephone companies demonstrating that the offering is a legitimate market trial or promotion of limited duration.

IV FORBEARANCE FROM REGULATING PROMOTIONS

Stentor submitted that the Commission should, in the interest of competitive equity, consider forbearance from the filing of promotional tariffs by the telephone companies.

Unitel submitted that it would be premature to forbear from regulating telephone companies' promotional filings. Unitel was of the view that the Commission must retain the current tariff filing regime for a period of at least one year to ensure compliance with any new limits implemented by the Commission as a result of this proceeding. At that time, it should be open to the Commission to revisit the issue and assess the telephone companies' compliance. Sprint argued that Stentor did not provide the required forbearance analysis to support its request. Sprint submitted that the telephone companies have clearly demonstrated a tendency to use promotions for strategic and anti-competitive purposes. ACC and Westel submitted that Stentor's request for forbearance be denied.

Stentor replied that unlike the interveners' characterization of the competitive toll market as simply emerging, it believes that competition is vigorous and well developed. Stentor expressed the view that the Commission should reduce, rather than increase, regulatory requirements regarding the provision of competitive toll services. In Stentor's view, the Commission should be moving steadily towards the objective of forbearance of competitive toll and network services.

The Commission finds that Stentor did not sufficiently address the criteria which must be met in order for the Commission to forbear from regulating promotions. Furthermore, the Commission notes that it has issued Public Notice 96-26 to examine the broader issue of forbearance from regulation of toll services. Accordingly, the Commission denies Stentor's request to forbear from regulating promotions.

V USE OF PIC CHANGE INFORMATION

Sprint argued that because of their vertical integration, the telephone companies have immediate and ready access to PIC change information. Sprint submitted that Stentor has been particularly effective in making use of such information to target individual customers within days of leaving a Stentor company to a competitor. Sprint contended that the result has been devastating for competitors. Sprint's PIC loss analysis shows that close to 50% of customers leaving Sprint to Stentor were contacted for winback by a telephone company within 21 days of signing with Sprint, and that more than 80% of customers switching back from Sprint to Stentor were contacted for winback within 60 days of the PIC change. Sprint was of the view that it is necessary to review and change the current rules which permit the telephone companies to make use of PIC change information for winback purposes. Sprint requested that the telephone companies be prohibited from offering promotions to a customer within the first 60 days of a PIC change to an Alternate Provider of Long Distance Services (APLDS).

Stentor replied that the issue of the companies' use of PIC change information has been fully examined in two separate Commission proceedings. Stentor noted that on both these occasions APLDS have proposed that the Commission impose asymmetric restrictions on the companies' use of PIC change information. Further, Stentor submitted that all carriers, including the companies, receive PIC loss information under the same terms and conditions. Stentor noted that each service supplier (telephone company or APLDS) receives PIC change information on a daily basis with no party receiving any preferential access to such information. Each carrier receives only their PIC win/loss information.

AGT submitted that Sprint contacted 40% to 43% of AGT's customers in each of July, August, September and October 1995 and that Unitel contacted between 25% and 35% of AGT's customers in each of the same months. AGT also submitted that to be restricted from contacting its competitors' customers for 60 days would give an undue and unwarranted advantage to the APLDS.

The Commission notes that it has on two previous occasions issued decisions on the receipt and use of PIC change information. In the most recent decision, dated 12 October 1994, the Commission rejected the idea of an ongoing three month moratorium on the use of PIC change information by the telephone companies. In the Commission's view, Sprint has not justified a change in the regime. Furthermore, the Commission considers that it would be inappropriate to deny the telephone companies timely knowledge of information that is available to competitors. Accordingly, Sprint's requests concerning PIC change information are denied.

Allan J. Darling
Secretary General

DEC96-7_0