ARCHIVED -  Telecom Decision CRTC 97-1

Telecom Decision

Ottawa, 13 January 1997

Telecom Decision CRTC 97-1

BELL CANADA AND BELL SYGMA INC. - JOINT MARKETING OF SYMPATICO INTERNET SERVICES

DISPOSITION: Application to prohibit Bell Canada from marketing Sympatico is denied.

I THE APPLICATION

On 15 December 1995, Mr. Gary Reuter (Mr. Reuter), Megatoon Station, Metrix Interlink Corp., Internet Communications Inc., Les Services en Ligne Infobahn, Interlog Internet Services, ComputerLink Online Inc., Internet Direct Canada Inc., Passport Online and Toronto Freenet (the Applicants) filed a Part VII Application pursuant to the CRTC Telecommunications Rules of Procedure (the Rules) requesting the Commission to prohibit Bell Canada (Bell) from: (1) engaging in any joint marketing or advertising or bundling of telephone company and Internet services including the marketing or distribution of Sympatico and other Internet services provided by Bell's affiliates through Bell's business offices, Phonecentres/Télé-boutiques; (2) using its customer contacts at Bell's business offices, Phonecentres/Téléboutiques to market its affiliates' Internet services and referring these customers to its affiliates' Internet services; and (3) permitting its Internet affiliates to access Bell's telephone company customer information or using this information to assist in marketing its affiliates' Internet services.

In addition, the Applicants requested an order requiring Bell to: (1) disclose the nature of its agreement to provide facilities and services to its Internet affiliates, Bell Sygma Inc. (Sygma), MediaLinx Interactive Inc. and WorldLinx Telecommunications Inc. (WorldLinx); and (2) provide copies of the General or Special Facilities Tariffs (SFT) under which the services or facilities are being provided.

Sympatico is an Internet access service provided by Sygma. Sygma has entered into an arrangement with Bell, among others, for the distribution and sale of the Sympatico initialisation software package, which includes a browser and a fixed amount of introductory Internet access time. Aside from the introductory package, Sygma will provide all customer interface, including billing and collection, with respect to the associated dial-up service and Web site.

The Applicants submitted that the distribution of the Sympatico initialisation package by Bell would grant Sygma an undue preference, contrary to subsection 27(2) of the Telecommunications Act (the Act).

The Applicants further submitted that the safeguards established with respect to joint marketing of cellular services in Cellular Radio - Adequacy of Structural Safeguards, Telecom Decision CRTC 87-13, 23 September 1987, and Rogers Cantel Inc. v. Bell Canada - Marketing of Cellular Service, Telecom Decision CRTC 92-13, 29 June 1992, should be extended to the marketing and promotion of Internet products and services.

The Applicants submitted that the Commission's decision not to extend the joint marketing restrictions to paging products and services in Canadian Association of Message Exchanges Inc. v. Bell Canada - Marketing of Paging Services, Telecom Decision CRTC 95-16, 15 August 1995, is not relevant to the case at hand because, unlike the paging market, the Internet market is not a mature and competitive market with a large number of service providers.

II BACKGROUND

By letter dated 23 November 1995, Mr. Reuter requested, under subsection 56(5) of Part VI of the Rules, an interim order prohibiting Bell from engaging in joint marketing with Sygma and, in particular, from joint marketing through Bell's Phonecentres/Téléboutiques, and telephone bill mailings.

By letter dated 30 November 1995, the Commission denied the application, stating it was of the view that, at least on a prima facie basis, the distribution of Sygma's Internet products and services through the Bell Phonecentres would not constitute an undue preference to Sygma, contrary to subsection 27(2) of the Act, and would not warrant the extension of the joint marketing restrictions to Internet services.

In its letter, the Commission noted that the Internet services market is rapidly growing, competitive and highly dynamic with no apparent regulatory or other barriers to entry, and that many Internet service providers (ISPs) have entered the market in a relatively short period of time. The Commission accordingly found that the ISP market is at least as competitive as the paging market, to which the Commission had earlier decided not to extend the joint marketing safeguards, based, in part, on a finding that the market was too competitive for any targeting or predatory pricing strategy by Bell to be profitable.

The Commission also considered that, unlike cellular telephone services, the link between the provision of monopoly telephone services and the provision of Internet services would not appear to be particularly strong. Finally, the Commission noted that, since Phonecentres are only one of several distribution outlets for the Sympatico initialisation package, any prohibition on Phonecentre marketing of the Sympatico product may be of little effect.

The Commission also provided for consideration of Mr. Reuter's application for final relief.

III POSITIONS OF PARTIES

The Applicants stated that the Internet services market is a fledgling, start-up industry and hence, safeguards are warranted to ensure that the Stentor companies do not use their dominant position in the local telephone services market to confer an undue preference and anti-competitive advantage on their Internet affiliates.

Bell submitted that it is not appropriate for the Commission to extend the joint marketing safeguards established for cellular services to the ISP market. It noted that the ISP market is very competitive and that a large number of Internet service providers have successfully entered the market in a relatively short period of time.

The Applicants submitted that, while Sympatico is purportedly being offered by Sygma, the service is being marketed actively by Bell and is being touted as Bell's Internet service thereby conferring an undue preference on Sygma contrary to subsection 27(2) of the Act.

Bell stated that the conditions under which Sympatico is being marketed by Bell confers no undue preference upon Sygma in relation to other third parties whose products are marketed by Bell in its Phonecentres/Téléboutiques. Bell stated that the costs associated with the marketing of Sympatico are being recovered from Sygma.

The Applicants further alleged that Bell is using its local business offices and order centres to pre-empt orders by customers of competing ISPs and that Bell's policy is to refer customers only to Sympatico.

The Applicants also stated that Bell is abusing its access to monopoly local customer information to market Sympatico and effectively to divert the ISPs' customers to Sympatico.

Bell replied that its policy is not to market Sympatico in conjunction with requests for other Bell services, and it noted that it has issued and re-issued policy directives on practices to all business offices.

Bell further stated that no confidential customer information is being provided to Sygma in relation to the sale and marketing of Sympatico, noting that in order to sell and market Sympatico, there is no requirement to transfer such information.

With respect to the issue of co-location, the Applicants noted that the services and facilities for Sympatico are being provided by Bell in accordance with a special facilities tariff (SFT) and that Bell has entered into an arrangement with Sygma to permit co-location.

The Applicants stated that when Mr. Reuter requested co-location, Bell denied his request, and then, after Bell had established co-location for Sympatico, re-opened negotiations.

Bell denied offering preferential co-location service arrangements to Sygma. Bell stated that its services are provided in accordance with its Special Facilities Tariff 7396 and pursuant to a Bell Sygma Internet Service Distributor Agreement (the Distributor Agreement), which was filed with the Commission in confidence.

Bell stated that co-location on terms and conditions similar to those provided to Sygma is available to the ISPs subject to the availability of facilities in the Bell central office (CO) in which an ISP requests co-location.

IV CONCLUSIONS

The Commission is of the view that, according to the competitive assessment criteria established in Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994, the Internet services market exhibits many characteristics of a very dynamic and competitive market. In the Commission's view, there is evidence of significant price and non-price competition; the market consists of a large number of ISPs, ranging in size from small operations to large foreign-based competitors; and there is no evidence of significant barriers to entry, as evidenced by, among other things, the large number of entrants into the market in a very short time period. In the Commission's view, Sygma is not dominant in the ISP market and consequently does not have substantial market power.

The Commission notes that, in addition to the Bell Phonecentres, Sygma is distributing and marketing Sympatico through numerous other channels such as computer, software and electronic retailers. Accordingly, the Commission considers that the joint marketing safeguards requested by the Applicants would not significantly alter the competitive impact of Sygma's entry into the Internet services market.

With regard to the specific allegations of undue preference, the Commission is of the view that Bell's marketing and distribution of Sympatico does not confer an undue preference on Sygma. Bell represents only one among many distribution channels for Internet software initialisation packages, such that any preference given to Sympatico is not undue. The Commission notes that the on-going Sympatico Internet service and all customer interfaces, including billing, collection and liability, are done through Sygma. The Commission also notes that the Distributor Agreement is non-exclusive and that Bell is not restricted from distributing other ISPs' services. In the Commission's view, distribution and marketing arrangements contained in the Distributor Agreement, combined with Bell's statement that Sygma pays for all costs associated with marketing Sympatico, indicate that Bell is not cross-subsidizing Sygma's competitive market offerings.

With respect to the issue of customer referrals, the Commission notes that Bell issued (and later re-issued) directions to its employees not to market Sympatico to customers inquiring about other Bell services. The Commission is of the view that Bell is not conferring an undue preference on Sygma in this regard.

Regarding the release of customer information, the Commission notes that the Applicants have presented no evidence that Bell is permitting Sygma or other affiliates to access Bell's telephone customer information or is using its access to monopoly local customer information to market Sympatico or to divert ISP customers to Sympatico. The Commission considers that it has no basis for rejecting Bell's statement that no confidential customer information is being provided to Sygma in relation to the sale and marketing of Sympatico. Nor is the Commission able to conclude that Bell is using confidential customer information to confer a benefit on Sygma.

With respect to the Applicants' allegation that Bell is providing preferential access arrangements to its affiliates, the Commission is satisfied that an arms-length relationship exists between Bell and Sygma and that all inputs required by Sygma from Bell are acquired at tariffed rates.

The Commission also notes that Bell has stated that co-location is available to other ISPs, on terms and conditions similar to those offered to Bell's affiliates, subject to the availability of facilities in the CO in which an ISP requests co-location. Bell has stated that it will file for the Commission's approval any additional tariffs which may be required in this regard.

In light of the above considerations, the Commission is of the view that Bell's provision of co-location to Sygma does not give Sygma an undue preference. The Commission notes, however, that in the event that Bell claims that no space is available for another ISP requesting co-location, Bell is required to justify its claim and address the availability of comparable alternatives.

In conclusion, the Commission considers that Bell's activities in the marketing and distribution of Sygma's Sympatico through its Phonecentres/Téléboutiques do not confer an undue or unreasonable preference on Sygma contrary to section 27(2) of the Act. Accordingly, the application is hereby denied.

Allan J. Darling
Secretary General

DEC97-1_0