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Telecom Order
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Telecom Order CRTC 97-1797
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1. In Resale and Sharing of Cellular Services, Telecom Decision CRTC 91-8, 30 May 1991 (Decision 91-8), the Commission denied a number of applications requesting that it allow the resale and sharing of cellular services. In Decision 91-8, the Commission determined that cellular service was still in its infancy and that mandating the unrestricted resale of cellular service would reduce cellular providers' revenue needed to upgrade and expand their networks.
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2. On 11 August 1995, the Commission received an application from Cellular Rental Systems Inc. (CRS) requesting, among other things, that it again consider the issue of resale and sharing of cellular services. In its application, CRS submitted that the current arrangement whereby cellular service providers may choose to permit some resale/sharing applications and refuse others is no longer in the public interest, in part, because it produces instances of unjust discrimination and also because it denies to consumers the same competitive benefits from resale and sharing that are now available in virtually all other sectors of the telecommunications marketplace.
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3. As a result, in Resale and Sharing of Cellular Services, Telecom Public Notice CRTC 95-53, 12 December 1995 (PN 95-53), the Commission initiated a proceeding to consider general issues regarding the resale and sharing of services offered by federally regulated cellular providers.
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4. Subsequent to the issuance of PN 95-53, the federal government announced that it had awarded operating licences for the provision of Personal Communications Services (PCS) in the 2 GHz range to Clearnet PCS Inc. (Clearnet), Microcell Networks Inc. (Microcell), Mobility Canada on behalf of its members, and Rogers Cantel Mobile Inc. (Cantel).
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5. Accordingly, in Revisions to Resale and Sharing of Cellular Services, Telecom Public Notice CRTC 95-53, 12 December 1995, Telecom Public Notice CRTC 96-7, 19 February 1996 (PN 96-7), the Commission revised the proceeding initiated by PN 95-53 to include consideration of the resale and sharing of services offered by providers of PCS.
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6. AlReach Integrated Network Ltd. (AlReach) submitted that mandating ubiquitous resale and sharing of PCS and cellular services is not in the public interest. However, AlReach submitted that the resale and sharing of such services could be required to the extent necessary to facilitate compliance with terms of licences issued to PCS and cellular service providers under the Radiocommunications Act, and that resale and sharing of such services should be permitted (but not mandated) as a valid form of distribution of such services, to address niche market needs. AlReach also submitted that if providers choose to resell services, all customers in the same circumstances should be offered the same terms and conditions to avoid circumstances of unjust discrimination.
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7. ACC Long Distance Inc. (ACC) submitted that it is in the public interest to mandate unrestricted resale and sharing of PCS and cellular services provided by all federally regulated providers of these services. ACC stated that in Decision 91-8, the Commission considered that requiring the cellular providers to permit unrestricted resale and sharing would not, at that time, have resulted in benefits significant enough to equal or outweigh the harm. In particular, ACC stated that the Commission considered that cellular service was still in its infancy and that allowing unlimited resale would have caused disruptions that would have adversely affected the development and expansion of the cellular providers' networks. ACC submitted that the concerns noted by the Commission in Decision 91-8 are no longer present today and that the PCS and cellular services industry is no longer in its infancy.
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8. The Canadian Business Telecommunications Alliance (CBTA) also submitted that the infant industry rationale can no longer be sustained. The CBTA noted Mobility Canada's evidence that its members have extended their networks to cover 90% of the Canadian population and Cantel's statement that the penetration rate for cellular services has grown from around 1.8% in 1990 to 9.8% at the end of 1995. The CBTA concluded that there is no longer a valid reason for a distinction between the resale and sharing rules for wireline and for wireless providers.
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9. Cantel submitted that mandating unrestricted resale of cellular services would provide few, if any, benefits to the public while undermining existing cellular distribution systems and eroding the ability of cellular operators to continue to modernize and expand their networks. However, Cantel stated that resale may be an appropriate distribution strategy to pursue in certain circumstances. Cantel submitted that cellular operators should remain free to negotiate terms and conditions of service with prospective resellers when it is in the interests of both parties to do so.
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10. Cantel also submitted that since 1984, as a condition of licence, it has been required to include independent distributors in its retail distribution system. Cantel noted that its products are distributed in approximately 3,000 locations nation-wide through hundreds of stores and agents. Cantel submitted that its distribution system has provided significant benefits to users and would be jeopardized by mandated resale, which it stated was primarily an alternative system of distribution.
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11. Cantel stated that the Commission recognized the highly competitive state of the cellular market in Regulation of Wireless Services, Telecom Decision CRTC 94-15, 12 August 1994, (Decision 94-15), when it decided to forbear from exercising its powers and performing its duties under sections 25 and 29, and subsections 27(1), (5) and (6) of the Telecommunications Act (the Act). In deciding to forbear, Cantel stated that the Commission acknowledged that the cellular market is sufficiently competitive to ensure that interests of subscribers, including just and reasonable rates, are protected. Cantel submitted that this is a point of critical importance, given that one of the principal stated benefits of resale is to stimulate price competition in markets that are sluggish. Cantel stated that there is no reason to believe that the level of competition will decline and that, given the introduction of new wireless services which are now, or will soon be, directly competitive with cellular, consumers will have more choices and competition will become even more dynamic in the coming years.
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12. Cantel submitted that Industry Canada did not require mandatory resale of cellular services to parties other than PCS licensees when it awarded licences in December of 1995. Cantel stated that Industry Canada only imposed a limited carrier-to-carrier resale requirement to help ensure the rapid spread of PCS, not to create new competitors.
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13. CRS supported the mandated resale and sharing of PCS and cellular services. CRS submitted that history has shown that the incumbent carriers are incapable of administering a voluntary resale regime without engaging in unjust discrimination between customers and, in particular, alluded to its own difficulties in reaching an arrangement with Bell Mobility Cellular in 1994 and 1995.
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14. CRS stated that the market for facilities-based cellular services is no longer in its infancy and noted that the licenced cellular carriers have now been providing service in their authorized operating territories for over 12 years and have extended their networks to cover 90% of the Canadian population. CRS also noted that Cantel itself characterized the cellular market as one having experienced remarkable growth during the years since the release of Decision 91-8. CRS stated that cellular penetration rates have reportedly increased from approximately 1.8% in 1990 to nearly 10% in 1995.
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15. CRS noted that Mobility Canada and, to a lesser extent Cantel, submitted that the resale and sharing of cellular services will result purely in arbitrage and that no value is added by the entry of resale competitors in the market, unless those entrants are also facilities-based. CRS submitted that there is no one accepted definition of what constitutes adding value, but stated that it may be as simple as improving the systems and services which support a reseller's principal service offering, such as superior customer service, or tailoring service offerings to meet the needs of individual customers or market segments.
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16. Clearnet submitted that the Commission should not mandate the resale and sharing of cellular or PCS stating that the market forces are the preferred mechanism to motivate this form of distribution. Clearnet noted that once the four viable competing PCS service providers are in operation, market forces will dictate what types of services the individual operators will offer and at what price. As an example, Clearnet noted that resale has been a feature of the paging industry for many years despite that industry being unregulated by the Commission. Clearnet stated that it anticipates that it will enter into resale arrangements assuming that acceptable terms and conditions can be negotiated.
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17. Clearnet also noted that in Decision 91-8, the Commission recognized that a stable source of revenues was an important factor in the ability of the cellular operators to achieve their network upgrade and extension plans and that it outweighed any benefit from mandating resale. Clearnet stated that, given the enormous network construction task facing Clearnet and Microcell, an even more compelling case exists today for not mandating resale.
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18. Microcell supported mandating resale and sharing of PCS and cellular services, subject to certain restrictions necessary to ensure competitive equity, reciprocity and network integrity. Microcell stated that one of the highest priorities in the Canadian telecommunications policy is to establish an interconnected and interoperable network of networks. Microcell stated that to achieve this objective, the infrastructure of all carriers must be accessible in an unrestricted manner, including allowing for third party resale and sharing of network services and facilities.
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19. Mobility Canada did not support mandating resale and sharing of PCS and cellular services, stating that further regulation should not be imposed where market forces have proved effective and where there is no evidence of market failure. On the contrary, Mobility Canada submitted that existing market forces in Canada have resulted in superior quality and lower prices when compared to the United States. It stated that privately negotiated roaming and interconnection agreements and third party access that promotes value best reflect the commercial and competitive nature of the wireless business.
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20. Mobility Canada also submitted that hundreds of independent retailers already perform many of the functions in the distribution chain that resellers would perform and stated that Mobility Canada's services are currently provided to the public through over 5,000 distribution outlets.
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21. Mobility Canada also stated that the introduction of mandatory resale would likely erode earnings or market share at a time when new facilities-based entrants are trying to reach a minimum scale. Mobility Canada submitted that those effects would cause reductions in cash flow needed to support investment in digital cellular, PCS and Enhanced Specialized Mobile Radio (ESMR) Networks, reductions in coverage in terms of deployment of new infrastructure and could jeopardize the fulfillment of many of the PCS licencing policy objectives established by Industry Canada. Like Cantel, Mobility Canada submitted that the rationale that supported Decision 91-8, when only two carriers were in the market, should be even more valid when as many as seven digital networks, (four PCS, two digital cellular, and one ESMR) are under construction.
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22. Sprint Canada Inc. (Sprint) submitted that based on the Canadian telecommunications policy objectives stated in the Act, the policy statements by the Government of Canada and the industry objectives reiterated by the Commission on countless number of occasions, it is beyond argument that resale competition in the Canadian wireless market is in the public interest.
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23. Sprint submitted that resellers of PCS and cellular services would provide a source of marketplace innovation in the wireless market by adding value to the resold service. In particular, Sprint noted that resellers might provide customized billing or other options as well as bundling resold wireless services with other telecommunications services to meet customer demand.
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24. Sprint submitted that Cantel's and Mobility Canada's existing distribution outlets do not provide a substitute for resale as they constitute nothing more than the retail operations of the incumbent cellular carriers themselves.
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25. Sprint also submitted that despite the assertions by Cantel and Mobility Canada that the cellular market is competitive, the alleged competition has not thus far produced a resale market. Sprint stated that without a Commission-imposed resale obligation, the incumbent cellular carriers do not have the incentive to permit other potential providers to resell their services.
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26. Stentor Resource Centre Inc. (Stentor) took no position on the desirability of mandated resale and sharing, but submitted that should the Commission determine that resale of PCS and cellular services be mandated, then the incumbent telephone companies should be relieved of the prohibition on their involvement in the joint marketing and promotion of cellular products and services.
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27. Télébec Mobilité supported Mobility Canada's position and, in addition, noted that for its first year of operation as a cellular services provider, it has only achieved a penetration rate of 2% and submitted that unrestricted resale in its operating territory, at this time, would seriously reduce revenues and jeopardize network expansion.
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28. UniverCell Telecommunications Inc. (UniverCell) submitted that the Commission should mandate the unrestricted resale and sharing of PCS and cellular services. UniverCell proposed a wholesale pricing formula that it submitted should be mandated by the Commission and which would set resale rates below the existing PCS and cellular service corporate rates.
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29. Westcomm International Sharing Corporation (Westcomm) and Cam-Net Communications Inc. supported those parties, particularly CRS and Microcell, who favoured mandating unrestricted resale and sharing of PCS and cellular services. Westcomm stated that resale and sharing would benefit consumers by increasing the penetration rate for PCS and cellular services through price competition and innovation.
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30. The Commission notes that, in the past, it has denied applications requesting the mandated resale and sharing of cellular services on the basis that the potential benefits accruing as a result of resale and sharing would be outweighed by the effects such a requirement would have on a nascent industry. In particular, the Commission was concerned that the revenue erosion that would result from requiring unrestricted resale and sharing would adversely affect the development and expansion of Cantel's and Mobility Canada's cellular networks.
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31. The Commission agrees with those parties that submitted that the Decision 91-8 rationale against mandated unrestricted resale is no longer valid. The Commission notes the evidence of several parties that the cellular networks of the incumbent carriers now extend to 90% of the population with penetration rates in excess of 10%. The Commission also notes that the incumbent carriers have experienced significant growth in their market on a year-over-year basis and currently have distribution channels made up of many thousands of independent distributors and other outlets. In light of this evidence, the Commission is of the view that the cellular industry is no longer nascent.
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32. The Commission notes that it has mandated resale and sharing in wireline toll and local markets, most recently extending the services available for resale to include residential services in Local Competition,Telecom Decision CRTC 97-8, 1 May 1997 (Decision 97-8). In the Commission's view, the circumstances that exist in the wireline market are different from those prevailing in the PCS and cellular markets. In particular, the Commission notes that in both the wireline local and toll markets, competition arising from mandated resale and sharing preceded facilities-based competitive entry, in contrast to the cellular market where facilities-based entry was the initial form of competition. Moreover, facilities-based entry in the cellular/PCS market has expanded. Specifically, the Commission notes that Clearnet and Microcell, as new facilities-based entrants, were awarded licences to provide PCS in early 1996. In addition, the Commission notes that the government is considering licensing further providers of cellular-like PCS. The Commission also notes that under these circumstances, the PCS and cellular market is in the process of evolving into one characterized by multiple facilities-based service providers.
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33. The Commission notes that, while the government included statements supporting non-discriminatory resale and sharing by service providers and other carriers in its Policy and Call for Applications - Wireless Personal Communications Services in the 2 GHz Range - Implementing PCS In Canada, 15 June 1995, it ultimately did not promote mandated unrestricted resale and sharing, but rather imposed significantly different conditions of licence upon the successful PCS applicants. In particular, the Commission notes that one of the conditions of licence is that each licencee must offer PCS resale to other PCS licencees on a non-discriminatory basis. Another condition requires existing cellular operators to offer the non-cellular PCS licencees cellular resale and roaming via handsets with intersystem capability. The government also noted that the conditions it imposed were without prejudice to any further requirements that might be imposed by the Commission.
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34. Ultimately, in imposing conditions of licence, the government determined that only resale between PCS licencees, and between cellular licencees and PCS licencees is required. The Commission notes that the conditions imposed by the government on PCS and cellular service providers will provide national coverage to four facilities-based providers of PCS and cellular services.
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35. The Commission notes that with the entry of new facilities-based providers, there has been further price competition and in respect of per minute usage charges, for example, some significant price decreases. In addition, the Commission notes that facilities-based entrants have the same opportunities and incentives as would resellers to provide innovative options and services, including service bundling. The Commission further notes the commitments of the facilities-based providers, as a condition of licence, to actively invest in research and development; a commitment which is generally not required from resellers. Finally the Commission notes its statement in Decision 97-8 that:
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"While resale competition can help promote the development of a competitive market, it is the Commission's view that the full benefits of competition can only be realized with facilities-based competition."
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36. In the Commission's view, with existing and potentially new facilities-based entry in PCS, most if not all benefits that would arise from mandating resale have already been achieved.
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37. Resale and sharing of services and network functions is viewed as a business opportunity by at least one PCS licencee. Microcell Connexxions, a Microcell subsidiary, will market the resale of any and all of Microcell's services including a number of Microcell's unbundled network components. Microcell has stated that it adopted this strategy in order to amortize the costs of its network deployment and further to encourage additional distribution channels. As a result, the Commission considers that opportunities now exist, or will in the very near future, for the resale of PCS and, by implication, cellular services by third parties.
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38. The Commission considers that if it mandated unrestricted resale and sharing of PCS and cellular services, it would either (1) be required to establish appropriate rates, terms and conditions through approval of tariffs or (2) rely on the complaints process to detect and deal with violations of section 27 of the Act. As noted by a number of parties, the Commission forbore from the rate regulation of cellular and public cordless telephone services in Decision 94-15 determining that these services were sufficiently competitive to protect the interests of the users. This determination was confirmed in Regulation of Mobile Wireless Telecommunications Services, Telecom Decision CRTC 96-14, 23 December 1996.
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39. The Commission considers that requiring approval of tariffs for mandated resale would entail a reversal of its decision to forbear. In the Commission's view, this would run counter to its general approach of fostering the growth of competitive markets and, wherever possible, leaving rates to be disciplined by competitive market forces as it did most recently regarding competitive local exchange carrier retail rates in Decision 97-8. The Commission considers that mandating resale and relying on complaints to detect and deal with violations of section 27 of the Act would involve an increase in regulatory activity and gaming opportunities.
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40. In the Commission's view, based on the record of this proceeding, the question of whether to offer unrestricted resale and sharing is best answered by individual providers responding to their investment and business requirements. The Commission considers this to be appropriate and to be in the public interest in an increasingly competitive market characterized by new facilities-based entry. Accordingly, the Commission has concluded that it will not mandate unrestricted resale and sharing of cellular and PCS services.
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Laura M. Talbot-Allan
Secretary General
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This document is available in alternative format upon request.
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