ARCHIVED -  Telecom Decision CRTC 98-24

Telecom Decision
CRTC 98-24

Ottawa, 17 December 1998

TELESAT CANADA - FORBEARANCE FROM THE REGULATION OF RF CHANNEL SERVICES

File No.: 8640-T3-01/98

1. Overview

1. Telesat Canada (Telesat) requested that the Commission forbear from the regulation of RF Channel services provided using Fixed Satellite Service (FSS) facilities, effective 1 March 2000. Telesat argued that the World Trade Organization/General Agreement on Trade in Services Agreement for Basic Telecommunications Services (the WTO/GATS Agreement) would open these services to sufficient competition, starting 1 March 2000, to protect the interests of users.

2. RF Channel services are mainly used in Canada to provide broadcasters with television signal collection and distribution as well as to provide business and government data communications, and telecommunications service to remote and northern areas. Direct to Home (DTH) broadcasting service is also currently provided using Telesat’s RF Channel service on FSS facilities.

3. Interested parties generally argued that the Commission should not forbear at this time as sufficient evidence that there will be sufficient competition to protect the interests of users has not been provided. The Commission concurs with parties that Telesat has not provided persuasive evidence to support a forbearance decision and denies Telesat’s forbearance application.

4. The Commission expects that the WTO/GATS Agreement will result in the introduction of competition in the provision of RF Channel services. However, the degree to which users will have real alternatives is not certain and depends on the coverage area required and the satellite capacity available from alternate suppliers.

5. The Commission concurs with Telesat that the current regulatory framework for RF Channel services does not provide sufficient flexibility for the transition to competition expected under the WTO/GATS Agreement. The Commission has determined that a price ceiling approach may be appropriate and is today initiating a proceeding to consider a transitional framework for Telesat. It is expected that the new regulatory framework would apply prior to 1 March 2000 for RF Channel services to be provided after that date using FSS facilities.

2. Introduction

2.1 Telesat’s Forbearance Application

6. Telesat, in its forbearance application of 13 March 1998, requested complete and unconditional forbearance from the regulation of RF Channel services provided by FSS facilities, effective 1 March 2000. Telesat’s FSS satellites are Anik E1, E2 and C1, as well as the planned F1 and F2 and possible future FSS satellites. RF Channel services are currently regulated by the Commission over a ten-year study period, which extends to 31 December 2000.

7. Telesat submitted that its RF Channel services will face immediate and direct competition in a fully liberalized market when its monopoly ends 1 March 2000 as Canada committed in the WTO/GATS Agreement. Telesat also argued that its RF Channel services already face competition from terrestrial telecommunications networks, which employ growing fibre-optic networks and wireless technologies. The company indicated that forbearance is critical in order for Telesat to compete on an equal footing.

8. Telesat requested that the Commission consider its application in an expedited manner since, at the time, it was on the verge of committing to the next generation of FSS satellites. Telesat stated that the resolution of any regulatory uncertainty concerning its FSS satellites is critical to Telesat’s ability to attract investors and customers for its proposed Anik F satellites.

2.2 The Proceeding

9. The Commission issued Telesat Canada - Forbearance Application for RF Channel Services, Telecom Public Notice CRTC 98-8, 4 May 1998, which established an interrogatory process and invited comments from parties and reply comments from Telesat. Comments were received from the Canadian Cable Television Association (CCTA), Canadian Satellite Communications Inc. (Cancom), the Canadian Satellite Users Association (CSUA), the Director of Investigation and Research, Competition Bureau, Industry Canada (the Director), Northwestel Inc. (Northwestel) and Star Choice Television Network Incorporated (Star Choice).

2.3 The WTO/GATS Trade Agreement

10. Telesat currently has a monopoly for the provision of RF Channel service on FSS facilities in Canada and between Canada and the United States (U.S.). This monopoly was maintained at the time of Telesat’s privatization in 1992 and was to extend until March 2002. A condition of its licence to use Canadian orbital slots is that Telesat ensures the availability of satellite service in all regions of Canada. Under the WTO/GATS Agreement, Telesat’s monopoly for FSS is committed to end two years early, on 1 March 2000.

11. The WTO/GATS Agreement applies only to basic telecommunications services. Telecommunications services supplied for the transmission of services regulated under the Broadcasting Act that are intended for direct reception by the public (i.e., DTH and Direct Broadcast Satellite (DBS) services) are specifically excluded from the scope of the agreement.

12. To give effect to the WTO/GATS Agreement, Bill C-17 was passed. Entitled An Act to amend the Telecommunications Act and the Teleglobe Canada Reorganization and Divestiture Act (the Amending Act), it removes ownership restrictions on satellite earth stations. This change is intended to remove restrictions on access by Canadian satellite users to foreign satellite service providers. Industry Canada also initiated a policy consultation process on its authorization procedures for earth and space stations for FSS.

13. Some parties to this proceeding raised a number of issues concerning the implementation of the WTO/GATS Agreement. Issues included possible conditions imposed by Industry Canada that would require competing satellites to provide coverage of all regions of Canada in order to be authorized for service in Canada, ownership restrictions for foreign satellites, broadcasting policy restrictions on the use of foreign satellites, and the exclusion from the WTO/GATS Agreement of telecommunications services supplied for the transmission of services direct to the public.

14. While these issues represent uncertainties concerning the implementation of the WTO/GATS Agreement, for the purpose of this Decision, the Commission assumes that remaining impediments to access by foreign satellites to provide FSS in Canada are likely to be removed consistent with Industry Canada’s Policy Framework for the Provision of Fixed Satellite Services, Radio Systems Policy RP-008, December 1998. An exception is the exclusion of DTH/DBS services from the WTO/GATS Agreement.

3. The Forbearance Test

15. Under subsection 34(1) of the Telecommunications Act (the Act), the Commission has the authority to forbear, in whole or in part and conditionally or unconditionally, from the exercise of any power or the performance of any duty in respect of sections 24, 25, 27, 29 and 31 of the Act where it finds as a question of fact that to refrain would be consistent with Canadian telecommunications policy. Under subsection 34(2), the Commission shall forbear from the regulation of a service or class of services, to the extent it considers appropriate, where it finds as a question of fact that a telecommunications service is or will be subject to competition sufficient to protect the interests of users. Subsection 34(3) provides that the Commission shall not make a determination to refrain from regulation if forbearance would be likely to impair unduly the establishment or continuance of a competitive market.

16. Consistent with the Commission’s past decisions, a determination as to whether forbearance is warranted in this case involves an assessment of the degree to which Telesat will possess or is likely to possess market power. The Commission has in previous decisions defined market power as the ability of a firm to impose unilaterally and profitably a significant, non-transitory price increase within the relevant market.

17. Most parties evaluated Telesat’s forbearance application using an analytical framework similar to that used by the Commission in its forbearance determinations for toll, private line and Internet services provided by telecommunications carriers. Once the relevant services and geographic market were identified, the parties examined economic factors related to supply and demand conditions to assess the degree of Telesat’s market power in the relevant market.

18. The factors to be considered in assessing market power include demand conditions (i.e., the availability of substitutes and the ability of customers to switch suppliers) and supply conditions (i.e., the presence or absence of barriers to entry, the ability of competitors to enter the market and supply expansion in response to price increases).

3.1 The Relevant Market

19. An assessment of market power requires a definition of the relevant services market and geographic market area.

3.1.1 The Relevant Services Market

20. The Commission, in other proceedings, has defined the relevant services market to be the smallest group of services where market power can be exercised.

21. Telesat defined the relevant services market as all RF Channel services provided over fixed satellite facilities. Telesat argued that its RF Channel services compete with terrestrial telecommunications carriers who provide competing voice, video and data transmission services. Telesat submitted that broadcasting networks with a limited number of transmit/receive points have increasingly become targets for competition by terrestrial competitors to Telesat.

22. Telesat acknowledged, however, that the following services do not have terrestrial alternatives, but suggested that satellite competition would be available 1 March 2000: 1) distribution of programming to many cable headends in remote areas; 2) transmission of signals for DTH providers; 3) telecommunications service to remote regions; and 4) broadcasting services which must have broad coverage of the far North.

23. The Director is of the view that the relevant services market could be broader than RF Channel services, encompassing services provided by fibre networks, wireless systems and other categories of satellite services. However, the Director noted that acceptance of a broader definition would require that those services be available in all regions. The Director accepted for his analysis that the relevant services market at its narrowest level would be the provisioning of RF Channel services via fixed satellites. The Director noted that evidence was not available to substantiate a broader services market definition.

24. CSUA argued that terrestrial alternatives cannot provide the point to multi-point services required by broadcasters.

25. Cancom noted that Telesat is able to maintain higher rates for its RF Channel services when compared to the terrestrial alternatives and has not suffered significant loss of demand.

26. Star Choice noted that terrestrial services provide no alternative for DTH providers.

27. The Commission notes Telesat’s arguments that terrestrial fibre networks compete with RF Channel services in some geographic areas. However, the Commission concurs with the Director that it is not appropriate to include services provided by terrestrial facilities in the market definition for Telesat’s forbearance application as the terrestrial services are not available to provide service to a significant number of RF Channel users.

28. The Commission also notes Telesat’s position that RF Channel service is a transmission service provided independently of the applications carried by the service.

29. The Commission concludes that the relevant services market for consideration of Telesat’s application is RF Channel services provided by FSS facilities.

3.1.2 The Relevant Geographic Market

30. The relevant geographic market is the geographic area over which service is provided. The relevant geographic market must be determined in order to assess the degree of competition likely to exist within that market as of 1 March 2000.

31. Telesat submitted that the relevant geographic market for provision of RF Channel services, effective 1 March 2000, will be North America. Telesat based its conclusion on the following observations: 1) satellite facilities are inherently international in nature; 2) RF Channel services are a commodity available from Canadian or U.S. satellites; 3) Telesat’s Anik F satellites are planned with full North American coverage; 4) existing American satellites are capable of providing RF Channel coverage of all or part of Canada, and this coverage is likely to increase in future; and 5) occasional satellite failures have illustrated the substitutability between American and Canadian satellites.

32. The Director indicated his acceptance of Telesat’s geographic definition of the market subject to two caveats: 1) that the Commission verify that, indeed, foreign satellites will have the coverage and capacity available to deliver Canadian telecommunications services; and 2) that regulatory impediments to entry by foreign satellites to serve the Canadian market will not limit competition.

33. CSUA argued that Telesat’s definition of a North American market is too broad. CSUA is of the view that, just because Telesat may experience some competition from U.S. satellites or other sources, justification had not been provided to define its market to include all possible sources of competition. CSUA submitted that the proper geographic market definition is Canada.

34. The Commission concurs with Telesat that, eventually, the RF Channel service market will likely be North American in geographic scope. This will depend, however, as noted by the Director, on the extent to which alternate satellite coverage and capacity is available to serve Canada, and the extent to which impediments to entry by foreign satellite operators exist. At this time, the Commission is of the view that insufficient evidence has been presented which demonstrates that the relevant geographic market will necessarily be North America.

35. The Commission considers that the relevant geographic market for the purposes of this application is Canada. In the event that evidence is presented which further supports Telesat’s assertion that the RF Channel market will be continent-wide, then the Commission would be open to considering a North American geographic market definition.

3.2 Economic Factors - Supply and Demand Conditions

3.2.1 The Market for Satellite Services

36. Supply and demand conditions in the relevant services and geographic market must be examined to assess the ability of Telesat to exercise market power. In this regard, the existence of alternate sources of supply and the ability of customers to switch suppliers are factors relied upon to assess whether Telesat will have market power.

38. Telesat suggested that U.S. satellite operators have shown an interest in providing service in Canada through contacts with prospective satellite customers in Canada and through participation in a regulatory proceeding. However, Telesat did not provide persuasive evidence in this proceeding that U.S. operators have entered into serious negotiations with prospective Canadian customers. Telesat was also unable to confirm the existence of any completed contracts for service in Canada by U.S. operators in anticipation of an open market.

39. Parties raised the concept of a "Hot Bird" in relation to the desirability of certain satellites. A "Hot Bird" is a satellite that can claim to reach a large population by having many cable headends equipped to receive its signals. The presence of a "Hot Bird" may make competitive entry by another satellite provider more difficult as there is a natural incentive for broadcasting signal providers to remain on such a satellite.

40. In Canada, Anik E2 is the "Hot Bird" for Canadian programming. A Canadian broadcaster who wants to reach virtually all cable headends in the country can do so by getting its signal onto Anik E2.

41. Telesat stated that it intends to maintain its role in providing the Canadian "Hot Bird" by vigorously competing to retain its major broadcasting customers. Several parties argued that Telesat would have an unfair advantage in a competitive North American market with respect to providing a Canadian "Hot Bird" since it has received approval to co-locate its planned Anik F1 satellite in the same orbital position as Anik E2. Parties argued that this allows Telesat to migrate customers to Anik F1 and to simultaneously maintain its "Hot Bird" advantage. Canada’s 2,500 cable headends would be able to receive signals from either Anik E2 or Anik F1 without altering or adding to their receiving equipment.

42. The Commission notes Telesat’s current position in the satellite industry as the operator of the "Hot Bird" for access to Canadian programming and its apparent advantage in continuing to provide that service. The Commission also notes the existence of U.S. "Hot Birds" that currently deliver authorized U.S. signals to Canadian cable headends. The Commission expects that the availability of uncommitted capacity on satellites such as these "Hot Birds", their coverage and the rates for service will be significant factors in determining the evolution of competition in the provision of satellite service in Canada, particularly for the major broadcasting sector.

43. The Commission considers that Telesat did not provide persuasive evidence in this proceeding of the capacity that is likely to be available for Canadian satellite users on foreign satellites or the current or future expected rates. The Commission is therefore uncertain as to the expected degree and speed of the introduction of competition into the Canadian FSS satellite market with the implementation of the WTO/GATS Agreement.

44. Issues with respect to satellite coverage are discussed in section 3.2.3.

3.2.2 Telesat’s Market Share

45. Telesat estimated its current Canadian market share for point to multi-point broadcasting services to be 50% for broadcast networks, 80% for signal distribution to cable headends and 98% for DTH service. For point to point services, Telesat estimated a 3% market share for business and government applications and less than 1% of the telecommunications carrier market.

46. CSUA argued that Telesat has a virtual 100% monopoly for point to multi-point broadcasting program distribution. CSUA’s position is that, although fibre networks are used to distribute some signals in populated regions, broadcasters must also provide satellite distribution of the same signals in order to reach remote regions. CSUA argued that Telesat would retain a "Hot Bird" market advantage for such distribution even after access to foreign satellites is available.

47. Telesat’s position is that it could lose market share quickly with the introduction of competition. Telesat noted that if it lost one or more of its major broadcast customers, it could lose its "Hot Bird" advantage and quickly lose market share.

48. The Commission notes that Telesat’s estimates of its market share are based on the combined satellite and terrestrial market. The Commission further notes that the relevant market for consideration of this application is RF Channel services provided by FSS facilities. When services provided only by FSS facilities are considered, Telesat, with its current monopoly, has virtually 100% of the market. For example, Telesat estimated its share of the carrier market to be less than 1%. When services provided only by satellite are considered, such as telecommunications carrier services to the far North, Telesat’s market share is virtually 100%.

49. The Commission notes that Telesat was not able to provide an estimate of its market share after competition is to be introduced on 1 March 2000 but stated that it would endeavour to retain all of its customers.

50. The Commission does not share Telesat’s position that it would lose its "Hot Bird" marketing advantage merely by losing a few of its existing customers.

51. The Commission considers that, although it expects competition to be introduced with the WTO/GATS Agreement, Telesat has not provided persuasive evidence of the extent or speed by which its market share in Canada will be reduced at 1 March 2000 such that it will not be capable of exercising market power.

3.2.3 Foreign Satellite Capacity and Coverage of Canada

52. Foreign satellites could provide an alternative to Telesat’s RF Channel service to varying degrees depending on their coverage of Canada, availability of uncommitted capacity and terms of access. The ability of a satellite to cover Canada is dependent on its geostationary orbital position above the equator, power, antennae patterns and orientation.

53. Telesat stated that close to 40 domestic FSS satellites currently serve North America, with more than 30 of them operated by U.S. satellite operators and another three each operated by Mexican operators and Telesat (i.e., Anik C1, E1 and E2). Telesat considered that the majority of U.S. satellites cover significant portions of Canada and in some cases all of Canada. Some 20 other FSS satellites operated by international carriers or organizations, such as INTELSAT, offer at least partial coverage of North America, including Canada. Telesat filed a number of satellite coverage maps for foreign satellites which indicate varying degrees of coverage of Canada.

54. Parties raised the concern that, even with adequate coverage by foreign satellites, capacity may not be available to meet the needs of Canadian customers. Cancom argued that although Telesat has attempted to compile information on U.S. capacity that may be available to serve the Canadian market as of 1 March 2000, the information is incomplete. Cancom noted that traffic patterns are constantly changing, and that the in-orbit failure of a satellite can have an immediate and dramatic effect on satellite capacity and coverage.

55. The Commission notes that, based on the information provided by Telesat, coverage by individual satellites ranges widely. Many foreign satellites provide only limited coverage, for example covering one region such as Southern, Eastern or Western Canada. A more limited number of foreign satellites provide significant coverage of all of Canada, but often omit coverage of one of Northern, Eastern or Western areas. Very few satellites provide coverage of Canada approaching that of Telesat’s satellites when signal strength in far northern locations is taken into consideration.

56. The high Arctic is the most difficult region to serve. Based on the Commission’s assessment of the coverage information provided by Telesat, there is C-band coverage comparable to Telesat’s provided across the high Arctic by a few U.S. satellites. However, in the Commission’s view, Telesat has not demonstrated through coverage maps that there is, or will necessarily be, coverage comparable to the Anik satellites on Ku-band for the high Arctic as a region, although the company has shown that particular locations have coverage.

57. Other than the limitations described above for the high Arctic, the Commission considers that foreign satellites could offer service to all regions of Canada. Nevertheless, by comparison of coverage maps that have been provided, Telesat’s coverage of Canada in area and signal strength is superior, though only marginally so in some cases, to that provided by foreign satellites. For the majority of Telesat’s customers, the coverage provided by many U.S. satellites would be sufficient. However, for users that require coverage of the high Arctic, such coverage is not always of comparable signal strength to Telesat’s. This reduces the number and attractiveness of competitive alternatives.

58. The Commission notes that evidence of the availability of capacity from competitive suppliers is important to determine that customers have alternatives. However, it is difficult to predict the future availability of satellite capacity potentially serving Canada. Satellites, by their nature, provide a block of capacity that may not be well tailored to the market at any point in time. Satellite launch delays and in-orbit failures directly affect the market. Telesat itself has alternated between capacity surplus and shortage in recent years. In the absence of detailed capacity data, the Commission would, at a minimum, expect evidence of rivalry in the market to substantiate that market power is not being exercised.

59. The Commission notes that while evidence of coverage was provided, Telesat was not able to provide evidence that capacity will necessarily be available on the U.S. satellites as of 1 March 2000. Accordingly, the Commission is not satisfied, at this time, that U.S. satellites will necessarily provide an alternative source of supply.

3.2.4 Barriers to Entry

60. Telesat submitted that there are no barriers to entry for terrestrial carriers competing in several of Telesat’s service markets and that the only barrier to entry by Canadian satellite competitors is a regulatory barrier, which will be removed under the WTO/GATS Agreement by 1 March 2000. Telesat also noted that there is currently no barrier to entry by a Canadian satellite provider in the DBS market and that orbital slots are available for a new Canadian entrant.

61. Some parties submitted that lengthy construction periods and high cost are barriers to entry by a new Canadian entrant.

62. The Commission notes that no evidence was presented in this proceeding to indicate that a new Canadian satellite provider is planning to enter the FSS market in the near future.

63. Regarding the entry of existing U.S. satellite providers into the Canadian market, Telesat argued that, except for DTH and DBS services, there would be no barriers to entry from 1 March 2000. Telesat noted that the Amending Act exempted earth stations from ownership restrictions, permitting foreign satellite providers to offer services in Canada.

64. However, other parties, including the Director, expressed doubt that the Amending Act has removed all barriers to entry and noted the proposals by Industry Canada for potentially restrictive licensing conditions on market entrants.

65. The Commission notes that foreign entrants, unlike a new Canadian entrant, have existing satellites. Subject to any licensing conditions that may be placed on foreign satellites by Industry Canada, the Commission considers that foreign satellite providers will be able to offer RF Channel service on FSS facilities in Canada starting 1 March 2000.

3.2.5 Evidence of Rivalrous Behaviour

66. Telesat submitted that there is evidence of rivalry by terrestrial carriers in some of its service markets. Telesat further noted that the major U.S. satellite providers had participated in a recent industry conference and a regulatory proceeding. Telesat admitted, however, that it is not aware of any completed contracts for service in Canada by foreign satellite providers.

67. Cancom submitted that in the absence of evidence on the availability of alternate satellite supply capacity, evidence of rivalry is important. Cancom argued that Telesat has not provided any such evidence. CSUA noted that frequent price changes are an indication of rivalry, but that the only price changes that Telesat has proposed recently have been price increases.

68. Star Choice noted that there is no evidence of rivalry in the provision of RF Channel service for DTH providers, since the WTO/GATS Agreement excludes facilities used for DTH service. Star Choice also noted the affiliation of Bell Satellite Services Inc., BCE Inc. and Telesat, and questioned whether such affiliation will lead to rivalry and open competition.

69. The Commission concurs with parties who argued that, to date, little evidence of rivalry has been provided. The Commission notes that, at a minimum, market entrants will need to have satellite capacity and offer competitive rates for market entry and rivalry to become evident.

3.2.6 Customer Switching

70. Telesat argued that customers could switch satellite providers merely by re-pointing their receiving dish since RF Channel services are interchangeable. Telesat also noted that its customers are almost all on one-year contracts and are not restrained from switching by long-term contracts. Telesat submitted that users would have to balance the costs of switching satellite providers against the savings expected. Telesat further argued that the mere possibility of its major customers switching to other suppliers was an incentive for Telesat to vigorously defend its market and would provide sufficient competition to protect the interests of users following forbearance.

71. CSUA noted that for the cable industry with 2,500 headends, any change to satellite utilization is fairly difficult and might require new dishes, electronic equipment or the re-pointing of dishes. Northwestel argued that Telesat’s arguments minimize the potential costs of switching satellites.

72. Star Choice argued that it would be very difficult for a DTH provider to switch satellites due to the customer disruption.

73. The Commission notes that, other than customer switching to use terrestrial fibre services, Telesat’s evidence of customer switching was based on the assertion that such switching will be possible, and not prohibitively costly, once the market is opened 1 March 2000. The Commission does not agree with Telesat that the mere possibility of customer switching demonstrates as a question of fact that competition will be sufficient to protect the interests of users.

4. Forbearance Conclusion

74. As noted above, Telesat requested forbearance, wholly and unconditionally, from the regulation of RF channel services provided over FSS facilities effective 1 March 2000.

75. Telesat submitted that it required expedited resolution of its forbearance application to provide regulatory certainty for investors and customers of its planned Anik F satellites and to provide it with flexibility to compete in a fully liberalized FSS market.

76. Cancom argued that the application should be dismissed as adequate evidence had not been provided to support forbearance and there is ample time to assess forbearance before the end of Telesat’s current regulated study period on 31 December 2000.

77. CSUA argued that forbearance should not be granted for point to multi-point applications where Telesat will continue to have market power. CSUA recommended that the Commission approve streamlined regulation for Anik F service contracts in a manner consistent with the Commission’s approval of DBS service agreements. Alternatively, CSUA suggested that smaller users of one or less transponders could have capped rates. CSUA noted that Telesat could file for forbearance when its market power is eliminated.

78. The Director suggested that the Commission refrain from a decision until Industry Canada’s licensing conditions for satellite entrants are known. The Director was generally in favour of forbearance for Telesat but indicated that the Commission may wish to refrain from forbearance for sections 24, 27 (temporarily) and 29 of the Act.

79. Star Choice noted that satellite alternatives are not available for DTH providers and recommended denial of the application.

80. CCTA proposed a two-year transition with a more flexible regulatory approach.

81. The Commission considers that the evidence provided in this proceeding indicated that satellite coverage would likely be sufficient for the majority of Telesat’s customers from a number of U.S. satellites. However, in the far North, coverage by alternate suppliers is more limited and may not provide service of the quality available from Telesat. The Commission also considers that persuasive evidence was not provided that satellite capacity will be available from alternate sources to provide competition to Telesat. The Commission concludes that Telesat failed to provide persuasive evidence that it will not be capable of exercising market power after the introduction of competition.

82. While foreign satellite suppliers will be able to enter the market and provide service in Canada after 1 March 2000, the Commission considers that the mere possibility of competitive entry and customer switching is less persuasive than evidence of imminent competitive rivalry in the market, which was not provided.

83. The Commission concludes that Telesat has not provided sufficient evidence to enable a determination at this time that, as a question of fact, competition will be sufficient in the relevant market to protect the interests of users. Specifically, service to the far North, broadcasting users dependent on Telesat’s "Hot Bird" and DTH service providers are expected, at this time, to remain subject to the exercise of market power by Telesat.

84. Accordingly, the Commission finds that forbearance from the regulation of RF Channel services is not in the public interest. Telesat’s forbearance application is therefore denied.

5. Transitional Regulatory Framework

85. Although the Commission is of the view that forbearance is not warranted at this time, the Commission does consider that, for some of Telesat’s RF Channel customers, the implementation of the WTO/GATS Agreement will likely result in increased competition after 1 March 2000. While the Commission considers that continued regulation is required to protect the interests of users who will not obtain the benefits of this competition, it is also of the view that, to the extent possible, Telesat should be given greater regulatory certainty and flexibility with respect to pricing its services.

86. While it is possible that there will be sufficient competition in March 2000 to discipline rates for users in southern Canada, the Commission has concerns that the same may not be true for users in the North. Moreover, the Commission’s experience with the regulation of Telesat has indicated that the satellite industry experiences periods of capacity surplus and shortage that affect markets for satellite services. In view of these uncertainties, the Commission is of the view that a transitional regulatory regime is required that retains a degree of regulatory oversight while providing Telesat with flexibility to compete where competition develops.

87. Accordingly, the Commission is today issuing Telesat Canada - Transitional Regulatory Framework, Telecom Public Notice CRTC 98-40, (PN 98-40) which announces and seeks comment on the implementation of an alternate regulatory approach.

88. The Commission notes that interrogatories addressed to Telesat in this proceeding sought Telesat’s views concerning alternate regulatory approaches, but that rather than address such alternatives, Telesat reiterated its request for forbearance.

89. The Commission has used price regulation in other cases where competition is developing and the incumbent service provider requires flexibility to adjust to a competitive market. In Telesat’s case, satellite competition could arrive more quickly than in markets where competitors must construct telecommunications networks in order to compete. However, from the record of this proceeding, it is uncertain how quickly competition will develop and whether competition will be evident in all regions and for all users.

90. In the broader context of the Canadian satellite industry, the Commission has an ongoing concern for the need to establish a regulatory/forbearance regime that provides opportunities for potential Canadian satellite providers to attract capital and to remain viable in a competitive market.

91. The Commission considers that a price ceiling approach may be an appropriate means to establish a transitional regulatory regime. Under this approach, Telesat would have some pricing flexibility to reflect various terms and conditions of service.

92. The Commission is of the view that the currently approved RF Channel rates may be an appropriate price ceiling. Alternatively, the price ceiling could be a percentage difference from the existing rates. The Commission is open to considering a price ceiling level that can be justified based on factors such as market conditions, value of service or other considerations.

93. In the PN 98-40 proceeding, Telesat is to propose a price ceiling framework, including a price ceiling level. In addition, Telesat is to propose how the Commission should oversee the priority of access to satellite capacity where there is contention among customers. It is noted that the Commission cannot forbear from its responsibility for the allocation of satellite capacity for the transmission of broadcasting services pursuant to section 28 of the Act. In the PN 98-40 proceeding, other parties are provided the opportunity to make submissions and Telesat is given an opportunity to reply.

94. The Commission is of the view that a price ceiling could accomplish the objectives of providing Telesat with flexibility and regulatory certainty to compete actively in competitive market segments, while affording a degree of continuing regulatory protection for users who may not have access to competitive alternatives. It is expected that the new regulatory framework would apply prior to 1 March 2000 for RF Channel services to be provided after that date using FSS facilities.

95. The Commission notes that it is open to Telesat to apply for forbearance at any time when it considers that it can provide persuasive evidence that there will be competition sufficient to protect the interests of users.

Secretary General

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