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Letter

Ottawa, 1 April 1999

VIA FACSIMILE

To: Distribution List

Re: CISC Dispute - Rules Regarding Communication Between the Customer and the Broadcasting Distribution Undertaking

Parties to the CRTC Interconnection Steering Committee (CISC) Cable Wiring Working Group filed a dispute regarding "winback rules" with the Commission for resolution. The essence of the dispute revolved around whether rules should be implemented to prohibit the direct target marketing of customers where the customer's agent requests a cancellation of basic cable service. Winback practices generally refer to the offering to customers of discounts, free services or other inducements in order to convince those customers not to change service providers or to revert back to their original service provider.

Comments and reply were received from BC Tel Entertainment Inc., Bell ExpressVu, Look Communications Inc., Stentor Resource Centre Inc. (on behalf of Bell Canada, Island Telecom Inc., MTS Communications Inc., Maritime Tel & Tel Limited, NBTel Inc., NewTel Communications Inc., Quebec-Telephone and SaskTel and TELUS Multimedia) (collectively "the new entrants"), the Canadian Cable Television Association (the CCTA) and Shaw Communications Inc. (Shaw).

The Commission's Determination

After careful review of all of the submissions, the Commission has determined that, as a matter of policy, it will require that incumbent cable companies refrain from the direct marketing of customers who, through an agent, have notified their intention to cancel basic cable service. Such restriction will be in effect from the date of receipt of notice to terminate, and will continue for a period ending ninety (90) days from the date of disconnection of basic cable service. In instances where disconnection of service occurs in advance of the incumbent's receipt of notice of termination, the restriction will operate for ninety (90) days from the date of disconnection.

The Commission has also determined that it will require incumbent cable companies to refrain from offering discounts or other inducements not generally offered to the public where customers personally initiated contact with the cable company for the purpose of cancelling basic cable service. This restriction will be in effect from the date of receipt of notice to terminate and for ninety (90) days from the date of disconnection of basic cable service.

Positions of Parties

The CCTA and Shaw submitted that there is no policy rationale for imposing winback rules on broadcasting distribution undertakings.

The CCTA stated that there have been only two instances where the Commission has sanctioned the use of winback rules. The first instance cited by the CCTA was with respect to the long distance telephone market. The second instance cited was as the result of a Commission letter dated 16 April 1998, wherein the Commission established winback restrictions in the local exchange market.

The CCTA and Shaw stated that the reasons for implementing winback in those instances are not present in broadcasting distribution, including: the lack of complete market information retained by incumbent cable companies, less complex customer transfer processes and a more competitive market in broadcasting distribution.

The CCTA and Shaw also submitted that the dispute filed with the Commission is premature in that, as a result of the progress made in the Cable CISC Working Group, consensus on arrangements in circumstances where there is no customer service enclosure (CSE) that permits new entrants to disconnect customers in single unit dwellings (SUDs) and connect new service to the in-place wiring has been reached without the necessity for pre-notification. Moreover, the CCTA and Shaw noted that the Cable CISC group is examining the disconnection procedures in multi-unit dwellings (MUDs) and, that taken together, these initiatives, if successful, will permit new entrants to disconnect services without pre-notification. The CCTA and Shaw stated that if pre-notification of disconnection is not required, then the imposition of restrictions on direct target marketing is unnecessary.

In addition, Shaw stated that in all circumstances where a customer initiates contact, a BDU should be permitted to engage in sales or marketing activity.

The new entrants proposed that the Commission implement the same rules with respect to customer winback in the broadcasting distribution sector as have been adopted in the local telephony market. Telus, on its own behalf, submitted that the true policy rationale for winback rules in broadcasting distribution is that, like local and long distance telephony, there exist both the opportunity and incentive to engage in behaviour that may thwart competitive entry and incidentally affect customers. In support of their view, the new entrants noted that Rogers Network Services had argued in the telephony context that "winback is a particular problem in the context of a newly competitive market". The new entrants also stated that one of the Commission's major considerations was that it did not expect competition in the local exchange market to develop very quickly. The new entrants pointed to the recent Commission statement in Decision CRTC 98-226, at para. 14, that it had "expected the development of a more competitive environment in the broadcasting distribution sector". In the new entrants' view, the rationale that led the Commission to conclude that asymmetric winback restrictions should be imposed on the incumbents in the local telephony market applies equally to the incumbents in the broadcasting distribution sector.

The new entrants submitted that Shaw's emphasis on the accomplishments flowing from the CISC discussions is exaggerated. The new entrants stated that CISC has been successful in dealing with complex technical issues, but that with nearly 100% of the available market, the cable companies have no incentive to facilitate the development of rules or policies that would assist competitive entry.

Rationale for Decision

The issues raised by this dispute entail a determination as to whether it is appropriate, given the current state of competitive entry in the broadcasting distribution market, for winback restrictions to be imposed on either incumbents, new entrants or both.

In the local exchange telephone market, winback rules have been imposed. The rationale for imposing these restrictions is primarily related to the time interval between ordering a customer transfer from one local exchange telephony provider to another, and the point at which the transfer is made. However, the winback restrictions are also an acknowledgement of the ability of incumbents to attempt to winback customers that have indicated their intention to change service providers. The Commission found that such activities would likely be an impediment to the development of a competitive local market.

Moreover, the Commission notes the existence of an additional safeguard with respect to telephony that does not exist with respect to broadcasting distribution. In telephony, incumbents are required to establish and maintain structurally separate carrier services groups (CSGs). Carrier and customer transfer information in the CSGs is processed in isolation from the sales and marketing groups of the telephone companies. A mechanism similar to CSGs has not been mandated or established, at this time, with respect to incumbent cable companies.

The Commission notes that, with respect to SUDs without CSEs, pre-notification of a customer transfer is not required. The Commission also notes, however, that in SUDs with CSEs and in MUDs pre-notification is currently required as the result of failure to reach agreement on alternative measures in the CISC Cable Wiring Group.

The Commission considers that the broadcasting distribution market has many of the characteristics found in the local exchange telephony market. In these circumstances, the Commission considers that incumbent cable companies have the ability and incentive to attempt to winback customers with offers such as discounts, free services or other inducements. These activities might reasonably be expected to impede or frustrate the efforts of existing or potential new entrants and the evolution of a sustainable competitive market.

The Commission also considers that winback activities can occur where customers themselves, not through agents, cancel basic cable service. For the same reasons noted above, the Commission considers that this activity could serve to impede the development of an appropriately competitive market in broadcast distribution.

Conversely, the ability of new entrants to engage effectively in this activity is counterbalanced by the incumbent distributors' dominant position and their significant market share. Moreover, new entrants do not have the critical mass of historical customer information or the range of services that incumbent cable companies currently enjoy. Accordingly, the Commission considers it appropriate that the restrictions set out above should be imposed on an asymmetrical basis. Therefore, the restrictions will apply to incumbents, but not new entrants.

The Commission further considers that the ability and opportunity for incumbents to engage in inappropriate winback activities generally commences at the time of notification and continues for some reasonable period of time thereafter. The Commission has determined that a period of 90 days from the date of disconnection of basic cable service to be a reasonable period of time for the purpose of its winback restrictions in this case.

Yours sincerely,

Secretary General

Interested Parties to CRTC Interconnection Steering committee Cable Wiring Working Group