ARCHIVED - Order CRTC 2001-120

Order CRTC 2001-120

Ottawa, 7 February 2001

CRTC denies Call-Net's request for an investigation into the activities of Bell Canada and Bell Nexxia

Reference: 8622-C25-09/00

The Commission denies Call-Net's application to conduct an investigation into alleged predatory activities of Bell Canada and Bell Nexxia.

The application

On 15 August 2000, Call-Net Enterprises Inc., on behalf of itself and its affiliate companies, including Sprint Canada Inc., filed an application pursuant to Part VII of the CRTC Telecommunications Rules of Procedure and sections 48(1), 55, 60 and 70 of the Telecommunications Act (the Act).Call-Net requested that the Commission conduct an investigation into certain activities by Bell Canada and its affiliate, Bell Nexxia, in their pricing of interexchange voice services in response to competitive bids with respect to large customers in the long-distance market.

Specifically, Call-Net requested that the Commission conduct an investigation on its own or appoint an Inquiry Officer under section 70(1) of the Act to conduct an investigation into the alleged predatory activities.

Call-Net did not request specific remedies, but only that the Commission conduct an investigation and then take any appropriate recourse. Call-Net submitted that the appropriate correctional remedy will be better determined by the Commission pursuant to section 60 of the Act, upon conclusion of its investigation or upon receipt of a report of the Inquiry Officer. Call-Net also stated that after the investigation, the Commission may deem that the proper recourse is a reference to the Competition Commissioner and the appropriate remedies under the Competition Act.

Call-Net submitted that because of the confidential nature of the competitive bidding process, it is not in a position to provide the Commission with data on Bell Nexxia's individual bids. Therefore, Call-Net requested that an investigation be conducted, and that the Commission or the Inquiry Officer order that :

Call-Net alleged that Bell Canada and Bell Nexxia are engaging in predatory pricing within Bell Canada's traditional geographic market (Ontario and Quebec). However, it also urged the Commission to extend the scope of its investigation to the Atlantic region incumbent local exchange carriers given their affiliation with Bell Canada.

Call-Net filed in confidence five examples of competitive bids it lost to Bell Nexxia, which Call-Net considers were priced below cost.

Bell Canada and Bell Nexxia's comments

In joint submissions, Bell Canada and Bell Nexxia (the respondents) submitted that Call-Net's application should be dismissed.

The respondents submitted that Call-Net has not established a prima facie case for predatory pricing and provided no evidence to suggest a pattern of below cost pricing.

The respondents argued that predation would not make any business sense in the highly competitive interexchange voice markets in Ontario and Quebec. They submitted that predation would only be viable if the predator was in a position to engage in below-cost predatory pricing for a long enough period of time so as to be able to drive competitors out of the market or deter others from entering the market, and then, once competition has been eliminated, to use its market power to recoup losses through substantial price increases.

The respondents submitted that predatory pricing would not be a profitable strategy in the interexchange market since:

The respondents argued that Call-Net has not provided any evidence to show that the interexchange market is not competitive, and that the necessary conditions for predatory pricing are present in the market. They also cautioned that the Commission must be careful to avoid any confusion between vigorous competition and predatory pricing.

The respondents also submitted that to be credible, allegations of predatory pricing must establish a practice of below-cost pricing. They stated that the five customers over a one-year period, identified by Call-Net, out of thousands of customers in the interexchange market hardly constitute a pattern or practice of predatory pricing.

The respondents argued that Call-Net's suggestion to appoint the Commissioner of Competition as an Inquiry Officer is an attempt to inappropriately use the regulatory process set out in the Act to collect information related to alleged predatory pricing conduct for the purpose of having the Commission refer such information to the Commissioner of Competition for prosecution as criminal conduct under section 50(1) of the Competition Act. The respondents also submitted that the term predatory pricing has a specific meaning under the civil and criminal provisions of the Competition Act, but the definition does not appear in the Telecommunications Act, nor is it a concept specifically addressed in the Commission's regulatory mandate. Moreover, they stated that the Competition Bureau has its own statutory regime and expertise to deal with such matters and submitted that it would be inappropriate to circumvent that legislative scheme by using the Commission to investigate Call-Net's allegation.

The respondents also argued that Call-Net's submission in confidence of the five examples of predatory bids by Bell Canada/Bell Nexxia raise concerns with respect to the rules of natural justice since Bell Canada and Bell Nexxia are not in a position to know the case before them, and cannot specifically dispute, correct or contradict Call-Net's arguments.

The respondents also submitted information, in confidence outlining Bell Nexxia's pricing policy, the incentives in place for its sales team to adhere to this policy and Bell Nexxia's sales governance program to ensure its compliance with established financial and legal requirements.

Call-Net's reply

Call-Net submitted that the questions raised in its application fall within the Commission's jurisdiction under the Act. It noted that although the Commission forbore from regulating the provision of most interexchange services, it explicitly retained section 24 in order to impose conditions in the future, and section 27(2) to ensure that the incumbent local exchange carriers do not unjustly discriminate or grant an undue or unreasonable preference in respect of the provision of toll services.

Call-Net stated that while there is no definition of predatory pricing under the Act and it is not an explicit mandate of the Commission, the Commission has in numerous decisions considered safeguards to deal with anti-competitive behavior and predatory pricing. Accordingly, Call-Net argued that the evidence to be gathered in the requested inquiry goes directly to the powers of the Commission.

Conclusions

The Commission considers that Call-Net has not made a prima facie case that violations have occurred under the provisions of the Telecommunications Act. For example, Call-Net has not provided sufficient information to suggest that Bell Canada or Bell Nexxia is unjustly discriminating or granting an undue preference contrary to section 27(2) of the Act. Nor, for example, did Call-Net provide any information to indicate that Bell Canada is offering regulated access services to Bell Nexxia at non-tariffed rates.

In addition, the Commission has found the interexchange voice market to be sufficiently competitive to protect the interests of users, and accordingly forbore from regulating the retail rates for these services. The Commission notes that Call-Net has not submitted evidence to suggest that the interexchange market is no longer sufficiently competitive to protect the interests of users. Nor has Call-Net alleged that Bell Canada or Bell Nexxia possess a high degree of market power in the interexchange markets in question.

In light of the above, the Commission denies Call-Net's application to conduct an investigation into alleged predatory activities of Bell Canada and Bell Nexxia.

Secretary General

This document is available in alternative format upon request and may also be examined at the following Internet site: www.crtc.gc.ca