ARCHIVED - Broadcasting Decision CRTC 2003-25

Broadcasting Decision CRTC 2003-25

Ottawa, 24 January 2003

Complaint by VDN Cable Inc. against Vidéotron ltée alleging that Vidéotron ltée contravened section 9 of the Broadcasting Distribution Regulations

The Commission dismisses the complaint by VDN Cable Inc. (VDN) alleging that Vidéotron ltée contravened section 9 of the Broadcasting Distribution Regulations through the targeted marketing of VDN subscribers, and by failing to provide pre-notification of the disconnection of VDN subscribers.

The complaint

1.

VDN Cable Inc. (VDN) filed a complaint in January 2002 alleging that Vidéotron ltée (Vidéotron) had breached section 9 of the Broadcasting Distribution Regulations (the Regulations). The complaint cited Vidéotron's practice of targeting specific VDN customers with offers of a low-cost package of cable television services, as well as certain other actions mentioned below. VDN also submitted that Vidéotron was subjecting VDN to an undue disadvantage by not providing it with pre-notification of the disconnection of VDN subscribers, resulting in VDN having to absorb additional unrecoverable costs and placing it at a competitive disadvantage.

2.

The parties to the complaints operate licensed cable broadcasting distribution undertakings (BDUs). They compete with each other in the Montréal area.

3.

VDN was licensed in 1997 and is controlled by Mr. Philip Gale, who owns 70% of VDN's shares. VDN has a subscriber base of approximately 7,000 subscribers in the Montréal area.

4.

Vidéotron is a wholly owned subsidiary of Quebecor Media Inc.¹ Vidéotron's subscriber base is in excess of 700,000 subscribers in the Montréal area.

Section 9 of the Regulations

Targeted marketing

5.

VDN submitted that Vidéotron was targeting VDN customers with a package of services at a price that VDN could not possibly match. VDN further argued that Vidéotron was using its large existing client base to subsidize the price of this package of services.

6.

VDN stated that, by targeting only VDN customers, Vidéotron limited the number of customers who could receive the offer. VDN alleged that every time it acquired a new subscriber with its $33.50 package, Vidéotron, after the requisite 90-day waiting period,would offer that customer an $18.99 or $26.99 package. VDN submitted that it had recently been made aware of a new package of 60 channels for $21.99 per month offered by Vidéotron in an attempt to persuade VDN customers to re-subscribe to Vidéotron. VDN argued that such practices were contrary to the rules set out in the CRTC letter decision CISC Dispute - Rules Regarding Communication Between the Customer and the Broadcasting Distribution Undertaking, 1 April 1999 (the Winback Rules).

7.

VDN suggested that the cost of offering lower rates to former VDN customers would be borne by Vidéotron's current customer base, as Vidéotron would have to maintain or increase the fees charged to these existing customers. In VDN's view, this would subject existing Vidéotron subscribers to an undue disadvantage since they would not see any decrease in their cable bills, whereas former VDN customers would be able to receive services at significant discounts.

Failure to provide notification

8.

VDN also submitted that Vidéotron, as the incumbent BDU, controlled the Customer Services Enclosures (CSEs) in most Multiple Unit Dwellings (MUDs). VDN suggested that Vidéotron was therefore in a position to disconnect a VDN customer when that customer transferred to Vidéotron without providing any advance notice to VDN. On the other hand, VDN had to provide 24 hours advance notice to Vidéotron before being permitted access to the CSE to disconnect a former Vidéotron customer when that customer elected to transfer to VDN. The 24-hour notice rule for access to CSEs is set out in the Commission's policy on disconnection in Revised policy concerning inside wire regime; Call for comments on proposed amendments to section 10 of the Broadcasting Distribution Regulations, Public Notice CRTC 2000-81, 9 June 2000 (Public Notice 2000-81).

9.

VDN argued that, when Vidéotron disconnected its customers without giving pre-notification, it subjected VDN to an undue disadvantage in that: a) VDN continued to bill the customer for VDN services; b) VDN continued to pay programming fees for the disconnected customer; and c) VDN was not informed as to when the changeover had actually occurred. VDN argued that, as a result, it had to absorb additional unrecoverable costs. As part of its reply comments, VDN filed information with respect to four instances where Vidéotron did not provide pre-notification to VDN at the time of a disconnection.

10.

VDN further argued that the Commission should take its status as an overbuilder into consideration when examining Vidéotron's practice of cut-rate pricing in its winback policies. VDN stated that it could not build out its networks to new buildings if the incumbent BDU were allowed shortly thereafter to attempt to re-subscribe all the customers by offering them discounted packages. VDN argued that this practice would result in diminished choice for consumers, higher prices for services, and a lack of technological capability to deliver new services to the general public.

Vidéotron's position

11.

Vidéotron denied that there had been a breach of section 9 of the Regulations.

12.

Vidéotron admitted having made special offers to residents of MUDs where it had a lower penetration rate. Vidéotron explained that this package, targeted to a predominantly Anglophone group of potential customers, was offered between 26 November and 14 December 2001. Vidéotron stated that the results of this marketing test had been inconclusive. At the same time, Vidéotron was also of the view that targeting subscribers was a common and acceptable marketing practice that conformed with the Commission's Winback Rules.

13.

In its response, Vidéotron stated that it had reviewed its operations log and had not found any occasions where it had started to serve a subscriber that had transferred from VDN without having previously notified VDN. Vidéotron further submitted that, if the complaint were more specific, it would be able to trace the events and pinpoint any error. Vidéotron stated that it used a standard transfer procedure known within Vidéotron's operations. According to this procedure, every time a customer is taken from a competing BDU, a fax is sent to the competitor's customer services group (CSG) representative within 24 hours. Vidéoton did not reply to VDN's allegation of four instances where Vidéotron did not provide notification to VDN at the time of a disconnection.

The Commission's analysis and determinations

Undue preference and/or disadvantage

14.

Section 9 of the Regulations states:

No licensee shall give an undue preference to any person, including itself, or subject any person to an undue disadvantage.

15.

In order to assess whether Vidéotron's behaviour results in an undue preference and/or an undue disadvantage, the Commission must first consider whether Vidéotron's marketing practice of targeting VDN customers and Vidéotron's failure to notify VDN of its disconnection of four VDN customers gave a preference to Vidéotron or to any other person, and/or subjected any person to a disadvantage.

16.

Should the Commission conclude that Vidéotron's behaviour does result in a preference and/or a disadvantage, the Commission must then consider whether any such preference or disadvantage was undue.

Targeted marketing

Preference and/or disadvantage

17.

In its Winback Rules, the Commission considered it appropriate to impose a 90-day period during which incumbent cable companies would be required to refrain from direct marketing to customers who, through an agent, have notified the incumbent of their intention to cancel basic cable service. In addition, where the customer personally contacts the incumbent to cancel basic service, the incumbent cable company must refrain, also for a 90-day period, from offering other discounts or other inducements not generally offered to the public.

18.

Thus, the Commission's Winback Rules contemplated that incumbents would attempt to reacquire customers with discounts or other inducements. The Commission notes that there is no evidence on the record of this proceeding demonstrating that Vidéotron violated the rules established by the Commission with respect to such behaviour, by contacting customers prior to the expiry of the 90-day period.

19.

The Commission notes that, in its reply, VDN cited Vidéotron's statement that targeting potential customers is a common and acceptable marketing practice under the Commission's Winback Rules, but submitted that such targeting is unacceptable if it violates section 9 of the Regulations by conferring an undue disadvantage on another party. However, in this case, VDN did not provide sufficient evidence to permit the Commission to conclude that Vidéotron's marketing practices would amount to the conferring of a preference on itself or on former VDN subscribers. Similarly, the Commission is unable to conclude that Vidéotron has subjected other Vidéotron subscribers or VDN to a disadvantage.

Undue preference and/or disavantage

20.

Since the Commission has found that VDN failed to demonstrate that Vidéotron gave a preference to itself or to former VDN subscribers, or that Vidéotron has subjected other Vidéotron or VDN subscribers to a disadvantage, it is unnecessary for the Commission to proceed to the second stage of the analysis.

Failure to provide notification

Preference and/or disadvantage

21.

VDN provided evidence of four instances where Vidéotron failed to notify VDN of its disconnection of VDN customers. The Commission notes that the 24-hour pre-notification for transfers set out in Public Notice 2000-81 is only required when access to the CSE is necessary. This pre-notification is intended to permit the scheduling of joint visits by the technicians of the respective BDUs. In these instances, no formal pre-notification was required as Vidéotron did not require access to VDN's CSE in order to complete the transfer.

22.

Nonetheless, it would appear that Vidéotron has in place a procedure to notify competitors of a transfer to Vidéotron's system. Vidéotron stated:

Every time a customer is taken from a competing BDU, a fax is sent to the competitor's [CSG] within 24 hours. Therefore, Vidéotron's existing policy appears to be adequate.

23.

The Commission considers that Vidéotron's approach of providing notice to competing BDUs within 24 hours is reasonable and facilitates the smooth transfer of accounts. Further, the Commission cannot conclude that Vidéotron made a practice of departing from its general procedure in the case of its handling of requests from VDN subscribers. The Commission therefore considers that VDN did not provide sufficient evidence to permit the Commission to conclude that Vidéotron's failure to provide notification to VDN in those four instances gave itself a preference and subjected VDN to a disadvantage.

Undue preference and/or disadvantage

24.

Since the Commission has found that VDN has failed to demontrate that Vidéotron's failure to provide notification to VDN in these four instances gave itself a preference and subjected VDN to a disadvantage, it is unnecessary for the Commission to proceed to the second stage of the analysis.

Conclusion

25.

In light of the above, the Commission finds that Vidéotron has not breached section 9 of the Regulations.

Secretary General