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Telecom Decision CRTC 2003-26
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Ottawa, 28 April 2003
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Application by Microcell regarding alleged contraventions of section 27(2) of the Telecommunications Act by Rogers Wireless and Bell Mobility
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Reference: 8622-M16-01/02
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In this decision, the Commission denies an application by Microcell Telecommunications Inc. (Microcell) on behalf of itself and its affiliated companies, including Microcell Solutions Inc. (collectively, Microcell) requesting that the Commission order Rogers Wireless Inc. and Bell Mobility Inc. to cease and desist from certain specific conduct in the wireless marketplace that Microcell alleged was contrary to section 27(2) of the Telecommunications Act.
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1.
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The Commission received an application under Part VII of the CRTC Telecommunications Rules of Procedure, dated 30 August 2002, from Microcell Telecommunications Inc. (Microcell) on behalf of itself and its affiliated companies, including Microcell Solutions Inc. (collectively, Microcell; the applicant), which alleged violations of section 27(2) of the Telecommunications Act (the Act) by Rogers Wireless Inc. (RWI) and Bell Mobility Inc. (Bell Mobility). Microcell argued that promotional offers and associated sales/marketing actions by RWI and Bell Mobility, which targeted Microcell's post-paid customers, were unjustly discriminatory.
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2.
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The Commission received answers on 12 September 2002 from RWI and Bell Mobility and comments from TELUS Communications Inc. (TCI). Reply comments were received from Microcell on 17 September 2002. Supplementary comments were received from RWI on 20 September 2002 and from Microcell on 24 September 2002 and 11 November 2002.
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The application
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3.
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Microcell submitted that on or about 15 July 2002, RWI began to promote a new wireless services offer targeted solely at and available exclusively to existing Microcell post-paid customers (the RWI Offer).
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4.
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Microcell stated that the RWI Offer consisted of the following:
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- mobile wireless products and services available at greatly reduced rates compared to the "regular" quoted rates; and
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- long-term (two-year) contracts foreclosing any possibility of the customers in question returning to Microcell before the contract ended.
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5.
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The applicant stated also that RWI had provided added incentives such as sales commissions and promotional funds for RWI salespeople and agents who successfully signed Microcell's customers to the RWI Offer.
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6.
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Microcell submitted that the sales and marketing activities undertaken by RWI to promote the RWI Offer were contrary to accepted business practices. Microcell stated that such activities included direct telemarketing to Microcell subscribers on their wireless phones and involved false and misleading statements.
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7.
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Microcell further stated that, on or about 28 July 2002, Bell Mobility initiated an offer (the Bell Mobility Offer) which consisted of reduced rates for wireless products and services, targeted exclusively at current Microcell post-paid customers.
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8.
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Microcell alleged that, by targeting their offers directly at, and solely to, current Microcell post-paid customers, RWI and Bell Mobility had unjustly discriminated against Microcell and had conferred an undue preference on themselves over Microcell.
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9.
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Microcell noted that the Commission had in previous decisions examined allegations of unjust discrimination in connection with targeted pricing and had provided some guidance as to what the Commission might consider to be inappropriate. Microcell made specific reference to Telecom Order CRTC 97-958, 11 July 1997, and Hotel and Motel Commission Plans, Telecom Decision CRTC 95-2, 3 February 1995.
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10.
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Microcell argued that both the RWI Offer and the Bell Mobility Offer went beyond healthy, competitive, and rivalrous behaviour in the market place and constituted efforts to reduce or eliminate competition. The applicant submitted that if this type of behaviour was allowed to continue, competition in this sector might be reduced or eliminated, to the detriment of the public interest.
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11.
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Microcell noted that in Regulation of Mobile Wireless Telecommunications Services, Telecom Decision CRTC 96-14, 23 December 1996 (Decision 96-14), the Commission had determined that the degree of competition in the market for public switched mobile voice services was sufficient for it to forbear from the exercise of many of its regulatory powers in this market. Microcell, noted, however, that the Commission had not forborne from the exercise of its regulatory powers under section 27(2) of the Act to prevent unjust discrimination and undue preference.
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12.
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Microcell submitted that as of the end of 2001, the national market shares for wireless services were the following: Microcell 11%; RWI 28% and the incumbent local exchange carrier (ILEC) affiliates 61%. Microcell noted that in the 1999-2000 timeframe, there had been a break-up of the Mobility Canada alliance of the wireless operator affiliates of the ILECs. Microcell argued, however, that it was necessary to consider the ILECs as one group in the wireless market due to an extended and enhanced roaming arrangement (the roaming agreement) entered into in October 2001 and still in existence at this time.
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13.
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Microcell requested that the Commission order RWI and Bell Mobility:
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- to cease and desist their discriminatory practices, and to immediately terminate their respective offers, including any additional sales incentives that accompanied the offers;
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- to provide the Commission with details of all actions taken to stop the activities that contravene the Act to prevent future occurrences;
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- to contact customers acquired from Microcell to notify them that the minimum contract period was waived and that they may return to Microcell at any time, without penalty; and
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- to provide the Commission with a list of the customers contacted, along with the text of the message, and details on the means of communication.
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14.
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The applicant also requested that the Commission declare:
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- that any future similar targeted offers, including any additional sales and marketing incentives accompanying such offers, would be considered prima facie to be unjustly discriminatory and unduly preferential; and
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- that the Commission would take such further action, as it deems fit, including providing its consent to prosecution pursuant to section 73(5) of the Act.
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RWI's answer
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15.
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RWI argued that Microcell's allegations of unjustly discriminatory retail pricing were without merit, that the Commission should dismiss Microcell's application, and that it should deny the relief sought.
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16.
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RWI asserted that since the Commission had forborne from regulating retail rates and had retained only limited jurisdiction under section 27(2) of the Act, primarily to deal with issues of network access, none of the Microcell allegations fell within the Commission's jurisdiction. RWI submitted that with respect to the wireless market, the focus of authority retained by the Commission under section 27(2) of the Act was on issues of network access and resale and not with respect to retail rates and contractual terms offered to retail customers
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17.
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RWI argued that the wireless services market was the most competitive carrier segment in Canada and was characterized by fierce competition on price, coverage and service features. RWI submitted that no single competitor enjoyed market power or was capable of dictating either rates or contractual terms to the market. RWI stated that there were four competitors in the market and that RWI had a national market share of approximately 28%. RWI acknowledged that Microcell's national market share was the smallest of the players, at approximately 11%, but indicated that the other wireless carriers enjoyed roughly comparable market shares, with TELUS Mobility at 24% and Bell Mobility and Aliant Mobility (the BCE wireless affiliates), at 35%. RWI further stated that the wireless market was characterized by a very high customer churn rate of approximately 24% per annum per carrier. RWI indicated that customers were very sensitive to price and service features and routinely switched suppliers.
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18.
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RWI further stated that all wireless carriers in this market engaged in winback marketing campaigns and sought to expand their customer base by marketing to their competitors' customers as well as to new customers.
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19.
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RWI argued that the rates it offered to Microcell's subscribers were no more favourable than Microcell's own rates. RWI considered that its offer had been neither exceptional nor unique, since RWI had made the same offer to three other groups of customers: former RWI subscribers eligible for win-back, business users eligible for RWI's "Fair Share Business Plans", and customers of Rogers Cable who wanted to purchase a cellular phone from RWI.
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20.
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RWI stated that all carriers have numerous price plans offering a wide variety of service bundles tailored to appeal to individual customer segments' use of wireless communications. RWI stated that it was very common in the wireless industry to have marketing programs narrowly directed both regionally and at specific customer segments. RWI further stated that it was also very common for a marketing campaign to focus on one or more of these segments in one or more regions of the country and not be directed generally to the broader public market.
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21.
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RWI argued that its offer regarding handsets was no more favourable than that which Microcell offered its customers, or the other wireless carriers offered their customers. RWI stated that the offer on the particular handset at issue was available to all of its new customers and not just to Microcell customers.
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22.
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RWI submitted that its sales and marketing practices did not contravene any regulation or law. RWI argued that in the cellular/personal communications services (PCS) market, the Commission had allowed competitive market forces to regulate conduct in a number of important respects and has retained a much narrower jurisdiction than it enjoyed prior to its forbearance orders. RWI argued that this meant that retail pricing issues and most terms and conditions of service at the retail level were now subject to the provisions of the Competition Act.
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23.
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RWI further submitted that Microcell was seeking refuge from the competitive market and that Microcell's call for re-regulation of the wireless market was unwarranted.
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Bell Mobility's answer
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24.
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Bell Mobility submitted that Microcell's application was without merit and should be dismissed.
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25.
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Bell Mobility submitted that on or about 26 July 2002, it had launched the Bell Mobility Offer in response both to enquiries from Microcell customers and to the RWI Offer. Bell Mobility indicated that it had not advertised its offer but that its call centre service employees and its retail distributors had been authorized to make the Bell Mobility Offer to current Microcell customers who could demonstrate current usage to be above $40.00 per month. Bell Mobility indicated that its offer featured a $30.00 discount for a handset, a waiver of the $35.00 connection charge and a streamlined process for the recovery by customers of manufacture handset rebates. The Bell Mobility Offer was further contingent on the Microcell customer committing to a one- or two-year contract.
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26.
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Bell Mobility submitted that the Bell Mobility Offer was launched as a competitive response to the RWI Offer which targeted exclusively Microcell's customers, and which RWI and its retailers advertised extensively. Bell Mobility argued that it would have been negligent had it not responded to these market developments. Bell Mobility stated that the potential migration of Microcell's customers to another service provider without a corresponding offer from Bell Mobility would have posed a substantial threat to Bell Mobility's market position. Bell Mobility stated that since it had been faced with a widely advertised and promoted offer by a major competitor, it had no choice but to respond in a competitive fashion.
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27.
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Bell Mobility argued that in a properly functioning competitive market, competitors strive to take customers from one another and Microcell was wrong and naïve if it believed that section 27(2) of the Act operated as a bar to marketing campaigns which respond to market developments. Bell Mobility argued that the more competitive a market becomes, the more likely it is that competitors will react and target service offers to address a customer's concerns.
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28.
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Bell Mobility submitted that Microcell's allegation, that Bell Mobility had contravened section 27(2) of the Act by unjustly discriminating against Microcell, was groundless. Bell Mobility stated that Microcell would have to show that Bell Mobility had unjustly discriminated against Microcell in relation to a telecommunications service provided by Bell Mobility to Microcell. Bell Mobility submitted that, in the highly competitive wireless market, there was nothing about the Bell Mobility Offer that unjustly discriminated against Microcell.
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29.
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Bell Mobility stated that the vigorous competitive rivalry which existed between wireless carriers was characteristic of the wireless market. Bell Mobility stated that the Commission acknowledged the competitiveness of the market in its wireless forbearance decisions as well as in a number of other decisions.
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30.
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Bell Mobility stated that it was a hallmark of competitive market dynamics to develop offers tailored to specific market segments and that it was entirely acceptable to exploit the advantages of one's products over those of another competitor. Bell Mobility argued that all wireless carriers engaged in the development of targeted offers which were limited as to time, geography or customer usage characteristics or which responded to specific customer complaints. It submitted that its offer attempted to reduce the cost faced by highly valued subscribers wishing to migrate their service from Microcell to Bell Mobility and that the additional incentive featured in the Bell Mobility Offer to these potential customers had been reasonable.
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31.
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Bell Mobility submitted that the Commission should not intervene as it would either set an unfortunate precedent of limiting competition on the basis that one competitor was not strong financially or be viewed as the Commission trying to protect a competitor from market forces.
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32.
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Bell Mobility further submitted that Microcell's characterization of the degree of competition in the market was incorrect. Bell Mobility stated that wireless service users in Canada had benefited from the rivalry between vigorously competitive carriers. Bell Mobility provided wireless subscriber market share data which demonstrated as of the fourth quarter of 2001, the BCE wireless affiliates had a market share of 32.4%. RWI, TELUS Mobility and Microcell had market shares of 28%, 24.1% and 11.3% respectively.
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33.
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Bell Mobility argued that Microcell's position that Bell Mobility and TELUS Mobility should be combined into a single ILEC affiliate category conveyed an inaccurate portrait of the industry. Bell Mobility stated that both it and TELUS Mobility compete vigorously everywhere they provide services, with each other and with other wireless carriers. Bell Mobility argued that the Bell Mobility-TELUS Mobility resale and roaming agreement enabled each of Bell Mobility and TELUS Mobility to compete more effectively in each other's "heartland". Bell Mobility submitted that the agreement meant customers saw more competition in more locations between strong competitors than would otherwise have been the case.
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TCI's comments
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34.
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TCI argued that Microcell had reached false conclusions with regard to the state of wireless industry competition in Canada. TCI stated that the ILEC-affiliated wireless carriers were direct competitors of each other as well as competitors to Microcell and RWI.
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35.
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TCI noted that the Commission in its September 2001 report on the Status of Competition in Canadian Telecommunications Markets, stated that the wireless market was sufficiently competitive to allow the Commission to forebear from regulating mobile service rates.
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36.
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TCI argued that competition in the wireless industry continued to be robust and that further regulation, as suggested by Microcell, need not be considered by the Commission.
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37.
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TCI submitted that Microcell had misconstrued the objective of the roaming agreement and that reciprocal roaming agreements were commonplace in the industry, in both Canada and abroad. TCI stated that Microcell had benefited from a similar arrangement with the former members of Mobility Canada. TCI stated that Microcell had built its facilities in urban areas, while its arrangements with Mobility Canada members allowed Microcell's clients to roam in rural areas where Mobility Canada members, and not Microcell, had facilities. TCI stated that these arrangements remained largely in place.
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Microcell's reply
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38.
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Microcell submitted that both the RWI Offer and the Bell Mobility Offer were unjustly discriminatory and that pursuant to section 27(4) of the Act, the onus was on each of RWI and Bell Mobility to demonstrate that the discriminatory activities and preferential treatment were neither unjust nor undue. Microcell argued that it had provided clear evidence of the discriminatory activities and that each of RWI and Bell Mobility had acknowledged that discriminatory activities had taken place.
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39.
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Microcell submitted that the RWI Offer and the Bell Mobility Offer were anti-competitive in nature, and appeared to be intended to punish, or even eliminate, a smaller competitive rival.
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40.
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Microcell submitted that the fact that a carrier chose to make special offers to different categories of a carrier's own or former customers did not mean that an offer made to specific customers of a competitor was not unjustly discriminatory. Microcell argued that discrimination could be unjust because of the nature of the target of the discriminatory offer, as well as the fact that it was targeted. Microcell further argued that the resulting preference to the carrier making the offer was undue when it put a competitor at an unreasonable disadvantage in the market.
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41.
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Microcell argued that RWI had not provided enough information to allow the Commission to assess whether or not other RWI offers to its other classes of customers were the same as the RWI Offer to Microcell customers.
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42.
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Microcell submitted that RWI had incorrectly asserted that section 27(2) of the Act could only be used to address unjust discrimination in the context of network access. Microcell argued that, in fact, section 27(2) of the Act could be used in other contexts.
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43.
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Microcell further submitted that it was not seeking protection from its own mistakes; rather, it was asking the Commission to enforce the current rules of the competitive wireless marketplace.
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44.
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Microcell argued that Bell Mobility's submission failed to justify or give legitimacy to the Bell Mobility Offer, as required by section 27(4) of the Act. Microcell further submitted that Bell Mobility's defence of competitive necessity did not justify its actions.
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45.
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Microcell submitted that it was wrong to target an offer only to existing customers of a competitor. Microcell reiterated its argument that if behaviour such as the RWI Offer and the Bell Mobility Offer was allowed to continue, competition in the wireless telecommunications market might be reduced or eliminated, to the detriment of the public interest.
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Commission analysis and determination
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46.
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Sections 27(2), (3) and (4) of the Act read as follows:
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(2) No Canadian carrier shall, in relation to the provision of a telecommunications service or the charging of a rate for it, unjustly discriminate or give an undue or unreasonable preference toward any person, including itself, or subject any person to an undue or unreasonable disadvantage.
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(3) The Commission may determine in any case, as a question of fact, whether a Canadian carrier has complied with section 25, this section or section 29, or with any decision made under section 24, 25, 29, 34 or 40.
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(4) The burden of establishing before the Commission that any discrimination is not unjust or that any preference or disadvantage is not undue or unreasonable is on the Canadian carrier that discriminates, gives the preference or subjects the person to the disadvantage.
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47.
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Allegations regarding contraventions of section 27(2) of the Act are decided by the Commission on a case-by-case basis, taking into account the circumstances surrounding each case. In the present case, the Commission considers it material to its determination under that section that public switched mobile voice services (wireless services) have been found by it to be a class of services for which it has been obliged to exercise regulatory forbearance pursuant to section 34(2) of the Act.
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48.
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Under section 34(2) of the Act, the Commission is required to forbear from regulation where it finds that a class of services is or will be subject to sufficient competition to protect the interests of users. In Decision 96-14, the Commission found that wireless services, other than those offered in-house by ILECs, met that test, and it therefore indicated that it would refrain from exercising its powers pursuant to sections 24 (in part), 25, 29, 31 and sections 27(1), (5) and (6) of the Act. The regulatory regime established by Decision 96-14was subsequently extended to services offered in-house by ILECs.
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49.
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With regard to section 27(2) of the Act, the Commission notes RWI's assertion that none of the Microcell allegations fell within the Commission's jurisdiction because the Commission has retained only limited jurisdiction primarily to deal with issues of network access. The Commission found in Decision 96-14 that open access to telecommunications networks was in the public interest, and that it was necessary to ensure that providers of wireless services did not unjustly discriminate against other carriers or subscribers, or confer any undue or unreasonable preference, whether with respect to access to the networks of service providers or otherwise. The Commission accordingly decided that it would continue to exercise powers and perform duties under sections 27(2), (3) and (4) of the Act, in relation to wireless services.
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50.
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The Commission also notes that Bell Mobility submitted that pursuant to section 27(2) of the Act Microcell would have to show that Bell Mobility had unjustly discriminated against Microcell in relation to a telecommunications service provided by Bell Mobility to Microcell. The Commission considers that its powers under section 27(2) of the Act do not relate solely to telecommunications services provided by one carrier to another, as argued by Bell Mobility, and that the Commission's powers under section 27(2) of the Act are sufficiently broad to consider the allegations brought forward by Microcell in this application.
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51.
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In the Commission's view, the record of the present proceeding confirms that the RWI Offer and Bell Mobility Offer were targeted solely at Microcell's post-paid subscribers and were not made available to all RWI or Bell Mobility subscribers or potential subscribers. In making their offers, RWI and Bell Mobility were accordingly discriminating in relation to the provision of a telecommunications service, and the burden of establishing that the discrimination was not unjust was placed on them. In the Commission's view, they discharged this burden in the circumstances of the present case.
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52.
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In its Report to the Governor in Council : Status of Competition in Canadian Telecommunications Markets, December 2002 (the GIC Report), the Commission reported that the wireless industry in Canada has evolved considerably since its inception in the mid-1980s. The GIC Report noted that the industry had initially been comprised of two companies in each market, RWI and the local incumbent telephone company, and that today there were four national carriers, RWI, TELUS Mobility, Microcell and the Bell Wireless Alliance, consisting of Aliant Mobility, Bell Mobility, MTS Mobility and Sasktel Mobility, and several regional ones. Regional carriers were identified in the provinces of Ontario, Quebec and British Columbia. The GIC Report noted that the Commission did not regulate wireless service rates since the market was sufficiently competitive.
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53.
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The Commission noted in the GIC Report that there was no dominant wireless carrier in Canada and that there was a wide variety of pricing plans to be found in the industry. Furthermore, because each entity offered the same basic suite of services, consumer choice was based on other considerations, such as pricing plans, service options and accessories (i.e. handsets).
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54.
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The Commission notes that each of Microcell, RWI and Bell Mobility provided market share estimates on the record of this proceeding. All three carriers submitted that for 2001 RWI and Microcell had national market shares of approximately 28% and 11% respectively. RWI and Bell Mobility stated that the national market share of TELUS Mobility was approximately 24% and that the BCE wireless affiliates had a market share in the range of 32% to 35%.
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55.
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The Commission notes that Microcell argued that it was necessary for the Commission to consider the ILEC wireless carriers as one group, noting the existence of an enhanced roaming agreement entered into in October 2001 and still in place today. Microcell stated that the market share for this group exceeded 60%. The Commission, however, notes Bell Mobility's argument that the resale and roaming agreements between Bell Mobility and TELUS Mobility enabled Bell Mobility and TELUS Mobility to compete more effectively in each other's "heartland". The Commission also notes TCI's statement that roaming agreements and reciprocal roaming are commonplace in the industry. The Commission notes that resale and roaming agreements permit parties to offer service in areas not covered by their own networks. Accordingly, the Commission considers that resale and roaming agreements do not inhibit competitive rivalry between parties and that TELUS Mobility and the BCE wireless affiliates must be considered as separate competitors when assessing the level of competitiveness in the market for wireless services.
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56.
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The Commission considers that the wireless market is characterized by rivalrous behaviour, including vigorous and aggressive marketing campaigns on the part of the four national competitive suppliers, and that subscribers have demonstrated a willingness and ability to switch suppliers. The Commission therefore considers the wireless market to be robustly competitive.
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57.
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The Commission notes that all wireless carriers routinely engage in the development, promotion and provision of services using targeted offers. As noted by Bell Mobility, such offers are generally defined in terms of timing, geography or customer usage characteristics, or respond to specific customer concerns. The Commission considers that such rivalrous behaviour is to be expected in robustly competitive markets.
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58.
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In light of the above, the Commission finds that, in the robustly competitive circumstances of the wireless market, the RWI and Bell Mobility offers, while discriminatory, do not constitute behaviour that amounts to unjust discrimination within the meaning of section 27(2) of the Act.
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59.
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Accordingly, the Commission denies the application by Microcell.
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60.
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The Commission is committed to fair and sustainable competition and accordingly intends to remain vigilant in its enforcement of section 27(2) of the Act. The Commission notes that, in other circumstances, including different market conditions, the type of behaviour at issue in this application could be found to be contrary to section 27(2) of the Act.
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Secretary General
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This document is available in alternative format upon request and may also be examined at the following Internet site: www.crtc.gc.ca
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Date Modified: 2003-04-28