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ARCHIVED - Telecom Decision CRTC 2004-54

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Telecom Decision CRTC 2004-54

  Ottawa, 5 August 2004
 

Application by Saskatchewan Telecommunications for forbearance from regulation of voice messaging services

  Reference: 8640-S22-200318560
  In this decision, the Commission denies an application by Saskatchewan Telecommunications for forbearance from regulation of voice messaging services.

1.

On 12 December 2003, Saskatchewan Telecommunications (SaskTel) filed an application under Part VII of the CRTC Telecommunications Rules of Procedure requesting that the Commission forbear, pursuant to section 34 of the Telecommunications Act (the Act), from exercising any power or performing any duty under sections 24, 25, 27, 29 and 31 of the Act in relation to voice messaging (VM) services and any similar services SaskTel may offer in the future.

2.

InfoInterActive Inc. (InfoInterActive), a Halifax-based enhanced service provider (ESP), intervened in the proceeding, filing comments on 19 January 2004. SaskTel replied to InfoInterActive's comments on 2 February 2004.

 

Background

3.

The Commission's power to forbear from regulating a telecommunications service or class of services provided by a Canadian carrier originates from section 34 of the Act, which reads as follows:
 

34. (1) The Commission may make a determination to refrain, in whole or in part and conditionally or unconditionally, from the exercise of any power or the performance of any duty under sections 24, 25, 27, 29 and 31 in relation to a telecommunications service or class of services provided by a Canadian carrier, where the Commission finds as a question of fact that to refrain would be consistent with the Canadian telecommunications policy objectives.

 

(2) Where the Commission finds as a question of fact that a telecommunications service or class of services provided by a Canadian carrier is or will be subject to competition sufficient to protect the interests of users, the Commission shall make a determination to refrain, to the extent that it considers appropriate, conditionally or unconditionally, from the exercise of any power or the performance of any duty under sections 24, 25, 27, 29 and 31 in relation to the service or class of services.

 

(3) The Commission shall not make a determination to refrain under this section in relation to a telecommunications service or class of services if the Commission finds as a question of fact that to refrain would be likely to impair unduly the establishment or continuance of a competitive market for that service or class of services.

 

(4) The Commission shall declare that sections 24, 25, 27, 29 and 31 do not apply to a Canadian carrier to the extent that those sections are inconsistent with a determination of the Commission under this section.

4.

The Canadian telecommunications policy objectives set out at section 7 of the Act include the following:
 

.

 

(c) to enhance the efficiency and competitiveness, at the national and international levels, of Canadian telecommunications;

 

(f) to foster increased reliance on market forces for the provision of telecommunications services and to ensure that regulation, where required, is efficient and effective;

 

(h) to respond to the economic and social requirements of users of telecommunications services.

5.

The Commission established a framework for considering whether or not to forbear in Review of regulatory framework, Telecom Decision CRTC 94-19, 16 September 1994 (Decision 94-19). In that decision, the Commission noted that the first step in assessing whether it is appropriate to forbear involves defining the relevant market. The relevant market is essentially the smallest group of products and geographic area in which a firm with market power can profitably impose a sustainable price increase.

6.

In Decision 94-19, the Commission established a number of criteria to be examined when determining whether a market was competitive. These criteria include the market shares of the dominant and competing firms, demand and supply conditions, the likelihood of entry into the market, barriers to entry into the market, including the costs to customers of switching suppliers, and evidence of rivalrous behaviour.

7.

In Forbearance - Services provided by non-dominant Canadian carriers, Telecom Decision CRTC 95-19, 8 September 1995, the Commission forbore from regulating telecommunications services provided by non-dominant carriers, including VM services.
 

SaskTel's application

8.

SaskTel requested that the Commission forbear from regulating its VM services in order to respond more quickly to competitive developments, as it would no longer have to file VM promotions and tariffs for Commission approval. SaskTel also noted that, in Review of promotions, Telecom Public Notice CRTC 2003-1-1, 13 March 2003, the Commission had imposed limitations on promotions that constrained SaskTel's promotional activities, and deprived customers of the potential benefits of lower prices, in a market where no competitive local exchange carriers (CLECs) were operating and where CLECs were unlikely to enter.

9.

SaskTel submitted that VM services allowed customers to carry out and manage electronically the interchange of messages and information. SaskTel stated that it provided VM services pursuant to its General Tariff - Competitive Services, items 550.06, MessageManager One, 550.08, MessageManager, 550.10, TalkMail, and in its Special Facilities Tariff item 1000.44, Customer Specific Voice Messaging Service. SaskTel indicated that it was not seeking forbearance for related local access service elements utilized when providing VM services such as Call Forwarding.

10.

SaskTel stated that it provided the following services that store and retrieve voice telecommunications:
 

MessageManager: a service that provides a voice mailbox, requires Touch-Tone, and is not normally compatible with Private Branch Exchange (PBX) or key systems.

 

MessageManager One: a service that provides an integrated voice mailbox to answer incoming calls on a cellular and on a landline number.

 

TalkMail: a service that provides the sending party with limited voice messaging capabilities to Touch-Tone residential and business subscribers; TalkMail capabilities include sending, forwarding, replying to messages, and access to distribution lists; callers must call a common centralized number before they are able to place a message into a TalkMail mailbox.

11.

SaskTel stated that the relevant market for VM services consisted of all current and future residential, single-line business and multi-line business customers who required the capability to send, store and retrieve voice communications in Saskatchewan. SaskTel submitted that these services are part of a broader telecommunications services market that was seeing the evolving integration of voice, data and text messaging, and that was being stimulated by the development of new Internet Protocol (IP)-based services.

12.

SaskTel submitted that competing, or substitute, products and services for SaskTel's VM service were supplied by equipment manufacturers; local, regional and national telecommunications carriers; Internet service providers; locally-based answering service companies; as well as computer manufacturers and software developers.

13.

SaskTel stated that in this market its VM services faced competition from:
 
  • answering machines;
 
  • telephone sets with built-in messaging capabilities;
 
  • ive telephone answering and message exchange telephone services;
 
  • customer premises equipment stand-alone VM systems and adjuncts to PBX and Key Telephone System terminal equipment;
 
  • VM capabilities of wireless services;
 
  • PC-based software solutions that offer users several independent VM boxes, fax mailboxes, outcall notification, and send, receive and store capability; and
 
  • text-based messaging and information services, such as fax, e-mail, and online messaging, including instant messaging.

14.

SaskTel submitted that, as a further alternative, customers have been utilizing Call Display record logs for calls received when they were away from their phones.

15.

In addition, SaskTel submitted that it expected that its VM services would also face competition from VM services offered by IP-based telecommunications service providers, using Voice over Internet Protocol (VOIP) technology, including VOIP provided by cable companies, but not from wireline or wireless CLECs.

16.

SaskTel submitted that in the residential and small business market it faced the greatest competition from answering machines and telephone sets with VM capability. SaskTel observed that there were numerous suppliers for the equipment, such as department stores and chains specializing in electronics and that there were no entry barriers to marketing and selling this equipment.

17.

SaskTel submitted that in the large business market, its greatest competition for VM capability came from customer premises equipment with VM capabilities. The company submitted that in this market there were also no barriers to entry, and that multi-line business customers could obtain VM capability from numerous telecommunications suppliers and from businesses supplying answering service systems. In addition, SaskTel noted that it is also subject to competition from IP-based telecommunications service providers that are not subject to Commission regulation.

18.

SaskTel submitted that rivalrous behaviour in the VM market was evident as retailers frequently advertized answering machines and telephones with built-in VM capabilities. SaskTel stated that, in response to competitors, the company had on several occasions promoted its VM services to residential and business customers.

19.

SaskTel submitted that, with the price cap regime established in Regulatory framework for second price cap period, Telecom Decision CRTC 2002-34, 30 May 2002, the company could not increase prices of regulated services beyond levels permitted by price cap regulation, and that there was therefore no risk of cross-subsidization of forborne services by tariffed services.

20.

Further, SaskTel argued that predatory pricing of VM services was not possible, since the company would be unlikely to be able to drive competitors from the market by below cost pricing, particularly since some competitors were much larger than SaskTel. Further, even if the company were to succeed in this, any increase in market prices to recoup losses from below cost pricing would result in entry by VM service providers or providers of competing services, since there were no barriers to entry into the VM market.
 

InfoInterActive's intervention

21.

InfoInterActive submitted that ESPs provided services such as VM, Fax Overflow and Internet Call Waiting by bundling the underlying bottleneck elements, such as Call Forward Busy Line, Call Forward No Answer and Message Waiting Indicator, obtained from the incumbent local exchange carrier (ILEC).

22.

InfoInterActive submitted that the pricing of these bottleneck services to ESPs did not permit ESPs to achieve profit margins and efficiencies comparable to the ILECs, and that as a result the ILECs remained dominant in providing enhanced services.

23.

InfoInterActive also argued that ESPs were at a disadvantage because, unlike the ESPs, the ILECs could profitably bundle many high margin services with voice-mail.
 

SaskTel's reply

24.

SaskTel submitted that InfoInterActive had provided no evidence and raised no issues that would support the argument that SaskTel had not met the criteria that the Commission required to make a forbearance determination with respect to the SaskTel's VM services.

25.

With respect to InfoInterActive's comments regarding bundling, SaskTel noted that the company did not offer service bundles that included local exchange service or "unlimited vertical services". Further, SaskTel noted that if it did offer such bundles, it would have to comply with the applicable Commission rules.
 

Commission analysis and determination

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InfoInterActive's comments

26.

With respect to InfoInterActive's submission that the rates for bottleneck services place independent ESPs at a disadvantage, the Commission notes that SaskTel provides bottleneck services required to provide VM pursuant to approved rates, at cost plus a mark-up, to permit SaskTel to recover some of the fixed costs incurred in providing the service.
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SaskTel's application

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Application of subsections 34(1), (2) and (3) of the Act

27.

The Commission notes that while subsection 34(1) of the Act provides that the Commission may refrain from regulating a service or class of services when it finds that such forbearance is consistent with the Canadian telecommunications policy objectives, subsection 34(2) of the Act requires it to forbear where it finds that the market for the service in question is, or will be, subject to sufficient competition to protect the interests of users. The Commission also notes, however, that subsection34(3) of the Act provides that the Commission shall not forbear if it finds that to do so would be likely to impair unduly the establishment or continuance of a competitive market for that service.

28.

The Commission considers it appropriate, for the purpose of this application, to define the market for VM services as consisting of services providing for the transmission, storage, and retrieval of voice communications. The Commission considers that this market encompasses all of SaskTel's operating territory. Participants in this market include residential and business customers who require the capability to send, store and retrieve voice communications, and suppliers including SaskTel and other suppliers providing VM products and services that compete directly with SaskTel's VM services.

29.

The Commission considers that various segments in this market have different messaging capabilities. The Commission notes that at present, residence and business single-line subscribers may receive messages when their phone is in use (off-hook messaging capability) only if they obtain VM services from SaskTel, or if they subscribe to an alternative answering service. Single-line customers that do not subscribe to SaskTel's VM services or an answering service do not currently have off-hook messaging capabilities.

30.

The Commission notes that a large percentage of single-line residence and business customers have no off-hook messaging capability, and that SaskTel did not discuss the competitive significance of this.

31.

The Commission considers that business customers with PBX systems may obtain off-hook messaging capability from VM services built into their systems. The Commission notes that PBX systems with their own VM capabilities are available from several suppliers.

32.

Further, the Commission considers that multi-line and Centrex customers may obtain VM services from service providers other than SaskTel. The Commission notes that SaskTel submitted that, throughout Canada, substitution had occurred from central office based VM services to VM services provided by customer premise equipment.

33.

The Commission notes that SaskTel provided no estimates of competitor market shares in the business market segment. The Commission considers that estimates of competitors' market shares for the provision of VM services to business customers (either separately for single-line, PBX, multi-line, Centrex, or in a broader aggregate, for example, single-line and multi-line customers) would permit a more accurate assessment of competitive conditions in the VM market. To illustrate, if alternative VM providers were to have a comparable or greater market share than SaskTel, then the Commission could conclude that the market is sufficiently competitive to protect user interests. However, if alternative VM providers have a much smaller market share, it may not be correct to conclude that the VM market in SaskTel's territory is sufficiently competitive to protect user interests.

34.

SaskTel submitted that there were no entry barriers into the VM market. However, the Commission notes that SaskTel did not demonstrate rivalrous behaviour by market participants, for example, by providing evidence that SaskTel's market share is decreasing while market shares of competitors are increasing, or by comparing trends in prices of obtaining VM services from the company and from competitors.

35.

Further, the Commission notes that SaskTel did not discuss costs that customers would incur when switching between VM service providers. The Commission considers that high switching costs, in conjunction with a high market share by SaskTel, could imply that SaskTel would have market power in providing the service.

36.

Since SaskTel has not addressed several matters, including competitive alternatives for single-line residence and business off-hook messaging, the Commission considers that SaskTel has not demonstrated in its application that there is sufficient competition to protect user interests if SaskTel were to provide VM services on a forborne basis. Accordingly, the Commission denies SaskTel's application for forbearance from regulation of the company's VM services.

37.

The Commission considers, based on the record of this proceeding, that it does not have sufficient information to make a determination, pursuant to subsection34(2) of the Act, that the provision, in SaskTel territory, of VM services is sufficiently competitive to protect the interests of users so as to warrant forbearance from regulation. Similarly, the Commission considers, pursuant to subsection 34(1) of the Act, that such a finding in the circumstances would not be consistent with the telecommunications policy objectives of the Act.
  Secretary General
  This document is available in alternative format upon request and may also be examined at the following Internet site: http://www.crtc.gc.ca

Date Modified: 2004-08-05

Date modified: