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News & Resources > Public comments > Draft - Information Bulletin on the Abuse of Dominance Provisions as applied to the Telecommunications Industry > I. Introduction

Draft - Information Bulletin on the Abuse of Dominance Provisions as applied to the Telecommunications Industry: Part 1 - Introduction

1.1 Purpose and Scope of this Bulletin

The telecommunications industry is in transition from being governed by sector-specific regulation to laws of general application.  This Bulletin (the “Bulletin”) is part of the Competition Bureau's (the “Bureau”) continuing effort to maintain a transparent and predictable enforcement policy. It describes the Bureau's approach under the abuse of dominance provisions (sections 78 and 79 of the Competition Act ^[1] (the “Act”) with respect to conduct in the telecommunications industry to the extent that the Canadian Radio-television and Telecommunications Commission (“CRTC”) has made a determination to refrain from regulating such conduct.^[2]

Nothing in this Bulletin deviates from the enforcement approach outlined in the Enforcement Guidelines on the Abuse of Dominance Provisions.^[3] This telecommunications-specific Bulletin was developed by the Bureau, in consultation with staff members of the CRTC.^[4] 

1.2 The Canadian Telecommunications Industry

The structure of the telecommunications industry is complex.  Service providers often rely upon having access to important components of a competitor's network to provide an end-to-end service to their customers.  At the same time, their suppliers are often fully integrated service providers able to offer the same range of service and competing for the same customers.  As technical innovations are introduced, firms are finding niches to provide select services, while others are integrating packages or bundles of services together to attract customers. 

Over the past twenty years, the telecommunications industry has migrated from a monopoly service delivery model to a more competitive sector with multiple suppliers. Since the early 1980s, Industry Canada has licensed multiple suppliers of mobile and fixed wireless telecommunications services and the CRTC has opened almost all telecommunications markets to competition.  In addition, the CRTC has forborne from economic regulation of most telecommunications services, including terminal equipment; toll; mobile wireless; interexchange private lines; retail Internet; international services; wide area networking; and certain other data services.

The move from a regulated to a competitive environment will have a significant impact for many in the industry, requiring all parties to adjust to the general competition framework of the Act.  Given the complex relationships that exist within the industry and the history of competitive disputes which the CRTC has considered, the Bureau may receive a significant number of complaints within this sector.  Where one firm, or group of firms, has market power, careful scrutiny needs to be given to the conduct of such firm or firms which may substantially lessen or prevent competition, e.g., impeding or preventing effective competition in a market by existing or potential competitors. 

1.3 The Abuse of Dominance Provisions

To the extent that the CRTC has forborne from regulating conduct related to a telecommunications service or class of services, complaints^[5] that a firm with market power has engaged or is engaging^[6] in a practice of anti-competitive acts can be dealt with under the abuse of dominance provisions contained in sections 78 and 79 of the Act.^[7]

Under the Act, where the Commissioner is satisfied, on the evidence obtained through an investigation, that the elements of the abuse of dominance provisions are met, the Commissioner may make an application to the Competition Tribunal (the “Tribunal”)^[8] for adjudication of the matter. Only the Tribunal can issue a remedial order(s) to address a Part VIII reviewable practice under the Act.

Subsection 79(1) of the Act sets out the three elements that must exist for the Tribunal to make a finding that a firm (or group of firms) has abused its dominant position and issue a remedial order(s):

(a) one or more persons substantially or completely control, throughout Canada or any area thereof, a class or species of business;

(b) that person or those persons have engaged, or are engaging, in a practice of anti-competitive acts; and

(c) the practice has had, is having, or is likely to have the effect of preventing or lessening competition substantially in a market.

The first element requires the definition of a relevant product market(s) (i.e., a “class or species of business”) and a relevant geographic market(s) (i.e., “throughout Canada or any area thereof”). It also requires a finding of market power or dominance (i.e., that “one or more persons substantially or completely control” the relevant market). The second element requires a practice^[9] of anti-competitive acts (i.e., an act “…whose purpose is an intended negative effect on a competitor that is predatory, exclusionary or disciplinary”^[10]). The third element places the focus of the inquiry squarely on the effects, or likely effects, of the act(s) on competition, rather than on individual competitors. Appendix A contains the full text of sections 78 and 79 of the Act.  

1.4 Abuse of Dominance in the Telecommunications Industry

Certain characteristics of the telecommunications industry warrant special consideration in determining whether abuse of dominance has occurred. Generally, the telecommunications industry is a network industry with large sunk costs and significant economies of scale, density, and scope, implying that some firms are likely to have larger market shares than might be typical in non-network industries.^[11] Interconnection, both among competitors in the same market (e.g., local telephone service) and across market boundaries (e.g., long distance call termination), is widespread and in many respects necessary for firms to compete. Proper definition of the relevant market in the telecommunications industry poses particular challenges because the sector is dynamic, shaped by constant and rapid technological change. Finally, certain acts are more likely to be the subject of an abuse of dominance complaint in the telecommunications industry, given the nature of the sector.^[12]

1.5 Organization of this Bulletin

This Bulletin, which applies to abuse of dominance complaints in the telecommunications industry, is organized into seven parts and one appendix as follows:

• Part 2 sets out the Bureau's approach to the definition of the relevant product and geographic markets.
• Part 3 sets out the Bureau's approach to assessing market power.
• Part 4 sets out the Bureau's approach to identifying an act as anti-competitive.
• Part 5 sets out the Bureau's approach to determining whether a practice has had, is having, or is likely to have the effect of preventing or lessening competition substantially in a market.
• Part 6 describes the remedies that can be ordered to address an abuse of dominance.
• Part 7 provides concluding comments.
• Appendix A contains the text of sections 78 and 79 of the Act.

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[1] R.S.C., 1985, c. C-34.

[2] This Bulletin is not a binding statement of how the Bureau will exercise its discretion in a particular situation. Final interpretation of the law is the responsibility of the courts and the Competition Tribunal.

[3] Competition Bureau, “Enforcement Guidelines on the Abuse of Dominance Provisions (Sections 78 and 79 of the Competition Act)” (Ottawa: Industry Canada, 2001), online: Enforcement Guidelines on the Abuse of Dominance Provisions.

[4] CRTC staff members were consulted to provide their expertise concerning the telecommunications industry and the applicable regulatory frameworks. Input by CRTC staff members to Bureau staff members was not made on behalf of CRTC Commissioners and in no way binds the CRTC.

[5] Section 10 of the Act sets out the conditions under which the Commissioner of Competition (the “Commissioner”) may commence an inquiry.  Reference to a complaint(s) in this Bulletin should be read as referring to any of the means cited therein.

[6] For the purposes of this Bulletin, the use of present tense can also be taken to include past and future tense as well, as may be relevant to the discussion.

[7] Consistent with the Bureau's Technical Bulletin on “Regulated” Conduct and past Bureau practice, the Bureau will not consider allegations of anti-competitive acts where the conduct is subject to regulation by the CRTC. Competition Bureau, Technical Bulletin on “Regulated” Conduct , (Ottawa; Industry Canada, 2006), online: Technical Bulletin on “Regulated” Conduct.

[8] Competition Tribunal Act, R.S.C., 1985, c. 19 (2nd Supp.).

[9] A “practice” may be one occurrence of an act that is sustained and systemic or different individual anti-competitive acts.  Canada (Director of Investigation and Research) v. NutraSweet Co., [1990] 32 C.P.R. (3d) 1 (Comp. Trib.) [NutraSweet] at p. 59.

[10] Commissioner of Competition v. Canada Pipe Company Ltd./Tuyauteries Canada Ltée, 2006 FCA 233 at para. 77 [Canada Pipe]. With respect to the meaning of “intended negative effect”, the Court affirmed at paragraph 72 of its decision that: “Proof of the intended nature of the negative effect on a competitor can thus be established directly through evidence of subjective intent, or indirectly by reference to the reasonably foreseeable consequences of the acts themselves and the circumstances surrounding their commission, or both.”

[11] A network industry is one where the value to one person of being connected to the network increases as more people join the network   Sunk costs are expenditures that a firm cannot recover if it exits the market. Economies of density occur if unit costs decline as volume of output increases in a given region (e.g., urban vs. rural).  Economies of scale occur if, over some interval of output, average total cost is decreasing. If the firm produces multiple outputs, the definition applies when the proportion of goods or services produced by the firm is held constant. Economies of scope occur when the cost of producing two products together is less than the combined costs of producing the two products separately. These concepts will be discussed in greater detail below.

[12] See, for example, the comments of the Telecommunications Policy Review Panel in this regard: Canada, Telecommunications Policy Review Panel Final Report, (Ottawa: Publishing and Depository Services Public Works and Government Services Canada, 2006), online: Telecommunications Policy Review Panel  [TPRP Report] at 3-24 & 3-25.