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Telecom Decision CRTC 2006-72
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Ottawa, 7 November 2006 |
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Primus Telecommunications Canada Inc. –
Application to review and vary determinations in Telecom Decision CRTC
2006-15 pertaining to the winback rule
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Reference: 8662-P11-200607327 |
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In this Decision, the Commission
denies Primus Telecommunications Canada Inc.'s request to review and
vary those portions of Telecom Decision CRTC 2006-15 pertaining to the
winback rule. |
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The application
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1. |
On 6 June 2006, Primus Telecommunications
Canada Inc. (Primus) filed an application pursuant to Part VII of the
CRTC Telecommunications Rules of Procedure, requesting that the
Commission review and vary certain determinations and orders relating to
the local exchange service winback restrictions found in paragraphs 484
to 488 inclusive of Forbearance from the regulation of retail local
exchange services, Telecom Decision CRTC 2006-15, 6 April 2006
(Decision 2006-15). In its application, Primus requested that the
Commission issue the following: |
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a) an order reversing the Commission's determination to reduce
the residential local exchange services "no-winback period" for
incumbent local exchange carriers (ILECs) from 12 to 3 months;
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b) an order reversing the Commission's determination to consider
applications to discontinue the application of the no-winback rule
entirely when an ILEC could demonstrate it had lost 20 percent of
its market share in a relevant local exchange market and had
satisfied certain quality of service indicators for a three-month
period; and
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c) an order staying the winback determinations made in Decision
2006-15 until such time as the Commission had made its
determinations on the issues raised in the above two items.
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Background |
2. |
In various decisions, the Commission has
placed certain restrictions on the ILECs' ability to directly
communicate with former local exchange service customers in an attempt
to win them back (the winback rule). |
3. |
The most recent statement of the winback
rule was set out in Decision 2006-15 as follows: |
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… an ILEC is not to attempt to win back a business customer with
respect to primary exchange service [(PES)] or local VoIP [voice
over Internet Protocol] service, and in the case of a residential
customer of local exchange service (i.e. PES or local VoIP service),
with respect to any service, for a period commencing at the time of
the local service request and terminating three months after that
customer's primary local exchange service or local VoIP service has
been completely transferred to another local service provider, with
one exception: ILECs should be allowed to win back customers who
call to advise them that they intend to change local service
provider.1
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4. |
In the above statement of the winback rule,
the Commission reduced the no-winback period from 12 to 3 months.2 The
Commission found that |
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… [i]n light of this new market reality, the Commission considers
that the 12-month no-winback period with respect to residential
local exchange service under the winback rule is no longer
appropriate. The Commission finds that the residential local
exchange service no-winback period is more appropriately set at
three months, as it was prior to Decision 2004-4. … In the
Commission's view, a no-winback period of three months is, under
current market conditions, sufficient and necessary to prevent the
ILECs from enjoying an undue or unfair advantage ….
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5. |
In addition, in Decision 2006-15, the
Commission considered that where an ILEC could demonstrate that it had
met certain other criteria3 in a relevant market, the local winback rule
could be lifted. The Commission found that in these circumstances |
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… competition in that relevant market will have reached a
sufficient level that the ILECs' ability to use their incumbency
advantages to target competitors' customers for winback purposes, in
direct communications, will no longer provide them with an undue or
unfair advantage …
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Process
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6. |
On 30 June 2006, Primus filed its responses
to interrogatories addressed by the Commission. |
7. |
On 6 July 2006, Bell Canada, Aliant Telecom
Inc.4 and Saskatchewan Telecommunications (collectively, the Companies),
Shaw Communications Inc. (Shaw), and TELUS Communications Company (TCC)
filed their comments on Primus's application. Primus filed its reply
argument on 17 July 2006. |
8. |
The positions of parties have necessarily
been summarized in this Decision. The Commission notes, however, that it
has carefully considered all submissions on the record of this
proceeding. |
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Primus's submission
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9. |
Primus submitted that despite the
introduction of VoIP, ILEC residential market share had not eroded
significantly, and that there was nothing to suggest that the rationale
in Decision 2004-4 for extending the no-winback period from 3 to 12
months, or in Regulatory framework for voice communication services
using Internet Protocol, Telecom Decision CRTC 2005-28, 12 May 2005,
as amended by Telecom Decision CRTC 2005-28-1, 30 June 2005 (Decision
2005-28), extending the winback rule for VoIP, had been undermined. |
10. |
Primus further submitted that in Decision
2006-15, the Commission had failed to analyze whether any appropriately
defined local markets could be characterized as "mature competitive
markets," in which the ILECs no longer retained knowledge of the
customer's telecommunications needs, preferences, or calling patterns. |
11. |
Primus argued that while the Commission
determined that market-by-market analysis was required to assess whether
the ILECs had significant market power (SMP) in a particular market, the
Commission had not considered the extent to which the winback rule was
still required in any particular market. Since the purpose of the
winback rule was to protect new entrants from ILEC dominance in a local
market and to allow them to establish a relationship with new customers
prior to the customers being targeted with new promotions from the
ILECs, Primus questioned how changing the rule was justified in local
markets where the ILEC was dominant, or on a national basis. Primus
submitted that reversing Decision 2004-4 would retard competition,
preserve ILEC dominance, and delay forbearance, and that a 12-month
no-winback period was required in all local markets where ILECs remained
dominant. |
12. |
Primus also argued that Decision 2006-15 was internally inconsistent, in that the Commission determined that the
winback rule would be removed based on analyzing competition in a
relevant local market, while it also determined that, in the absence of
any such analysis, it was appropriate to reduce the no-winback period
from 12 to 3 months on a national basis. Primus further submitted that
because the no-winback period was established as a regulatory safeguard
to protect competitors from abuse of ILEC dominance in the residential
local exchange market through targeted promotions, it made no sense to
eliminate the winback rule when the ILEC remained dominant, prior to
forbearance. Similarly, Decision 2006-15 failed, in Primus's submission,
to explain why the winback rule would be eliminated when an ILEC lost
20 percent market share, while other safeguards remained until the ILEC
lost 25 percent market share. |
13. |
Primus was of the view that ILEC winback
activity was anti-competitive. Primus objected to the ILECs' practice of
targeting lost customers with special deals, arguing that the ILECs'
incumbency, near-perfect information about the market, and knowledge of
the precise moment a customer left allowed them to target the marketing
of special bundles to individual former customers. |
14. |
Finally, Primus argued that in a local
market, the repercussions from ILEC winback activity were more harmful
than mere loss of a sale. Primus submitted that should a customer decide
to switch to a competitor, the competitor would incur significant costs
to connect the customer to its network. Primus noted that if the
customer were then to accept a winback offer, the competitor would lose
both its marketing costs and the additional investment to connect the
customer. |
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Positions of other
parties
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15. |
Shaw submitted that recent decisions
pertaining to the winback rule indicated that the Commission still
believed the rule was essential to local competition and, based on this,
it would be appropriate to remove or relax it when competition reduced
incumbency advantages so that targeted winback attempts no longer gave
ILECs an undue or unfair advantage. Absent evidence that this had
occurred, Shaw submitted that the 12-month no-winback period established
in Decision 2004-4 was appropriate. |
16. |
Shaw submitted that reducing the no-winback
period nationally failed to consider competition in relevant local
markets. Shaw concurred with Primus that this was inconsistent with the
purpose of the winback rule, with competition law principles, and with
the forbearance framework, and submitted that these inconsistencies
raised substantial doubt as to the correctness of Decision 2006-15's
reduction of the no-winback period to three months on a national basis.
Shaw further submitted that an analysis of the effects of reducing the
no-winback period in markets where the ILEC retained near total market
share was missing, which compounded doubt as to the correctness of
Decision 2006-15. |
17. |
The Companies questioned whether Primus was
directly affected by the winback determinations. They submitted that
since Primus was not a facilities-based carrier, the Commission should
not heed Primus's arguments pertaining to the Commission's winback
determinations, as these measures did not address non-facilities-based
service providers. The Companies noted that resellers did not issue
local service requests (LSRs), unless they were local exchange carriers
requiring facilities or the transfer of a number. |
18. |
The Companies submitted that Primus offered
no substantial doubt as to the correctness of the Commission's winback
determinations, noting that Primus's assertion in the application that
"nothing has changed" in the local exchange market, including changes
due to VoIP, was out of step with findings in the Telecommunications
Policy Review Panel Report (the TPR Report).5 The Companies further
submitted that the TPR Report discredited regulations restricting ILEC
winback activity. |
19. |
The Companies further submitted that market
share gains made by cable companies with their VoIP services confirmed
that consumers were increasingly replacing their traditional wireline
local connections with VoIP connections, demonstrating that residential
consumers viewed VoIP products as functional substitutes. |
20. |
The Companies submitted that the Commission
never implemented the winback rule based on market conditions in any
particular local market, in that the scope, breadth, and duration of the
rule could not have been tailored to any given local market until (i)
the Commission defined the geographical scope of (and services
comprising) local wireline markets, which it did in Decision 2006-15,
and (ii) the Commission possessed market-specific market share data
based on geographical markets. |
21. |
TCC submitted that Primus mixed its
arguments on the need for the winback rule with its arguments on the
issue of substantial doubt as to the correctness of Decision 2006-15.
TCC was of the view that just because Primus believed the winback rule
was necessary did not mean that the Commission made an error in Decision
2006-15 that should be reviewed or varied. According to TCC, Primus
objected to ILEC winback activity generally, not winback activity at 3
versus 12 months. TCC submitted that the question in this proceeding was
whether or not the period should have been reduced to three months, not
whether ILECs should be permitted to make winback contact at all. |
22. |
TCC noted that the Commission never
referenced competitive conditions in particular geographical areas when
creating or modifying the winback rule in the decisions cited by Primus
in its application. |
23. |
TCC submitted that local exchange service
was becoming more competitive, and given that the slow pace of local
competition was what led the Commission to extend the no-winback period
from 3 to 12 months in 2004, the Commission's findings regarding the
rapidly increasing pace of that competition in 2006 were sufficient to
reduce the period back to 3 months, if not to completely eliminate it. |
24. |
TCC noted that Primus did not accuse the
ILECs of violating any tariffing, bundling, or promotions rules in
making winback offers. TCC submitted that these offers either included
forborne services or were bundles that included regulated services and
met the Commission's tariffing, bundling, and promotions rules. |
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Primus's reply argument
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25. |
Primus argued that it was not seeking
protection from competition, but from abuse of market power in markets
where ILECs possessed SMP and where ILEC winback activity infringed
subsection 27(2) of the Telecommunications Act. Primus noted that
the TPR Report recognized the need to regulate ILEC conduct in markets
where SMP was retained. |
26. |
Primus argued that, in Decision 2006-15,
despite establishing clearly defined local markets to assess market
power, and despite establishing criteria that needed to be satisfied
before removing regulatory safeguards, including the winback rule, the
Commission failed to consider these principles when it reduced the
no-winback period from 12 to 3 months. |
27. |
Primus submitted that there was no evidence
to support the conclusion that a three-month no-winback period was
adequate to prevent ILECs from enjoying an undue or unfair advantage, or
from benefiting unfairly due to their ability to target former local
exchange service customers for winback purposes. Given the degree that
competition varied from local market to local market, with some markets
experiencing no competition, there was no evidence to support an
across-the-board reduction of the no-winback period from 12 to 3 months.
While Primus acknowledged that VoIP had the potential to allow
competition to develop in local markets, ILECs continued to have SMP in
every geographical market. |
28. |
Primus submitted that it was not privy to
the Commission's latest market data, and expressed doubt over any
dramatic change in market conditions, noting that there were areas of
the country where competition had made little progress. Primus noted
that in more populated provinces like Ontario and Quebec, Bell Canada
retained very high market share, citing Bell Canada's most recent
financial reports. |
29. |
Primus noted that the Companies' reference
to a TPR Report comment that winback campaigns should not be restricted
by the regulator was prefaced by the phrase "unless a winback campaign
can be shown to significantly lessen competition." Primus further noted
that the Commission had consistently recognized that a no-winback period
was necessary to prevent the ILECs from using their dominant position to
unfairly suppress competition. |
30. |
Regarding the Companies' submission that
suggested that it was inappropriate for Primus to file a review and vary
application because the winback rule did not apply to resellers, Primus
submitted that while the Commission had referred to the impact of the
winback rule on competitive local exchange carriers (CLECs), the
Commission had never suggested that resellers did not benefit from
winback restrictions. |
31. |
Primus noted that the Commission applied
the winback rule to ILEC VoIP services in Decision 2005-28, but it did
not distinguish between VoIP customers with service from resellers
versus CLECs. Primus submitted that because it and other resellers were
"VoIP service providers," as defined by the Commission, each reseller
was directly affected by the reduction of the no-winback period from 12
to 3 months. |
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Commission's analysis and determinations
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32. |
In Guidelines for review and vary
applications, Telecom Public Notice CRTC 98-6, 20 March 1998, the
Commission set out the criteria to consider review and vary
applications. Specifically, the Commission stated the following: |
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… applicants must demonstrate that there is substantial doubt as
to the correctness of the original decision, for example due to: (i)
an error in law or in fact; (ii) a fundamental change in
circumstances or facts since the decision; (iii) a failure to
consider a basic principle which had been raised in the original
proceeding; or (iv) a new principle which has arisen as a result of
the decision.
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33. |
Contrary to the submissions of the
Companies, the Commission considers that Primus, as a competitor in the
local exchange services market, is directly affected by Commission
determinations regarding the winback rule. |
34. |
With respect to Primus's argument that
there was little change in the local market since Decision 2004-4 to
justify the winback determinations in Decision 2006-15, the Commission
considers that the changes in market conditions, as evidenced on the
record of the proceeding leading to Decision 2006-15, were sufficiently
material to justify changing the no-winback period from 12 to 3 months.
The Commission finds that Primus has not presented new evidence to raise
any doubt, let alone substantial doubt, as to the correctness of the
Commission's determination regarding changes in the residential
marketplace. |
35. |
The Commission notes that more recent data
regarding the local exchange services market support the Commission's
findings in Decision 2006-15. In Reconsideration of Regulatory
framework for voice communication services using Internet Protocol,
Telecom Decision CRTC 2006-53, 1 September 2006, the Commission noted
that growth in residential local VoIP services was resulting in
significantly stronger competition in the local exchange services
market, and that local exchange competition in the residential market
was more deeply rooted than had been apparent based on the record of the
proceeding leading to Decision 2006-15. |
36. |
The Commission does not accept Primus'
assertion that Decision 2006-15 was internally inconsistent since
the Commission determined that it was necessary to assess the
competitiveness of individual local markets as a precondition for
removing the winback rule, yet it did not do so in connection with the
reduction of the winback period. The Commission notes that it increased
the duration of the no-winback period to 12 months in Decision 2004-4 and lowered it to 3 months in Decision 2006-15 based on an assessment of
general market conditions across the country. By contrast, the
Commission established the 20 percent market share loss threshold that
would trigger the elimination of the winback rule as part of
Decision 2006-15, setting out the terms and conditions under which it
would be prepared to grant forbearance. As with full forbearance, the
elimination of the winback rule would occur on a market-by-market basis. |
37. |
With respect to Primus's contention that
the Commission failed to distinguish the winback safeguard from other
competitive safeguards that the Commission did not remove or alter, the
Commission notes that its determination that the 12-month duration of
the no-winback period could be reduced to 3 months was based on a view
that the longer period was no longer necessary to prevent undue
preference and unjust discrimination and involved an assessment only of
the winback rule. The Commission finds that the fact that it did not
make changes to other competitive safeguards does not raise substantial
doubt as to the correctness of the Commission's specific determinations
regarding the winback rule. |
38. |
Further, the Commission finds that Primus's
arguments regarding the anti-competitive nature of ILEC winback activity
do not raise substantial doubt as to the correctness of the Commission's
determination that three months is an appropriate no-winback period in
light of new market conditions. |
39. |
Finally, regarding Primus's assertion that
greater risk exists for competitors than for ILECs due to the
competitor's cost to connect customers to its network, which therefore
requires 12 months of protection from ILEC winback activity based on
customer acquisition and connection cost evidence, the Commission
considers that the purpose of the winback rule is not to protect the
financial viability of competitors. |
40. |
In light of the foregoing, the Commission
finds that Primus has failed to establish substantial doubt as to the
correctness of the Commission's winback determinations set out in
Decision 2006-15. The Commission therefore denies Primus's
request to review and vary those portions of Decision 2006-15 pertaining
to the winback rule. |
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Primus's request for a
stay
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41. |
In its application, Primus also requested a
stay of Decision 2006-15 pending the Commission's determinations on the
review and vary application. |
42. |
Given its determinations above, the
Commission concludes that Primus's request for a stay is moot and that
there would be no utility in examining the merits of the stay
application. |
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Secretary General |
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This document is available in
alternative format upon request, and may also be examined in PDF format or in HTML at the following Internet site:
http://www.crtc.gc.ca |
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Footnotes:
5 Telecommunications Policy Review Panel: Final Report 2006,
March 2006.
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