13 March 2003 Mr. Alex Himelfarb Clerk of the Privy Council and Secretary to the Cabinet
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13 March 2003 Mr. Alex Himelfarb Clerk of the Privy Council and Secretary to the Cabinet Langevin Block 80 Wellington Street Ottawa, Ontario K1A 0A3 Bernard A. Courtois Executive Counsel Dear Mr. Himelfarb: BCE & Bell Canada Subject: Canada Gazette – Notice No. DGTP-001-03 Petition to the Governor in Council from Quebecor Média inc. under Section 12 of the Telecommunications Act in regard to the following CRTC Decision: Quebecor Média inc. – Alleged anti-competitive cross-subsidization of Bell ExpressVu, Telecom Decision CRTC 2002-61 These comments are filed on behalf of BCE Inc. and Bell Canada in response to the petition by Quebecor Média inc. (“Quebecor”) to the Governor in Council regarding Telecom Decision CRTC 2002-61 (“the Decision”). In its application of 4 April 2002, filed with the CRTC pursuant to Part VII of the CRTC Telecommunications Rules of Procedure, Quebecor alleged that BCE has been using profits generated by Bell Canada to anti-competitively cross-subsidize the entry of Bell ExpressVu Limited Partnership (“ExpressVu”) into the Quebec broadcasting distribution market. Quebecor argued that mechanisms put in place by the Commission to prevent cross-subsidization of ExpressVu by Bell Canada be activated in order to prevent Bell Canada, the dominant player in local telephone service, from becoming the dominant broadcasting distribution undertaking (“BDU”). In its Decision of 8 October 2002, the Commission found that Bell Canada was not, in fact, inappropriately cross-subsidizing ExpressVu, and furthermore, that ExpressVu was not the dominant BDU that Quebecor warned about: [T]he Commission remains of the view that the existing mechanisms, including those recently modified in Decision 2002- 34, are appropriate and sufficient to prevent inappropriate cross- subsidization of ExpressVu by Bell Canada, at the expense of users of telecommunications services. The Commission also finds that there is insufficient evidence to substantiate Quebecor's allegation that Bell Canada's cross- subsidization of ExpressVu's activities is permitting ExpressVu to become the dominant player in broadcasting distribution. In this regard, the Commission notes that Quebecor's subsidiary, Vidéotron ltée, remains the dominant player in broadcasting distribution in the province of Quebec, with approximately 1.5 million basic service subscribers. Quebecor responded to the Commission’s Decision by filing, on 6 January 2003, a petition to the Governor in Council, taking issue with the CRTC’s conclusions while persisting in its arguments already rejected by the Commission. Quebecor requests that the Commission reconsider Quebecor’s complaint, that it conduct a public inquiry into BCE’s cross-subsidization of ExpressVu, and that it recommend to the Government how best to deal with what Quebecor calls “this problem”. It is BCE’s contention that Quebecor’s allegations are false or misleading and entirely unfounded. In its written response to Quebecor’s petition, BCE demonstrates that: the Petition reflects a fundamental misunderstanding of the cross-subsidy issue. The issue arose in the days of rate of return regulation, when mechanisms were required to ensure that losses on the competitive side of the business would not be made up by price increases on the regulated side in order to achieve the allowable rate of return. The CRTC has had mechanisms in place for years to prevent such cross-subsidization. Today, Bell Canada’s regulated operations are subject to a price cap regime where the possibility and incentive for such cross-subsidization have been eliminated. The pricing regime is set for a four-year period, and any losses or investments in competitive operations inside of Bell Canada, let alone in separate operations like ExpressVu, are for the account of shareholders and cannot be used to justify increases in regulated prices; BCE is investing in ExpressVu, not cross-subsidizing it. As recognized by Quebecor, in a capital-intensive business like satellite television, it is not possible to enter the market without incurring significant losses in the early years. The effect of what Quebecor is seeking would be to prevent such competition and restore Vidéotron’s monopoly; ExpressVu is delivering major benefits to consumers and the broadcasting system. With Star Choice owned by Shaw Cable, ExpressVu is the only effective, non-cable- owned competitor to the incumbent cable companies. Government and Commission policy supports competition in the delivery of multi-channel television services. Without the investment that BCE has made in ExpressVu, competition in this market would essentially not exist; Quebecor is presenting a selective and distorted picture of competition in Canadian communications. In broadcast distribution, there are essentially three competitors in any given market, with only one, ExpressVu, being independent of cable. At this time, the cable companies such as Vidéotron remain the dominant players in broadcast distribution, as the CRTC found in response to Quebecor’s complaint; by contrast, in telecommunications, all parts of the business are open to competition from multiple players and technology platforms. Competition is pervasive and much more advanced than in broadcast distribution. First, the sector is undergoing a secular change, with data (where there are many competitors) overtaking voice traffic, and wireless (where Canada has four national operators) increasingly substituting wireline traffic for both local and long distance. Even within the traditional wireline voice segment which is now in decline (and where Canada has five competing national networks), Bell Canada has lost considerably more market share in long distance and even in local services for business customers (at 15%) than cable has lost to all of DTH (at 10%). In the market for local residential voice service, where competition had been slowest to develop, prices for telephone companies are regulated and frozen, whereas cable companies are implementing price increases for both basic and optional cable services; and as BCE’s response demonstrates, cable companies are growing much more strongly than incumbent telephone companies in Canada. Revenues and earnings growth are substantially higher for cable companies than telephone companies. It should be remembered that ExpressVu competes across the country against the combined resources of all Canadian cable companies. In essence, the Petition asks the government to intervene to undermine the one successful alternative to the cable company-controlled distribution networks that has been established since Government and CRTC policy endorsed competition in the broadcast distribution sector seven years ago. It is based on the allegation that the CRTC is lacking in the ability to identify and prevent anti-competitive cross- subsidization. With the Commission having over two decades of experience in this regard, it is arguably the most knowledgeable regulatory tribunal in this area in the country. It has rejected Quebecor’s allegation. So too has the Competition Bureau. For these and other reasons developed in this submission, BCE Inc. and Bell Canada respectfully request that the Governor in Council reject all requests made by the Petitioner. Yours truly, Bernard A. Courtois Executive Counsel BCE and Bell Canada Attachment c.c.: Mr. Larry Shaw, Director General, Telecommunications Policy Branch, Industry Canada Mr. Pierre Karl Péladeau, President and Chief Executive Officer, Quebecor Inc. In electronic format to: [email protected] Canada Gazette, Part 1, 1 February 2003 Telecommunications Act Notice No. DGTP-001-03 Petition of Quebecor Inc. to Her Excellency the Governor in Council Dated 6 January 2003 Telecom Decision CRTC 2002-61 Quebecor Media inc. – Alleged anti-competitive cross-subsidization of Bell ExpressVu Response of BCE Inc. and Bell Canada 13 March 2003 1. Introduction 1. On 6 January 2003, Quebecor Inc. (“Quebecor”), on behalf of its subsidiary Vidéotron ltée, filed a Petition with the Governor in Council asking that Telecom Decision CRTC 2002-61 (“Decision 2002-61”) be overturned. In Decision 2002-61, the CRTC had rejected an application by Quebecor Média inc. (“QMI”) for the Commission to carry out various actions to address what QMI alleged was unfair cross-subsidization of Bell ExpressVu (“ExpressVu”) by Bell Canada Enterprises (“BCE”). 2. Pursuant to the Canada Gazette, Part 1, 1 February 2003, Telecommunications Act Notice No. DGTP-001-03: Petition to the Governor in Council, this is the response of BCE and Bell Canada (“Bell”). 3. For all of the reasons presented below, Quebecor’s Petition should be rejected: • Government and CRTC policy fully supports competition in the broadcast distribution sector. With Star Choice owned by Shaw Communications, ExpressVu is the only independent and effective competitive alternative to the cable company- owned broadcast distribution networks; • ExpressVu is delivering major benefits to consumers and the Canadian broadcasting system; • the broadcast distribution sector is very capital-intensive. BCE has had to make major investments in ExpressVu to establish the company as a viable alternative to the cable companies. Such investments are no different from those that cable companies have made to enter new lines of business, such as high-speed Internet access; • funds used to invest in ExpressVu come from a variety of sources. BCE raises funds through selling new equity and debt, selling assets and from dividends from subsidiaries, such as Bell Canada.