Before the Competition Bureau Canada EXPERT REPORT OF
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Market Study Notice: TELUS Communications Inc. Competition in Broadband Services November 2, 2018 ABRIDGED Appendix B - REVISED Before the Competition Bureau Canada EXPERT REPORT OF CHRISTIAN M. DIPPON, Ph.D. On Behalf of TELUS Communications Inc. Market Study Notice: Competition in Broadband Services Redacted Version August 31, 2018 Market Study Notice: TELUS Communications Inc. Competition in Broadband Services November 2, 2018 ABRIDGED Appendix B - REVISED Before the Competition Bureau Canada Market Study Notice: Competition in Broadband Services Table of Contents I. QUALIFICATIONS ...................................................................................................................4 II. PURPOSE OF THE REPORT ......................................................................................................6 III. SUMMARY OF FINDINGS ........................................................................................................6 IV. INTRODUCTION ...................................................................................................................13 V. THE BUREAU MUST FOCUS ON MARKET PERFORMANCE ....................................................17 A. Market Failure Is a Necessary but Not Sufficient Condition for Preventing Resellers from Fulfilling Their Competitive Roles ..................................................17 B. The Canadian Broadband Market Is Competitive ....................................................18 VI. RESELLERS HAVE BEEN ABLE TO DEPLOY COMPETITIVELY EFFECTIVE SERVICES ............22 A. The Bureau Misinterpreted the Resellers Performances ...........................................22 1. There are not 550 resellers ..................................................................................23 2. The reseller’s alleged lower price point is unreliable .........................................27 3. The 87 percent market share figure is misleading ..............................................31 B. Canadian Resellers Have Been Able to Succeed ......................................................33 1. Other service providers represent the fastest growing type of ISP .....................34 2. A 13 percent market share is evidence of market success ..................................35 C. Plan Choices Underscore the Robustness of the Broadband Market ........................38 1. Resellers pursue different marketing strategies ..................................................39 2. Resellers offer different plan choices .................................................................41 3. Resellers pursue different pricing strategies .......................................................41 VII. CONSUMERS HAVE REACTED POSITIVELY TO RESELLER OFFERINGS .................................44 A. Canadian Consumers Are Aware of Resellers ..........................................................44 B. The Resellers’ Limited Service Offerings Limit Their Attractiveness .....................47 C. Industry Contractual Practices Do Not Prevent Reseller Success ............................48 VIII. CONCLUSION AND SUMMARY RESPONSES ..........................................................................48 APPENDIX A: CURRICULUM VITAE OF CHRISTIAN M. DIPPON, PH.D. .............................................52 NERA Economic Consulting Page 2 of 62 Market Study Notice: TELUS Communications Inc. Competition in Broadband Services November 2, 2018 ABRIDGED Appendix B - REVISED Before the Competition Bureau Canada Market Study Notice: Competition in Broadband Services List of Figures Figure 1. Market Share of Non-Facilities-Based Providers After Wholesale Access Was Allowed (2003-2016)................................................................................................................................... 37 Figure 2. Advertising Example – Distributel ................................................................................ 46 List of Tables Table 1. Residential ARPU per Month by Type of Fixed Service Provider ................................. 15 Table 2: Weighted Residential ARPU per Month by Type of Fixed Service Provider ................ 16 Table 3. Wall and Nordicity Demand Levels Fixed Broadband Access ...................................... 29 Table 4. US Broadband Cable Subscribers by Type of Purchase ................................................. 33 Table 5. Incumbent Shares as of 271 Application Filings ............................................................ 38 Table 6. The Reseller Is Less Expensive (Example 1) ................................................................. 42 Table 7. Facilities-based Provider Is Less Expensive (Example 2) .............................................. 42 Table 8. Facilities-based Provider and Reseller Offer Different Plans (Example 3) .................... 43 NERA Economic Consulting Page 3 of 62 Market Study Notice: TELUS Communications Inc. Competition in Broadband Services November 2, 2018 ABRIDGED Appendix B - REVISED Before the Competition Bureau Canada Market Study Notice: Competition in Broadband Services Expert Report of Christian M. Dippon, Ph.D. I. QUALIFICATIONS 1. My name is Christian M. Dippon. I am an economist and Managing Director at NERA Economic Consulting (NERA) where I chair NERA’s Global Energy, Environment, Communications, and Infrastructure (EECI) Practice. NERA provides expert economic and financial analysis for firms and government bodies on a wide variety of issues. Founded in 1961, NERA serves clients from more than 25 offices across North America, Europe, and Asia. My business address is 1255 23rd Street NW, Suite 600, Washington, DC 20037. 2. I hold a Ph.D. in Economics from Curtin University (Perth, Australia), an M.A. in Economics from the University of California, and a B.A. with honors in Business Administration from California State University. I have specialized in telecommunications economics for over 22 years, especially in wireline, wireless, cable, and emerging technologies. I serve on the Board of Directors of the International Telecommunications Society (ITS), and I am a member of the Federal Communications Bar Association (FCBA), the American Bar Association (ABA), and the American Economics Association (AEA). I have authored and edited several books as well as book chapters in anthologies and have written numerous articles on telecommunications competition and strategies. I also frequently lecture in these areas at industry conferences, continuing education programs for lawyers, and universities. National and international newspapers and magazines, including the Financial Times, Business Week, Forbes, the Chicago Tribune, and the Sydney Morning Herald, have cited my work. NERA Economic Consulting Page 4 of 62 Market Study Notice: TELUS Communications Inc. Competition in Broadband Services November 2, 2018 ABRIDGED Appendix B - REVISED Before the Competition Bureau Canada Market Study Notice: Competition in Broadband Services 3. My experience in telecommunications and media includes assessing the competitive impact of mergers and acquisitions, the need (or lack thereof) for state and federal regulatory intervention and reform, the industry impact of competition policy, reviews of alleged anticompetitive conduct, the analysis of economic damages in complex business disputes, and the allocation of radio spectrum. I also have assessed the level of competition in the telecommunications sector of several countries and consulted on cases involving industry standards. 4. I have testified on telecommunication matters before the U.S. Federal Communications Commission (FCC), the International Trade Commission (ITC), U.S. federal and state courts, arbitration panels, international competition and regulatory authorities, and numerous U.S. state regulatory commissions. In Canada, I have testified before the Ontario Superior Court of Justice; the Superior Court, Province of Quebec, District of Montreal; the Supreme Court of British Columbia, Vancouver Registry; the Canadian Radio- television and Telecommunications Commission (CRTC); and Innovation, Science and Economic Development (ISED). In 2012, the Bureau retained me to provide expert testimony in a false advertising investigation against Chatr Wireless. 5. Relevant to this consultation, I have testified, published, and consulted on wholesale local access, last-mile cost modeling, and non-facilities-based entry and their effects on competition. I have also extensively studied and testified on the competitive forces in the Canadian telecommunications sector. Appendix A of this report contains my curriculum vitae. NERA Economic Consulting Page 5 of 62 Market Study Notice: TELUS Communications Inc. Competition in Broadband Services November 2, 2018 ABRIDGED Appendix B - REVISED Before the Competition Bureau Canada Market Study Notice: Competition in Broadband Services II. PURPOSE OF THE REPORT 6. This report was prepared at the request of TELUS Communications Inc. (TELUS) in response to the Competition Bureau Canada’s “Market Study Notice: Competition in Broadband Services” (the Notice).1 TELUS has requested that I review and respond to the Bureau’s questions related to the impact of resellers of residential broadband Internet services on competition. Specifically, my report responds to topics pertaining to resellers raised in questions (a) and (b) in the Bureau’s Notice. 7. The structure of this report is as follows. Section III provides a summary of my findings, which highlights that the competitive dynamics of the Canadian