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Competition in Telecommunications: Who Polices the Transition?

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Competition in Telecommunications: Who Polices the Transition? COMPETITION IN TELECOMMUNICATIONS: WHO POLICES THE TRANSITION? Bohdan S. Romaniuk* and Hudson N. Janisch** 1. THE PROBLEM DEFINED ................................ 563 II. ORGANIZATION OF THE TELECOMMUNICATIONS INDUSTRY 566 A. TraditionalNatural Monopoly Model ............. 566 B. The Advent of Competition ..................... 572 III. STATUTORY CONSIDERATIONS ............................ 582 A. Conduct in Regulated Markets and the Statutory Mandate of the CRTC ......................... 583 1 The CRTC Act ........................... 584 2. The Railway Act ......................... 584 (a) Mandate of the CRTC ................. 585 (b) The Jurisdictionof the CRTC ........... 586 (c) The CRTC's Authority to Regulate Market Conduct ........................... 587 (d) The Role of Competition Law in TelecommunicationsMarkets ........... 589 3. The National TransportationAct ............ 592 B. Statutory Mandate of the Competition Law Authorities ................................. 597 C. The Statutory Powers and Responsibilities of the Federal Cabinet and the Minister of Communications 601 1. Control Over Entry ....................... 601 2. The Cabinet Review Power ................. 602 3. The Government OrganizationAct .......... 603 Regulatory Economist. LL.B. University of Toronto, 1986. Currently student-at- law, Blake, Cassels & Graydon, Toronto. :* Faculty of Law, University of Toronto. The authors wish to thank the Connaught Foundation Programme on Legal Theory and Public Policy at the Faculty of Law, University of Toronto, for financial support and its Director, Michael Trebilcock, for his encouragement and helpful comments. Ottawa Law Review [Vol. 18:3 IV. THE ROLE OF THE REGULATOR ........................... 604 V. THE ROLE OF THE COURTS .......................... 618 VI. THE ROLE OF THE MINISTER OF COMMUNICATIONS AND FEDERAL CABINET ..................................... 623 VII. THE ROLE OF THE COMPETITION LAW AUTHORITIES ...... 628 VIII. THE REGULATED CONDUCT EXEMPTION .................. 634 A. The Farm Products Marketing Reference .......... 634 B. The CanadianBreweries Decision ............... 637 C . Jabour ..................................... 640 IX. TOWARDS LESS REGULATION AND A MORE MEANINGFUL ROLE FOR COMPETITION POLICY IN TELECOMMUNICATIONS MARKETS ............................................ 647 A. Competition as Slippery Slope .................. 649 B. The Incompatibility of Regulation and Competition .. 650 C. Streamlining Regulation ....................... 650 1. Regulatory Forbearance ................... 650 2. Prospective Areas for Regulatory Forbearance . 653 3. ComplaintProcedure ..................... 657 D. EquitableRegulation .......................... 659 X. CONCLUSION ..................................... 660 1986] Competition in Telecommunications I. THE PROBLEM DEFINED The Canadian telecommunications industry has undergone a pro- found transformation in the past decade. One of the most important features of this transformation is the shift from a largely monopolistic industry structure to one characterized by vigorous and sustained competi- tion in a growing number of market segments. Whatever the merits of this transformation from an economic perspective, unless it is accompanied by corresponding changes in the legislative-regulatory-judicial framework governing commercial conduct in what were once monopoly markets, the emergence of competition will inevitably raise a number of troubling legal questions. These include: (1) the extent to which the rights, duties, obliga- tions and especially liabilities of regulated firms may be altered by the very appearance of one or more rivals, whether regulated or not; (2) the change, if any, in the statutory rights and remedies available to dissatisfied monoply subscribers of firms which may now face competitors in other markets; (3) the effect, if any, of regulatory forbearance on the reach of Canadian competition law; and (4) in general, the question of whose responsibility' it is to police the market conduct of "competitors" (broadly defined to include incumbent suppliers and new and potential entrants) in the tele- communications industry during the transition to full-fledged competition. The objective of this article is to begin providing some answers to these questions, focussing in particular on the latter two. It must be emphasized from the outset that the issue of where respon- sibility resides for policing competitive conduct in telecommunications markets - especially when the possibilities for and reality of regulatory forbearance are factored into the equation - is far from academic or easy to resolve. In the first instance, the stakes involved in a multi-billion dollar industry such as telecommunications are enormous. If the introduction of competition, and most recently,- new competition legislation, together imply a new set of rules by which industry participants are to conduct their affairs, then those rules, and the identity of those responsible for enforcing them, should be clearly spelled out in advance. Elementary considerations of fairness and economic efficiency dictate that, at a minimum, former monopoly suppliers of telecommunications products and services as well as their new rivals should be aware of the potential legal (and collateral economic) consequences of different forms of market conduct in the new competitive environment. Corporate and residential users of telecom- munications products and services should similarly have some notion of how the new regime of competition in telecommunications may be expected to alter their rights and liabilities as consumers. Unfortunately, there exists at present no body of law (whether in the form of legislation, case law or the historical record of administrative rule- making) which even approaches a comprehensive statement or overview of I Actors include: the Canadian Radio-television and Telecommunications Commis- sion (CRTC); the competition law authorities (including the Director of Investigation and Research and the newly created Competition Tribunal); the federal Cabinet; the Minister of Communications; and the courts. Ottawa Law Review [Vol. 18:3 Canadian competition policy as it applies to the telecommunications industry. On the contrary, those sources of law which might normally be expected to guide the decision-making processes of telecommunications service providers and users alike as regards required, permitted, and/or illegal market conduct and the enforcement thereof, are so fragmented and lacking in consistency and overall perspective as to be all but incoherent. As will be seen,2 there exists at the federal level alone well over a dozen statutes (dating from 1880 to 1986) bearing directly upon one or another aspect of market conduct in various telecommunications markets. Yet, no single federal statute concerns itself exclusively with the telecom- munications industry as a whole. Rather, there exists a hodge-podge of legislation dealing with individual companies, individual market segments and different departmental and regulatory bodies. One series of statutes, for example, addresses particular aspects of the operation of certain major common carriers. Many companies are not dealt with at all. There are statutes focussing specifically on broadcasting, radio-communication and telegraphy, but not with their interrelation, either among themselves or with telephony. Other statutes concern themselves with different industries altogether, particularly railroads, touching upon telecommunications only incidentally, although with enormous impact. Still other statutes define the powers, duties and obligations of different persons in, and departments and agencies of the federal government in respect of telecommunications, with little if any mention of the public policy objectives of the governmen- tal intervention so authorized. Finally, there is the new competition legisla- tion3 which, if it applies to telecommunications activities otherwise within the statutory jurisdiction of the federal administrative apparatus, may be of immense significance to the industry. However, as will be elaborated below, the new Act is sufficiently vague as to leave in genuine doubt its relevance to all but a very small subset of competitively provided telecom- munications services. The confusion resulting from the piecemeal approach taken by federal legislation with respect to appropriate market conduct in the provision of telecommunications services and the division of respon- sibility for policing such conduct, unfortunately, has not been dispelled by judicial law-making nor by much administrative rule-making premised, it would appear, upon this judge-made law. Two initial points deserve mention in this regard. First, the prevailing assumption has been that the judicially created "regulated conduct exemp- tion" from this country's competition laws is very broad - much broader, it will be argued, than appears justified by the legislation itself. This, in turn, has arguably contributed to the regulatory activism of the past decade: the regulator interpreting its mandate in such a manner as to 2 See Section III of text (STATUTORY CONSIDERATIONS), infra. 3 See CompetitionAct (being part 2 ofAn Act to Establish the Competition Tribunal and to Amend the Combines Investigation Act and the Bank Act and Other Acts in Consequence Thereof, 1st Sess., 33d Parl., 1986 (assented to 17 June 1986)). 19861 Competition in Telecommunications preclude all but a consultative role for the competition law authorities.
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