WORLD TRADE
ORGANIZATIONWT/WGTCP/W/146
12 September 2000
(00-3518)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM CANADA
The following communication, dated 14 June 2000, has been received from the Permanent
Mission of Canada with the request that it be circulated to Members.
_______________
The Significance of Competition Policy Advocacy
In response to the "Note by the Chairman" of 31 March 2000, the Canadian government
agrees that it is important for the Working Group on the Interaction between Trade and Competition
Policy (WGTCP) to focus on concrete examples which help clarify both the costs and benefits of
implementing competition policies, notably for developing countries.  In our view, such an approachis a constructive application of the WGTCP's mandate which should contribute both to its work on
cooperation and communication as well as to its trade objectives.
In this light, the Canadian delegation is submitting to the WGTCP's meeting of
15-16 June 2000 the attached paper on "Competition Policy Advocacy and Regulatory Reform in the
Canadian Telecommunications Industry".  The intent of this paper is to respond to the Chair's
suggestion with respect to contributing to the creation and maintenance of a culture of competition bysharing with the Members of the WGTCP the fruits of our practical experience with respect to
competition policy advocacy, using the example of the work carried out in our telecommunications
sector.  At the same time, the paper makes clear that competition policy advocacy has an important
role to play in market reform, deregulation and privatization processes and hence market access, thus
contributing to the WTO's ultimate goal of increasing international trade.
At first glance, the advocacy role of a competition authority might seem somewhat of a
luxury, especially for a fledgling regime which faces numerous competing priorities in implementing
competition disciplines.  However, as should become apparent from our paper, competition policy
advocacy has the potential for a much broader impact upon general economic development.  Thispoint becomes more obvious when considering the impact of regulation on economic development.
While regulation of course has an important and legitimate function in government policy, it must be
recognized that it has its costs, both direct ones such as those linked to administration or compliance,
but also the indirect costs attributable to distor tions in the marketplace.  Competition policy advocacy
serves to highlight and clarify these costs to regulators, thereby encouraging a fuller evaluation ofboth the costs and benefits of regulation.  Similarly, once the decision has been made to de-regulate or
privatize a sector, competition policy advocacy can contribute to managing the difficult transition
phase from full regulation to open competition.  Finally, competition policy advocacy can also be
used to inform policy development more generally.
Such activities naturally come at a cost to a competition authority, which must divert
resources from its direct enforcement of competition priorities to the more indirect goal ofWT/WGTCP/W/146
Page 2
encouraging a competition culture more generally.  Nonetheless, it has been the experience of the
Canadian Competition Bureau that such an investment bears fruit in the long term by reducing the
challenges to competition which it might otherwise face, for example from de-regulation which
results in market foreclosure by a dominant privatized entity.  This, in turn, has important implications
for economic development.  Indeed, it is Canada's conclusion that the advocacy role of a competitionauthority is absolutely essential and should thus be adequately resourced and grounded in statutory
authority.
The Canadian delegation trusts that this example will prove instructive to the WGTCP, and
remains prepared to respond to any specific inquiries concerning our experience with competition
policy advocacy which Working Group Members may have.
_______________
Competition Policy Advocacy and Regulatory Reform
 in the Canadian Telecommunications Industry
I. INTRODUCTION
Over the past decade one of the most notable changes in Canada is the changing competitive
landscape in the telecommunications industry.  The rapid pace of technological change in how we
communicate (e.g., wireless telephones), the advances in engineering such as digital, signal
compression and sophisticated new switching equipm ent are lowering the cost of providing services
and opening the gates to new competition.
This paper sets out the Canadian experience regarding the evolution in thinking and approach
to regulation in the telecommunications sector.  Interventions by the Commissioner of Competition( "the Commissioner"; previously the Director of Investigation and Research ("the Director")), and the
decisions of the Canadian Radio-television and Telecommunications Commission ("CRTC") have
played a pivotal role in this regulatory reform  process, and in turn, dramatically changed the
competitive structure of the Canadian telecommunications industry.
The paper is organized as follows:  (1) advocacy provisions of Canada's Competition Act  (the
"Act");  (2) a description of the regulated conduct defence and the statutory provisions of the
Telecommunications Act  dealing with forbearance;  (3) the relationship between regulation and
competition;  (4) regulatory interventions of the Competition Bureau in the telecommunications
sector;  and (5) the Bureau's policy development activities related to telecommunications.  The
concluding section will offer some lessons learned by the Bureau in its advocacy work in the
telecommunications sector.
II. THE ADVOCACY PROVISIONS  OF THE  COMPETITION ACT
1
The Competition Bureau has a long history of advocating pro-competitive solutions before
regulatory bodies and commissions.  Sections 125 and 126 of the Competition Act  provide the
Commissioner with independent authority to advocate competition before federal, and upon
agreement, provincial regulatory agencies that make decisions that affect competition in particular
markets.  Section 125 of the Act enables the Commissioner to make representations in respect of
competition before any federal board, commission or other tribunal where such representations are
relevant to the matters under consideration and the factors that can be taken into consideration by the
board, commission or other tribunal in making its decision.  Section 126 allows the Commissioner to
                                                     
1 The Competition Act  can be accessed at  http://strategis.ic.gc .ca/SSG/ct 01250e.htmlWT/WGTCP/W/146
Page 3
make representations to provincial boards, commissions or tribunals, with the consent of the relevant
body.  Annex A (see attached) provides detail on the interventions made by the Competition Bureau
over the past quarter century.
III. THE RELATIONSHIP BETWEEN COMPETITION AND ECONOMIC
REGULATION
In many circumstances, market forces may produce outcomes that are neither economically
efficient nor satisfy certain social policy objectives.  In these situations a call is often made for some
form of regulation to correct the problem.  However, it must be recognized that regulation itself has
costs:  these include both direct costs such as administration and compliance costs as well as indirect
costs such as those caused by the distortions that regulation may produce in the marketplace.  It is the
existence of these costs that invalidates the assertion that market failure alone is sufficient to justify
the introduction of regulation.  It must also be shown that regulation, with all of its own inherent
costs, can improve upon the market outcome.  Of course, whether regulation can do this or not often
depends on the type of regulation that is being considered.
Experience in the telecommunications sector has shown that rate of return regulation 2 was
not effective in promoting economic efficiency because of the disincentives it created for firms to
reduce cost and innovate.  These distortions were particularly damaging in a dynamic sense because atbest they slowed the rate of innovation and the introduction of new technologies, and at worst, they
prevented new technologies or innovations from emerging.  Consequently, consumers may have been
late in receiving the benefits of products whose introduction were delayed from the market and denied
the benefits of products that never appeared.  It is largely due to these problems that Canada has
moved to a system of price cap regulation in recent years.
In addition to the past experience of using rate of return regulation to promote economic
efficiency, the costs of using regulation in general to promote social policy goals, such as affordable
universal telephone service, have recently become ever more apparent.  The pursuance of this and
other like-minded objectives has resulted in the misalignment of relative prices for various services
which in turn has imposed costs in terms of pricing inflexibility and delays in the introduction of new
products and services.  Moreover, arguably these social policy objectives have largely been achieved,
yet it has proven very difficult to realign prices to  reflect underlying costs which is crucial for setting
the proper environment for effective future competition.
From time to time, due to advances in technology and economic thinking, it comes to be
recognized that certain regulated services can be and should be competitively supplied.  At these
critical junctures policymakers face the difficult issue of how to manage the transition phase from full
regulation to open competition.  Often, the incumbent is perceived as having many advantages over
                                                     
2 Cost of service regulation (COS) compensates the firm for costs incurred plus a reasonable rate of
return on its investment.  The approach under COS regulation is to strike a balance between the interests offirms and consumers by setting prices equal to average cost.  Implementation problems in determining costs canresult when service requires the firm to make investments in durable assets, such as plant and equipment.  Theroot of this problem is the need to determine capital cost s.  The emphasis on the return to investors means that
an important aspect of COS regulation will be an allowance for - and control of - the rate of return. Embedded in
COS regulation will be regulation of the firm's rate of return.  Rate of return regulation allows for a ceiling on
the return to investment for a regulated firm in the provision of a service.  Rate of return is usually defined as netprofit after depreciation as a percentage of average capital employed in a business.  The rate of return may becalculated using profit before or after tax, and there are a number of other variations of the concept. Profit maybe defined as net of tax but not of depreciation and interest;  i.e., profits available for equity shareholders or asoperating profit, i.e., to exclude investment income and capital gains.  COS regulation has been criticized for
providing inadequate incentive for cost efficiency, the introduction of new products and services and an onerous
regulatory burden.  For a fuller elaboration of this issue, please see Jeffrey Church and Roger Ware, Industrial
Organization: A Strategic Approach, Toronto: McGraw-Hill, 2000, p. 829-887.WT/WGTCP/W/146
Page 4
new entrants stemming from its past experience, financial resources and control over network
elements, access to which is essential for the survival of competitors.  While it is often necessary to
implement some regulatory measures in order to "level the playing field", regulators need to be aware
that this type of asymmetrical regulation has potential costs.  Namely, it may unduly deny incumbent
firms the pricing flexibility they need in order to  respond to the competitive pressures they now face
in the market.
The process of deregulation is very important in an industry like telecommunications which is
characterized by rapid technological change and where the boundaries between telecommunications,
computing and television distribution are disappearing.  In this environment, the costs to the overall
economy become even greater when the regulatory scheme is out of step with technological
advancements.
The debate with respect to the relationship between competition authorities and the regulator
in the telecommunications sector is intensified by convergence.  Broadcasting and
telecommunications worlds are penetrating each others markets because of the major impact of digital
technology and the increasingly wide array of new products and services it brings.  This means that as
convergence evolves, competition authorities and the regulators are increasingly forced to navigate
their way through highly complex issues in order to  come to grips with the issue "if competition, then
how much and how soon".  Ultimately, how comp etition authorities and regulators work out
compromises with each other will determine the shape of the telecommunications sector and thereby
the extent to which users will benefit from a modern telecommunications system, and by extension,
therefore, the consequent impact on economic growth and adaptability of the economy.
IV. REGULATED CONDUCT DEFENCE (RCD)3
In a number of competition regimes, firms which engage in practices which may be
considered anti-competitive have sought protection in the courts by advancing a legal "regulated
conduct" doctrine.  The regulated conduct defence (RCD) applies when a specific activity is
authorized or carried out in keeping with valid regu lation; such activity is deemed to be in the public
interest and cannot be found to be in violation of the Competition Act .  This defence applies as long as
the regulator has exercised its authority and has not been frustrated in its operations by the conduct or
activity in question.4
                                                     
3 The following is based on Robert D. Anderson, Abraham Hollander and Joseph Monteiro,
"Regulatory Reform and the Expanding Role of Competition Policy in the Canadian Economy, 1986-1996",Review of Industrial Organization , Volume 12, nos.1-2, April 1998, pp. 177-204; Gerald Robertson, W. T.
Stanbury, Gernot Kofler and Joseph Monteiro", Competition Policy, Trade Liberalization and Agriculture", a
paper prepared for the Third Agricultural and Food Policy Systems Information Workshop, Tucson, Arizona,1997; and Alan Gunderson, Joseph Monteiro and Gerald C. Robertson, "Competition Bureau Advocacy in theCanadian Telecoms Sector", Global Competition Review , June/July 1999, p 20-268.
4 The mere fact that government regulation exists in a given sector does not in itself preclude the
application of the Competition Act .  Furthermore, whether or not such a defence may be applicable depends
upon a careful examination of the nature of regulation and the facts of the particular case under review.  TheCommissioner of Competition has identified four elemen ts necessary for the defence to be considered: the
relevant provincial board or federal legislation must be validly enacted;  the activities must both fall within the
scope of the relevant legislation, but also be specifically authorized;  the authority of the regulatory body must
have been exercised;  and finally, the activity or cond uct in question cannot have frustrated the  exercise of
authority by the regulatory body.  The RCD was primarily developed in the context of the criminal lawprovisions.  The applicability in the context of the non-criminal provisions of the Act is less clear.  It has been
suggested that the civil provisions may be concurrently applicable to particular conduct, along with relevantregulatory statutes.WT/WGTCP/W/146
Page 5
Forbearance5
A related concept to the RCD is regulatory forbearance, which is of significance to the work
of the Competition Bureau in the telecommunications sector.  Regulatory forbearance may be
generally defined as a practice of reducing or possibly eliminating rules or practices imposed on anindustry.  In this particular circumstance, the re gulator explicitly withdraws from regulation of a
specific activity, normally pursuant to specific legislative provisions that permits it to do so, and based
on a determination on the regulator's part that such action serves best the purposes of the relevant
legislation. 6   The regulator may determine that market forces and outcomes serve the purposes of the
relevant legislation as well if not better than regulation.  By forbearing, the regulator does not abdicateor transfer his responsibilities but merely refrains from certain forms of market intervention.  If this
decision turns out to be incorrect, the status quo ante  can be restored.  As a result, forbearance may be
conditional or unconditional, further, it may apply to some sellers in a market or to all of them.
7
                                                     
5 The following is based on Gunderson, Monteiro and Robertson,  supra , note 3.
6 See Richard J. Schultz and Hudson Janisch, Freedom to Compete: Reforming the
Telecommunications Regulatory System , (Bell Canada Corporate Affairs, March 1993).
7 The Telecommunications Act  (Telecommunications Act,  S.C. 1993) makes a distinction between the
two conditions under which the Canadian Radio-television and Telecommunications Commission (CRTC) may
forbear, and where forbearance is mandatory.  Under section 34(1) of the  Telecommunications Act ,
"The Commission may make a determination to refrain, in whole or in part and conditionally or
unconditionally, from the exercise of any power or the performance of any duty under sections 24(conditions of service), 25 (rate approvals), 27 (just and reasonable rates), 29 (approval of workingagreements on interconnection) and 31(limitations on liability) in relation to a telecommunicationsservice or class of services provided by a Canadian carrier, where the Commission finds as a question
of fact that to refrain would be consistent with the Canadian telecommunications policy objectives."
Under section 34(2), by contrast, forbearance is mandatory when the
"Commission finds as a question of fact that a tel ecommunications service or class of services provided
by a Canadian carrier is or will be subject to competition sufficient to protect the interests of users, the
Commission shall  make a determination to refrain, to the extent that it considers appropriate,
conditionally or unconditionally, from the exercise of any power or the performance of any duty undersections 24, 25, 27, 29 and 31 in relation to the service or class of services."
However, section 34(3) has a constraining effect on the regulator whereby
"The Commission shall not make a determination to refrain under this section in relation to a
telecommunications service or class of services if the Commission finds as a question of fact that torefrain would be likely to impair unduly the establishment or continuance of a competitive market forthat service or class of services."
The issue of whether a decision to forbear, in whole or in part, is sufficient to eliminate the availability
of the RCD has not been resolved.  There is support in some quarters for this interpretation (i.e., that the Act
does apply), Hunter et al argue that there may be some uncertainty particularly in cases of partial rather than
total forbearance from regulation of particular activities.  (Please see Lawson A.W. Hunter et al , All We Are
Saying, Is Give Competition A Chance – The Role of Co mpetition in Industries in Transition from Regulation to
Competition  (Paper presented at a Roundtable on the Competition Act, Ten Years On: A Stocktaking,
University of Toronto Faculty of Law, December 8, 1995).  Furthermore, the CRTC retains the authority toreview, rescind or vary its forbearance orders, thereby raising the possibility of re-regulation.  Experience withthis concept and jurisprudence on the matter will provide essential insights on how the RCD applies to suchsituations.WT/WGTCP/W/146
Page 6
V. COMPETITION BUREAU INTERVENTIONS IN THE TELECOMMUNICATIONS
AND BROADCASTING SECTORS
The promotion of competition in the Canadian telecommunications markets has been a
priority of the Competition Bureau for more than a quarter of a century.  Real momentum on this front
began with liberalization in the terminal attach ment market, moving forward to long distance
competition and now competition in local telecommunications services.
The following section discusses some of the more  significant interventions of the Competition
Bureau in the 1990's which have facilitated an opening up of telecommunications markets to
competition. Between 1991 and 1999 the Competition Bureau made 31 interventions in the
telecommunications and  broadcasting sectors.  The issues raised have ranged from competition in the
long distance telephone market, pay telephones, private business lines, the policy framework for
telecommunications markets to competition, and the highly complex and important issue of openinglocal telecommunications markets moving to competition, including network interconnection,
unbundling of essential facilities and services and rebalancing and restructuring local rates.
Throughout these interventions the Bureau has advocated that certain fundamental principles should
govern the regulatory framework for the development of competition in communications services.  In
summary, these principles are:
• maximize the reliance on competition and market forces at the outset;
• as a corollary to the first, minimize regulation for incumbents and avoid imposing
economic regulation on the new entrants;
• adopt market-based pricing as soon as possible in local telecommunications and, if
necessary, introduce specific, targeted mechanisms to address social policy
objectives;
• establish clear rules governing incumbents' obligations to provide access to their
networks by competitors and adopt appropriate pricing principles to induce efficient
competition;
• establish timely and effective dispute resolution mechanisms to ensure incumbents do
not attempt to delay access to their networks; and
• liberalize foreign ownership rules for communications networks to assist in the rapid
construction and development of communications networks.
1. Long Distance Competition (CRTC 92-12)
8
In June 1992, the Commissioner intervened before the CRTC regarding the issues of
competition in the long-distance market, as well as alternative types of interconnection, the basis for
rates to be paid for interconnection and their relationship to costs, existing tariffs, productivity, and
quality of interconnection.
The principal theme of the Commissioner's intervention was that competition was feasible
and in the public interest, and that an open entry model establishing interconnection would create
                                                     
8 The Canadian Radio-television and Telecommunications Commission, Telecom Decision 92-12,
Ottawa: June 12, 1994.  The Commission’s decision also liberalized previously established rules governingresale and sharing of private lines, extending them throughout all Canada, and also permitting the resale of WideArea Telephone Service.  Please see http://www.crtc.gc.ca  for a full listing of CRTC public notices, decisions,
and press  releases.WT/WGTCP/W/146
Page 7
competition where members of Telecom Canada currently enjoyed a monopoly position.  The
Commissioner's submission argued that "a single in tegrated monopoly provider had failed to respond
fully to the diverse needs of its customers", and that competition would expand consumer choice,
stimulate productivity gains, and enhance network efficiencies without necessarily jeopardizing the
affordability of local telephone services.
The CRTC's report took note of  the Commissioner's views concluding that "competition (in
the long distance telecommunications market) will result in greater choice, supplier responsiveness
and services diversity, particularly in the business sector and on high density routes ... (and that
competition) not only can be expected to increase pressure to reduce rates, but increase choice and
supplier packages tailored to address the specific needs and application of a greater variety of user
groups".
2. Long-Distance Forbearance
In November 1996, the Commissioner intervened in a proceeding established by the CRTC to
determine if the market for long distance telephone services was sufficiently competitive to warrant
forbearance from regulation by the CRTC of the services provided by dominant carriers.  The
Competition Bureau's  submission argued that the market for long distance services was sufficiently
competitive to warrant broad forbearance of these services.  With the exception of ensuring thataccess to transmission capacity be made available for resale and sharing for a period of two or more
years, the Bureau advocated full deregulation of long distance services.
In its analysis, the CRTC adopted the concept of market power 
9 as the standard by which to
determine whether a market is, or is likely to beco me, workably competitive.  The Commission found
that "a determination to forbear from regulation of  the services provided by the Stentor companies 10
... would, under subsection 34(1) of the Telecommunications  Act, be consistent with the Canadian
telecommunications policy objectives, including section 7(c) of the Act - to enhance the efficiency and
competitiveness of Canadian telecommunications, and section 7(f) of the Act - to foster increased
reliance on market forces for the provision of telecommunications services and to ensure that
regulation, where required, is efficient and effective".  In addition, the Commission expressed theview that it would be appropriate under subsection 34(2) of the Telecommunications Act  to forbear as
it found that the toll and toll free markets were subject to a level of competition sufficient to protect
the interests of users of toll and toll free servic es, and that "to forbear would not impair unduly the
establishment or continuance of a competitive market for toll or toll free services".  The Commission
did find "that the retention of a ceiling on basic toll rates would be appropriate .. (as this) ... would
preclude the Stentor companies from generating increased revenues from the basic toll sector of the
toll market which could be used to finance below cost pricing in areas of the market which are highlycompetitive.  The retention of a ceiling would also provide consumers in the less competitive
non-equal access areas with an additional safeguard against unjust or unreasonable rate increases in a
de-tariffed environment". In an effort to ensure that basic long distance rates continued to be "just and
reasonable", the Commission placed a ceiling on the telephone companies' overall rates for basic long
distance service for the next four years.  In addition, it required telephone companies to provide
                                                     
9 The Commission cited as an accepted definition of market power the ability of a firm to impose
unilaterally and profitably a significant, non-transitory pr ice increase within the relevant market.  In assessing
whether carriers possess market power, the Commission considered a number of factors:  (i) market shares ofthe dominant and competing firms;  (ii) demand conditions;  (iii) supply conditions;  and (iv) evidence ofrivalrous behaviour.
10 AGT Limited, now TELUS Communications Inc. (TCI), BC TEL, Bell Canada (Bell), The Island
Telephone Company Limited (Island Tel), Manitoba Telephone System, now MTS NetCom Inc. (MTS),
Maritime Tel & Tel Limited (MT&T), The New Brunswick Telephone Company, Limited (NBTel) andNewfoundland Telephone Company Limited, now New Tel Communications Inc. (New Tel) (collectively, theStentor companies, i.e., incumbent local exchange carriers (ILECs)).WT/WGTCP/W/146
Page 8
reasonable advance notice to subscribers of any price increases to basic long distance rates, and to
publish those rates.
3. Local Competition and Interconnection and Unbundling (Open Entry Model)
(a) Rate Rebalancing
In 1992 the CRTC launched a review of its approach to the regulation of telephone companies
that provide telephone service in order to ensure that "the manner in which it regulates is efficient,
effective and in the public interest".11  At the time, the CRTC noted that "technological change and
increasing competition (had) significantly altered th e nature of the telecommunications industry (and
that) changes had allowed the telephone companies under its jurisdiction that provide local exchange
service to develop a wide range of new audio, video and high-speed data services to satisfy the
demands of both business and residence consumers in the local and long distance markets".  However,
despite the fact that the aggregate effect of previous CRTC decisions had allowed more competition ina number of market segments, the telephone companies continued "to maintain effective control of the
provision of network access and local services and to dominate the public long distance market".
The Commission sought proposals dealing with inter alia  the most appropriate form of
monopoly regulation, alternatives to  traditional rate ba se rate of return regulation, and incentives for
telephone companies to be innovative.
In his submission, the Commissioner stressed that:  (1) pricing based on costs is necessary in
order to improve economic efficiency, deter uneconomic entry, send proper investment signals and
ensure that competition in local markets is not prec luded by below-cost pricing;  (2) a pricing system
that subsidizes users regardless of need is inefficient;  and (3) rate restructuring is unlikely to
significantly affect the goal of universality, given the extremely low percentage of household incomespent on local telephone service, relative to the value derived, and the offsetting effects of lower long
distance rates on subscribers' monthly bills.
The Director also stated that the CRTC should forbear from regulation as soon as possible in
markets that are workably competitive.  Further, if there is some question as to the degree of
sufficiency of competitive forces in a particular market, the Commission should err on the side offorbearance, i.e., it should cease regulating and allow competition to unfold.  The Director also noted
that section 34 of the Telecommunications Act   requires the Commission to forbear not only when it
finds that a market is workably competitive, but also when it finds that a market will likely become
competitive in the future.  The Director also submitted that public policy should not concern itself
with market power  per se , but rather with the abuse of market power.
In its decision
12, the Commission concluded that the subsidy from long distance to local
service "is substantially larger than necessary to  maintain affordable access to telecommunications
and imposes an inequitable and unnecessary burden on many long distance users". In its view,
"meaningful regulatory reform (could not be) un dertaken without a significant reduction in the
subsidy that users of long distance services are currently providing in order to keep rates for
local/access service low". The Commission observed that "the objective under the
(Telecommunications ) Act of affordable telecommunications applies to long distance services, as well
as local services, and is of the view that maintaining contribution and toll rates at higher levels than
necessary would be inconsistent with the achievement of that objective".  The Commission stated that
while productivity improvements and revenues from new optional services would help to reduce the
local/access shortfall, these factors alone would not be sufficient to bring the subsidy down to a more
appropriate level.
                                                     
11 Telecom Public Notice CRTC 92-78 (Public Notice 92-78).
12 CRTC Telecom Decision 1994-19.WT/WGTCP/W/146
Page 9
The CRTC expressed concern that while penetration is the most reliable indicator of
affordability, many low-income subscribers, particularly the majority who do not make substantial use
of long distance service, will have less disposable income after rate rebalancing.  As a result, the
CRTC constrained the increase on the local side to a specific dollar amount and required that rate
rebalancing be implemented  over a transitional period to further mitigate the impact on subscribers. 13
(b) Interconnection and Unbundling
In April 1996, the CRTC initiated proceedings to establish the necessary frameworks for co-
location, local number portability, unbundling and interconnection. 14  The purpose of the proceedings
was to give effect to the conclusions reached by the Commission in Decision 94-19 that increased
local competition is in the public interest.
In his submission, the Commissioner argued that the objective of interconnection and
unbundling must be the maximization of the benefits to the public that flow from competition.  TheCommissioner submitted that the sharing of the costs of facilities between two interconnecting
networks provides an incentive to cooperate in  minimizing the costs of joint interconnection.
In its decision, the Commission set out the framework for facilitating entry of new providers
into the residential and business local service market.  The thrust of the Commission's decision was to
create conditions for robust and genuine competition, thereby encouraging industry to offer newservices which will better respond to the needs of consumers.
The key features of the decision were that:  (1) telephone companies were required to
unbundle essential components of their local networks so that new entrants can  have access to these
components at reasonable rates;  (2) all local telephone companies were mandated to provide
interconnection with one another to ensure efficient interconnection for all consumers;  (3) dominanttelephone companies were to be regulated through price caps effective 1 January 1998, for an initial
period of four years; consumer rates charged by the new entrants were not to be regulated;  (4) limits
were placed on the role of resale in order to encourage facilities-based competition;  and (5) cable
companies were to be allowed to enter the local telephone market at the time of the decision, and
telephone companies were permitted shortly thereafter to apply for broadcasting licences to enter thedistribution market.
VI. COMPETITION BUREAU'S POLICY DEVELOPMENT ACTIVITIES IN THE
TELECOMMUNICATIONS SECTOR
In addition to its formal submissions to the CRTC, the Competition Bureau also engages in
efforts to influence public policy in the telecommunications sector.  These policies are very largely
the policies of the Federal Government, but the Bureau also participates in the policy development
activities of several international bodies, such as the Competition Law and Policy Committee of theOECD.
Policy development activities arise not just from the initiative of the Bureau, but also because
its advice is frequently sought by others as telecommunications policy is developed.  The Bureau tries
to choose those policy activities, such as regulatory reform in the telecommunications sector, in which
it has a comparative advantage and where there is reasonable chance of having a beneficial effect,consistent with the objectives of the Competition Act .
                                                     
13 Effective January 1, 1995 rate rebalancing called for three annual increases of $2 per month in rates
for local service, with corresponding decreases in rates for basic toll service.
14 Implementation of Regulatory Framework - Local Interconnection and Network Component
Unbundling – Oral Hearing, Telecom Public Notice CRTC 96-11 The Commission held an oral public hearing
to receive views in August- September 1996WT/WGTCP/W/146
Page 10
From the Bureau's perspective there is a trade-off between devoting resources to policy
development and spending those resources enforcing the Competition Act  or appearing before
regulatory bodies such as the CRTC.  The advocacy of competition in the policy development process
can replace or reduce the need for enforcement actions or regulatory interventions.  In contrast, they
can also increase the responsibilities of the Bureau in terms of the amount of economic activity whichis subject to the Competition Act .  Certainly this has been the case in the telecommunications sector.
In the telecommunications sector, the Bureau's policy development activities have taken
various forms:
(i) Intradepartmental Policy Activities
The Competition Bureau participates in policy development activities within Industry Canada,
the department within which the Bureau is locate d.  The involvement of Bureau staff with the
telecommunications sector branch can be extensive, in particular in the preparation of regulatoryinterventions before the CRTC.  The Bureau also participates in the establishment of positions
adopted by Industry Canada on specific issues that arise.
(ii) Interdepartmental Policy Development Activities
Policy making is a collaborative effort, bringing together many departments and agencies
with diverse interests.  Activities may include the preparation, analysis, discussions and briefings ofdraft policy papers from other departments on telecommunications, the review of draft legislation and
Memoranda to Cabinet.  The Bureau is also extensively involved in the development of the positions
taken by the Federal Government in international institutions.
(iii) Participation in International Bodies
The Competition Bureau participates in discussions involving competition policy issues
arising in the telecommunications sector.  Bureau of ficials are active participants in the activities of
the OECD, APEC, UNCTAD and INTELSAT.
(iv) Speeches and Seminars
The Commissioner of Competition and senior personnel of the Bureau are frequently asked to
appear before and make presentations to the business and academic communities.  Bureau staff alsoparticipate in the deliberations of Committees of the House of Commons and the Senate on
telecommunications issues.  These activities help not only to diffuse the Bureau's own analysis and
research but also to bring back into the Bureau the ideas and analyses of others.
(v) Research
The Bureau conducts its own research, much of which is made available in papers published
under its own auspices or Industry Canada or in scholarly journals.  It also contracts academics and
other independent experts to undertake research on competition policy related issues.
(vi) Outreach
The Bureau conducts regular meetings with individual firms, industry associations and
industry experts in the communications industry to exchange views and experiences on the evolution
of this sector of the economy.  In addition, Bureau staff regularly attend domestic and international
conferences and exchange views with competition polic y and regulatory officials in other jurisdictions
to keep up to date on market and technological de velopments.  These are extremely useful exercises
as they provide the Bureau staff the opportunity to benefit from the insight of corporate and otherWT/WGTCP/W/146
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specialists who have detailed knowledge about ch anges in the market and to discuss the likely
development and impact of new services and products.
VII. CONCLUSIONS AND LESSONS LEARNED
The advocacy role provided under Canada's Competition Act  has permitted the Competition
Bureau to successfully promote competition principles as a key focus in the decision-making processof the Canadian Radio-television and Telecommuni cations Commission.  In addition, the Commission
has been willing to forbear in a number of key decisions.  This is a natural response to rising demands
for greater competition in the telecommunications sector.  The nature and thrust of the pro-
competitive case of the Bureau is found in the Commission's conclusions and decisions.
The Competition Bureau's advocacy of competition in the telecommunications sector has had
important results.  Introducing competition into the telecommunications market has encouraged the
entry of new firms, reduced prices and increased the variety of products and/or services forconsumers.  This is most obvious in the market for long distance services which has seen the
emergence of new entrants and the growth in the num ber and assortment of pricing plans.  With the
introduction of competition in long distance services, the average rate per conversation-minute in
1998, expressed in real terms, was one-sixth the rate in 1970.  Accompanying this fall in prices was a
nine-fold increase in volume.  And while competitio n in the local telephony market has been slow to
develop, it can be expected that the benefits will be even greater than those derived from deregulation
in the long distance market.
Despite the positive results, it has at times been a difficult and frustrating exercise.  The
Bureau has learned a number of lessons.
1. Advocacy on the part of competition authorities is  absolutely essential if the regulator is to
obtain a clear appreciation of the benefits that can be derived from competitive markets (and
conversely the losses of not adopting a pro-competitive solution).  No other participant in
regulatory reform is likely to have the knowledge and expertise of a competition authority to
develop and make proposals based on well-founded and accurate analysis that can effectively
counterbalance entrenched interests.
2. The competition authority needs to develop and maintain a good working relationship with
the regulator.  This allows for a free exch ange of ideas, analysis and other relevant
information that can prove critical to the regulator's decisions.  At times, by its very nature,
advocacy can be confrontational, but it should not be allowed to damage this relationship.
3. The advocacy must be public, because its major purpose is to build up a constituency for
pro-competitive reform.  Competition authorities have very few allies at the beginning of the
reform process, other than the consuming public at  large.  They need to find ways to garner
public support for pro-competitive reform if it is to achieve credibility as an impartial expert
in competition issues which are at the core of regulatory reform.  Sound and effective
advocacy action can best demonstrate that the competition authority is advancing the general
interest.
4. The competition authority needs to be adequately resourced to ensure that its advocacy efforts
are well researched and prepared.  Its work must be of the highest quality to withstand the
scrutiny of all participants.
5. The Bureau's experience in advocacy implies a specific institutional arrangement. As noted
above, the Act provides explicit statutory authority for the Commissioner to make
interventions before federal and, when requested, provincial regulatory agencies.  We believeWT/WGTCP/W/146
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that statutory authority to intervene is a pre-condition to effective, timely and meaningful
advocacy.
6. Finally, advocacy is but half the battle.  Once markets are opened, it is important that
competition authorities remain vigilant to an ti-competitive activities that can thwart the
benefits from deregulated and  liberalized markets.  Advocacy needs to be supplemented andreinforced with enforcement activity.WT/WGTCP/W/146
Page 13
ANNEX A
The following table refers to recorded cases in which written submissions have been made by the
Competition Bureau to boards, commissions or similar entities from the period 1976 to March 1999.
Sectors No Yes Number
Telecommunications /g252 65
Broadcast TV /g252 1
Cable TV /g252 8
Satellites /g252 7
Postal Services /g252 1
Passenger Air Transport /g252 28
Air Freight Transport /g252 1
Road Freight Transport /g252 12
Intercity Bus /g252 3
Railroad – passenger /g252 4
Railroad – freight /g252 4
Maritime Transport /g252 2
Local Taxi /g252 1
Local Bus
Retail Distribution
Pharmacies
Newspaper Distribution
Electricity /g252 11
Gas /g252 15
Oil /g252 2
Professional services generally, including: /g252 12
- Lawyers' services
- Doctors' services
- Accountants' services
- Dentists' services
- Architects' services
- Engineers' services
- Opticians' services
Agriculture /g252 13
Financial Services /g252 11
Insurance
Product Standards
Construction
Environment /g252 1
Other: Pharmaceutical Patent Policy /g252 1
Other: Copyright Act /g252 1
Other: Economic Union /g252 1
Other: Beer /g252 1
Other: Dumping / Imports / Tariff /g252 14
Other: Radio Common Carrier /g252 10
Other: Transport (General) /g252 1
Other: Petroleum /g252 1
Other: Special Import Measures Act /g252 1
Other: Franchise Disclosure Legislation (provincial) /g252 1
Total 234
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