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Canadian Radio-television and Telecommunications Commission

Proceeding Nº 2006-14

Review of regulatory framework for wholesale services and definition of essential service

Report of Michael Osborne6 September 2007

AffleckGreeneOrr LLP

Affleck Greene Orr LLP created the original version of the document,which has been translated by a third party.

Contents

I Executive summary

II Introduction

A. Scope of this reportB. My qualificationsC. Terminology

(1) "Essential facilities"(2) "Facilities-based"

III Legislative and regulatory framework

A. Telecommunications Act 1993B. Directions to the CRTC

(1) Binding nature of directions(2) Policy Direction(3) Local Forbearance Variation Order

IV Essential facilities in Canadian competition law

A. Abuse of dominance

(1) Dominance(2) Practice of anti-competitive acts(3) Substantial lessening or prevention of competition(4) Remedies(5) Is denial of access to an essential facility ananti-competitive act?

B. Refusal to deal

(1) Inadequate supply of a product in a market(2) Business substantially affected


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(3) Because of inadequate competition(4) Pre-conditions to relief: usual trade terms and amplesupply(5) Adverse effect on competition(6) Remedy(7) Is section 75 an essential facilities provision?

C. Forum shopping

V Defining "essential facilities" for purposes of telecommunicationsregulation

A. Past CRTC definitions

(1) Review of Regulatory Framework(2) Local Competition decision(3) Subsequent decisions

B. The Commissioner of Competition’s definition

(1) The elements of the definition(2) The downstream dominance requirement(3) The "strict" and "weaker" interpretations of thenon-duplicability element(4) Forbearance based competitive effects test

C. Definitions proposed by the parties

(1) The Companies’ definition(2) Telus’ definition(3) Rogers’ definition(4) MTS Allstream’s definition(5) Primus’ definition(6) Cogeco’s definition(7) Shaw’s definition

D. Analysis and conclusions

(1) Should the CRTC’s test be the same as the competitionlaw test?(2) What test should be used?(3) Vertically integrated(4) Upstream dominance(5) Downstream dominance?(6) Essentiality(7) Non-duplicability(8) Refusal to grant access(9) Access is feasible(10) Substantial prevention or lessening of competition(11) How many networks do we need?

VI What facilities are essential?

A. Characteristics of the telecommunications industry in 2007

(1) Transition to a layered network architecture based on IP(2) Residential competition comes from cable, not resellers(3) Product and geographic markets(4) Wireless

B. Ex post or ex ante regulation?


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C. InterconnectionD. Wholesale access

(1) Residential markets(2) Business markets

E. Support structuresF. Next generation facilities

VII How should essential facilities be priced?

A. Regulate or negotiate?B. Pricing principles

VIII When should future reviews be conducted?

IX What regulatory régime should apply to non-essential services?

I Executive summary

1 A review of the law in Canada as it pertains to abuse of dominancesuggest that it is not certain whether denial of access to an essentialfacility can constitute an anti-competitive act, or what the test would be.

2 Nevertheless, I propose that the CRTC adopt a test mandating accessto essential facilities and services that is based on the test derived fromUS jurisprudence, with modifications to make it consistent with Canadiancompetition law.

3 As all parties agree, it is clearly in the public interest that the CRTCshould continue to mandate access to interconnection services.

4 So far as wholesale access services are concerned, residential andbusiness end-user markets are different. In residential markets, accessshould no longer be mandated for areas where facilities-basedcompetition from cablecos is present.

5 In business markets, there appears to be less facilities-basedcompetition. The CRTC should adopt an ex post regulatory approachthat allows wholesale access-dependent competitors to demonstrate thatcontinued is necessary in particular markets.

6 There is also broad agreement among the parties that access tosupport structures should continue to be mandated.

7 To set terms of access to mandated facilities, the CRTC should adopta "negotiate first" approach with strict timelines and speedy final offerarbitration.

8 In theory, periodic reviews should not be necessary, as the partiescould apply for mandatory access, or to terminate mandatory access, asthe case may be. Nevertheless, the CRTC should conduct a review infive years to ensure that the principles governing mandatory accesscontinue to be respected.

9 The CRTC should phase out mandatory access to non-essentialfacilities.

II IntroductionA. Scope of this report


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10 I have been asked to prepare provide comments andrecommendations from the perspective of a practising competition lawyerrelating to the questions posed at paragraph 26 of Telecom Public Notice CRTC 2006-14. The issues, in brief, are:

a) What definition should the CRTC adopt for "essentialservices"?

b) What facilities, functions and services should beconsidered essential?

c) What pricing principles should apply to essentialservices?

d) When should future reviews be conducted?

e) What regulatory regime should apply to non-essentialservices?

11 The CRTC has also asked me to comment on the competition lawrégime applicable to services or markets the CRTC forbears fromregulating.

B. My qualifications

12 This report represents my views on the above issues, and not thoseof the CRTC or any party to the proceeding.

13 I am a barrister and solicitor called to the bar in Ontario in 1998. Ipractise primarily competition law and commercial litigation, but also someconstitutional law (division of powers, taxation powers, etc), andadministrative law. I am the chair of the Reviewable Matters / UnilateralConduct Committee of the National Competition Law Section of theCanadian Bar Association. I am also an active member of the AmericanBar Association, particularly the Sherman Act Section 2 committee. Iwrite frequently on competition law and commercial litigation topics in ourfirm newsletter, The Litigator,1 and, less frequently, for otherpublications. Most recently, I assisted in editing the CBA’s firstcompetition law book, tentatively titled Fundamentals of Competition Law. I attach a copy of my curriculum vitae.

14 I have been following developments in the telecommunicationsindustry since Rogers announced its acquisition of Microcell. At that timeI subscribed to press releases from several telecos. Last year, I wasresponsible for leading the team that drafted the CBA Competition LawSection’s comments on the Competition Bureau’s draft InformationBulletin on the Abuse of Dominance Provisions as Applied to theTelecommunications Industry ("TAB").

15 I have been involved in four major contested proceedings in theCompetition Tribunal and numerous matters that did not result inproceedings. I will mention a few of the more relevant cases that I haveworked on.

16 I acted for the Commissioner (as junior) in the merger of Air Canadaand Canadian Airlines in 1999. This case is of some significancebecause the Commissioner obtained a number of undertakings from AirCanada that suggest an essential facilities approach. Air Canada agreedto grant access to Aeroplan to other carriers; surrender certain airportfacilities, including gates, ticket counters, and slots at Pearson; and


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enter into interlining and joint fare agreements with other carriers.2

17 I also acted, again as second chair, in the Commissioner’s abuse ofdominance case against Air Canada, which alleged that Air Canada hadcut fares and increased capacity in order to deter entry in the easternCanada market by WestJet and CanJet. Only the first phase of this casewas heard by the Competition Tribunal. It concerned the definition of AirCanada’s avoidable costs for purposes of determining whether AirCanada was operating below its avoidable costs.

18 Commission of Competition v. Canadian Waste Services involved amerger between two landfill companies. I acted for the Commissioner, assecond chair, in a challenge to CWS’ acquisition of the Ridge Landfill insouthwestern Ontario. We argued, and the Tribunal accepted, themerger would substantially prevent competition, which makes it of somerelevance to the present proceeding.

19 Finally, and most recently, I acted for B-Filer Inc. in its applicationunder section 75 (refusal to deal) to force Bank of Nova Scotia toprovide B-Filer with certain banking services that B-Filer said wereessential to its business. This was the first private application undersection 75 to proceed to a full hearing.

20 I do not have any formal training in economics. However, competitionlaw is a mixture of law and economics. The language and conceptsemployed by economists have entered into the vocabulary ofcompetition lawyers such as me because these concepts have been adopted in the caselaw. Where I use and discuss economic concepts, itis because they have been adopted by the cases, and not because Ipretend to any expertise in the underlying economics.

C. Terminology

(1) "Essential facilities"

21 In its notice and past decisions, the CRTC has used the term"essential services", which includes facilities, functions and services. TheTelecommunications Act distinguishes between "telecommunicationsfacilities" and "telecommunications services".3

22 As the term usually used by competition lawyers is "essentialfacilities", I shall use that term, but with the same meaning as "essentialservices" as the CRTC uses that term. When referring to the "essentialservices" as defined by Telus, I use the term "essential retail services".

(2) "Facilities-based"

23 As discussed below, the government re-defined "facilities-based" toinclude carriers that lease facilities, in its order varying the CRTC’s Local Forbearance decision.

24 In this report I use "facilities-based" in the same way as theCompanies use "end-to-end facilities-based"; that is, a carrier that usesits own facilities and does not lease them from another carrier..

III Legislative and regulatory framework

25 This proceeding is subject to a patchwork of legislation andsubordinate legislation whose provisions are not wholly internallyconsistent. I will attempt, in this section, to make some sense of them.


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A. Telecommunications Act 1993

26 Canada’s telecommunications policy is set out at section 7 of theTelecommunications Act 1993:

Objectives

7. It is hereby affirmed that telecommunications performs anessential role in the maintenance of Canada’s identity andsovereignty and that the Canadian telecommunicationspolicy has as its objectives

(a) to facilitate the orderly development throughout Canadaof a telecommunications system that serves to safeguard,enrich and strengthen the social and economic fabric ofCanada and its regions;

(b) to render reliable and affordable telecommunicationsservices of high quality accessible to Canadians in bothurban and rural areas in all regions of Canada;

(c) to enhance the efficiency and competitiveness, at the national and international levels, of Canadiantelecommunications;

(d) to promote the ownership and control of Canadiancarriers by Canadians;

(e) to promote the use of Canadian transmission facilities fortelecommunications within Canada and between Canadaand points outside Canada;

(f) to foster increased reliance on market forces for theprovision of telecommunications;

(g) to stimulate research and development in Canada in the field of telecommunications and to encourage innovation in the provision of telecommunications services;

(h) to respond to the economic and social requirements ofusers of telecommunications services; and

(i) to contribute to the protection of the privacy ofpersons.[Emphasis added.]4

27 As is often the case with statutes, the purpose clause of theTelecommunications Act 1993 contains something for everyone.References to "efficiency", "increased reliance on market forces","encourage innovations", and the like, highlighted above, dovetail with apresumption against regulation and in favour of market forces, with reliance on mandated wholesale unbundling only where absolutelynecessary.

28 That being said, the Act does not itself mandate this approach. Aswell, certain other of the Act’s purposes suggest less reliance on marketforces, such as "facilitate the orderly development", "promote theownership and control of Canadian carriers by Canadians", and"respond to the economic and social requirements of users oftelecommunications services". These purposes do not negate increasedreliance on market forces, however.


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29 Moreover, the Act retains a presumption that the CRTC will regulatetariffs for telecommunications services (including any services that areincidental to the business of providing telecommunications services).Sections 23-33 deal generally with regulation of services, particularlytariff regulation.

30 Section 34, however, permits, and in some cases, requires, the CRTCto forbear from regulating telecommunications services. Forbearance canbe partial or total, and conditional or unconditional. The basic test forforbearance is whether forbearance would be consistent with theCanadian telecommunications policy objectives set out in section 7.

31 Subsection 34(2) requires the CRTC to forbear from regulating

Where the Commission finds as a question of fact that atelecommunications service or class of services provided bya Canadian carrier is or will be subject to competitionsufficient to protect the interests of users...

32 However, the CRTC retains considerable leeway to forbear to theextent that it considers appropriate; and forbearance under this provisioncan be conditional or unconditional.

33 It is also noteworthy that forbearance consists of the CRTC refrainingfrom exercising its powers and duties under sections 24, 25, 27, 29, and31. It does not relieve carriers themselves of any duties or prohibitions.Thus forbearance would not relieve a carrier of the obligation to file tariffspursuant to section 25, nor of the obligation to charge rates that are justand reasonable (s. 27(1)) and that do not unjustly discriminate betweencustomers (s. 27(2)). Indeed, the forbearance provisions show signs ofpoor legislative drafting. For instance, were the CRTC to refrain fromexercising its duty to approve agreements respecting interchange oftelecommunications under section 29, carriers would theoretically beprohibited from entering into such agreements.

34 There is no special statutory régime relating to mandatory access.Rather, the CRTC has a general power to impose conditions on TSPs,principally under section 24, that would appear to be the statutory basisfor mandatory access. Thus, while tariffs are presumptively regulated,with the possibility of forbearance, mandatory access is not presumed in the Telecommunications Act. So far as mandatory access is concerned,therefore, it is arguable that the Telecommunications Act alreadycontains a presumption of reliance on market forces.

B. Directions to the CRTC

(1) Binding nature of directions

35 The Telecommunications Act gives the government considerablepower to direct the CRTC’s decision-making. The government can issuedirections to the CRTC under section 8:

Directions

8. The Governor in Council may, by order, issue to theCommission directions of general application on broadpolicy matters with respect to the Canadian telecommunications policy objectives.

36 Pursuant to section 11, these directions are binding on the CRTC.


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37 Section 12 gives the government the power to vary or rescinddecisions of the CRTC.

(2) Policy Direction

38 On December 14, 2006, the Governor in Council made an Order Issuing a Direction to the CRTC on Implementing the CanadianTelecommunications Policy Objectives5 (the "Policy Direction"). This order was made under section 8.

39 The Policy Direction relates directly to this proceeding, as, amongother things, it instructs the CRTC to review its framework for mandatoryaccess to wholesale services.

40 The Policy Direction is divided into three parts. The first partarticulates two general principles:

1. In exercising its powers and performing its duties underthe Telecommunications Act, the Canadian Radio-televisionand Telecommunications Commission (the "Commission")shall implement the Canadian telecommunications policyobjectives set out in section 7 of that Act, in accordancewith the following:

(a) the Commission should

(i) rely on market forces to the maximum extentfeasible as the means of achieving the telecommunications policy objectives, and

(ii) when relying on regulation, use measures that areefficient and proportionate to their purpose andthat interfere with the operation of competitive market forces to the minimum extent necessary tomeet the policy objectives;

41 Both of these principles originate from recommendations contained inthe Telecommunications Review Panel Report, which recommended thatCanada move from a presumption of regulation to a presumption againstregulation.

42 It is odd that the Policy Direction uses the word "should" rather than"shall" in the opening phrase of subsection 1(a). The Interpretation Actprovides that "shall" is imperative and "may" is permissive.6 "Should" is the past tense of "shall", but is commonly used to express that one"ought" to do something rather than one "must". While this might betaken to suggest that the CRTC has some discretion to depart fromthese principles, I would not place much weight on this distinction. ThePolicy Direction clearly instructs the CRTC to rely on market forces asmuch as possible, and on regulation, as little as possible.

43 The second part of the Policy Direction articulates criteria to be metwhen the CRTC does rely on regulation. These criteria should beinterpreted as fleshing out the broad principle in paragraph 1(a)(ii) thatregulation must be efficient, proportionate, and minimally intrusive.

44 The criteria in subsection 1(b) reflect two important concerns:

a) The effect of regulation on incentives. The CRTC is thus


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instructed to walk the fine line between deterringeconomically efficient entry and promoting inefficient entry.

b) Non-economic regulation (such as regulated access tonetworks) must be symmetrical and competitively neutral asbetween market participants and technologies.

45 The third part of the Policy Direction contains some specificinstructions to the CRTC, including conducting the present review

(ii) with a view to increasing incentives for innovation andinvestment in and construction of competingtelecommunications network facilities, to complete a review of its regulatory framework regarding mandatedaccess to wholesale services, to determine the extent to which mandated access to wholesale services that arenot essential services should be phased out and to determine the appropriate pricing of mandated services,which review should take into account the principles oftechnological and competitive neutrality, the potential forincumbents to exercise market power in the wholesale andretail markets for the service in the absence of mandatedaccess to wholesale services, and the impediments faced by new and existing carriers seeking to develop competing network facilities.7

46 As I read this instruction, the regulatory goal is to increase incentivesfor innovation and development of new facilities. The means is a reviewof the regulatory framework for mandated wholesale access.

47 In addition, this review must take into account three factors:

a) "the principles of technological and competitiveneutrality";

b) "the potential for incumbents to exercise market power inthe wholesale and retail markets for the service in theabsence of mandated access to wholesale services"; and

c) "the impediments faced by new and existing carriersseeking to develop competing network facilities"

48 If the overall regulatory approach articulated in subsection 1(a) seemsclear enough, the particulars set out in subsections (b) and (c) introducea certain degree of ambiguity into the Policy Direction. For instance, the Policy Direction appears to require phasing out mandatory access tonon-essential services, yet prefaces this with "the extent to which", whichsuggests that the CRTC might continue to require access tonon-essential services.

49 In my opinion, any ambiguity in the particulars in subsections 1(b) and(c) should be resolved in favour of the general principles articulated insubsection 1(a). It would, in my view, be inconsistent with the principle ofmaximum reliance on market forces to continue to mandate access tonon-essential services.

50 I would note, parenthetically, that two of the factors listed inparagraph 1(c)(ii) may have a bearing on the approach to essentialfacilities to be taken by the CRTC. The direction to consider the extent towhich incumbents might exercise market power in the absence of


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wholesale access suggests that this should form part of the analysis ofwhat services are essential. The reference to the "impediments faced bynew and existing carriers seeking to develop competing networkfacilities" is consistent with an approach that would prioritize thedevelopment of competing network facilities over resale arrangements,as is the statement of the regulatory goal of increasing incentives forinnovation and investments in facilities. It is also worth noting theinclusion of existing carriers in this instruction. This points to theimportance of not disincenting the development of new facilities byexisting carriers.

(3) Local Forbearance Variation Order

51 On April 4, 2007, the Governor in Council made the Order VaryingTelecom Decision CRTC 2006-158 (the "Local Forbearance VariationOrder"). This order was made under section 12 to vary the CRTC’sdecision on Forbearance from the regulation of retail local exchangeservices.

52 Strictly speaking, the Local Forbearance Variation Order does not govern this proceeding. It is relevant in two ways, however. First, itprovides additional guidance in implementing the spirit of the Policy Direction. Second, forbearance from rate regulation in local markets mayhave an impact on mandatory wholesale access.

53 The Local Forbearance Variation Order has an extensive preamble,which explains the variations made in the order and further articulatesthe policy direction that the Governor in Council wishes the CRTC totake. These include:

a) An express statement of preference for facilities-basedcompetition:

Whereas the Governor in Council considers thatfacilities-based competition is a durable form of competition that delivers the greatest benefits toconsumers, imposes competitive market discipline onincumbents and strengthens investment intelecommunications infrastructure;

b) A distinction between business and residential markets:

Whereas the Governor in Council considers that localbusiness markets and local residential markets should be considered separately;

c) A definition of geographic markets as local exchanges:

Whereas the Governor in Council considers that localexchanges are the appropriate geographic component of a relevant market, as they often reflecta social and economic community of interest and areless likely than LFRs to contain pockets ofuncontested customers;

d) A suggestion that mobile wireless technology should beconsidered as part of the same relevant product market aslandline telephony:

Whereas the Governor in Council considers that theuse of mobile wireless technology by consumers is


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increasing and will likely continue to increase, andthat for many consumers the exclusive use of mobilewireless services is an increasingly attractivealternative to wireline local exchange services;

54 The operative part of the Local Forbearance Variation Order variesthe CRTC’s Local Forbearance Decision in a number of importantrespects. First, consistent with the preamble, it defines the relevantgeographic market as a local exchange.

55 Second, it changed the test for local forbearance. The originaldecision required ILECs to demonstrate a 25% market share loss, pluscertain quality of service requirements.9 The new test replaces themarket share loss test with three alternative branches, which are worthquoting in full:

a) the ILEC demonstrates that one of the followingcircumstances exists in the relevant market:

(i) that the ILEC does not have market power, basedon the criteria set out in paragraph 213,

(ii) that, if the ILEC offers residential local exchangeservices, there are, in addition to the ILEC, at least 2independent facilities-based telecommunications service providers, including providers of mobilewireless services, each of which offers localexchange services in the market and is capable ofserving at least 75% of the number of residentiallocal exchange service lines that the ILEC is capable of serving, and at least one of which, in addition tothe ILEC, is a facilities-based, fixed-linetelecommunications service provider, or

(iii) that, if the ILEC offers business local exchangeservices, there is, in addition to the ILEC, at leastone other independent facilities-based, fixed-linetelecommunications service provider that offers local exchange services in the market and is capable ofserving at least 75% of the number of business localexchange service lines that the ILEC is capable ofserving;10

56 The criteria in paragraph 213 are the criteria proposed by theCompetition Bureau:

213. The Competition Bureau proposed that theCommission should adopt a structured rule of reason (SROR) approach that could serve as the basis forstreamlined analysis of ILEC requests for local exchangeservice forbearance, once the relevant product market hadbeen identified. In the Competition Bureau's view, thisapproach used the following set of conditions that, ifsatisfied, should be sufficient for the Commission toconclude that an ILEC did not possess market power in theprovision of local exchange services:

At least two independent facilities-based service providersmust exist, the ILEC and a facilities-based entrant, capableof offering local service that has been determined to fall


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within the relevant product market for ILEC local service;

The entrant was able to obtain and retain a customerbase;

The entrant's variable costs of providing local serviceare similar to or lower than the ILEC's variable costs of providing local service;

Neither the ILEC nor the entrant wascapacity-constrained;

There was evidence of vigorous rivalry between theILEC and the entrant in the provision of local service; and

Industry characteristics are such that the ILECs areunlikely to engage in anti-competitive behaviour.

57 It should be emphasized that the Competition Bureau’s test isexpressly stated in both the Local Forbearance Decision and the Local Forbearance Variation Order as a test for lack of market power. That is, ifan ILEC can demonstrate the existence of these criteria, the ILEC isdeemed not to have market power in the relevant geographic market.

58 The definition of "independent facilities-based telecommunicationsservice provider" is important. "Facilities-based" is not defined in theLocal Forbearance Decision. From the way the term is used, it seems toconnote a telecommunications service provider that owns its ownfacilities, or at any rate, does not lease them from an ILEC. The termappears to have the same meaning in the CRTC’s Local CompetitionDecision.11 The Competition Bureau appears to use this term in the same sense in its submission to the CRTC in the local forbearanceproceeding.12 From the CRTC’s description of submissions by otherparties, this appears to have been the common understanding of theterm.

59 The Local Forbearance Variation Order expressly defines"facilities-based" for purposes of two of the three branches of the test.This definition considers CLECs that lease facilities from other providers,presumably ILECs, as facilities-based TSPs:

243. For the purposes of subparagraphs 242a)(ii) and (iii)and paragraph 523, the Commission considers that atelecommunications service provider is independent if itdoes not have the same owner as, and is not affiliated with, any other service provider referred to in the respectivesubparagraph. Further, for the purpose of those provisions,the Commission considers that a facilities-basedtelecommunications service provider is one that providesservices in the relevant market either by using its own facilities and services or by using a combination of itsown facilities and services together with those leasedfrom other service providers.

60 This expanded definition of "facilities-based" does not apply to thefirst branch of the test for forbearance, that is, the Competition Bureau’stest.

61 The revised definition of "facilities-based" contained in the Local


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Forbearance Order has the potential to undermine the goal of reducingreliance on wholesale access, as the Competition Bureau notes in itsSupplementary Evidence.13 If the CRTC forbears from regulating amarket because of the presence of competitors using leased lines, and there are no true facilities-based competitors present, it may benecessary to continue to mandate access at the wholesale level.

IV Essential facilities in Canadian competition law

62 There are three provisions in the Competition Act that could providethe locus for the essential facilities doctrine in Canadian competition law:the abuse of dominance provision (s. 79), the refusal to deal provision (s.75), and the special remedies for misuse of intellectual property (s. 32).

63 As discussed in greater detail below, denial of access to an essentialfacility has yet to be accepted by the Competition Tribunal as an"anti-competitive act" for purposes of the abuse of dominance provision,although there is some indication that refusals to deal by dominant firmsmay in some circumstances be an anti-competitive act. However, therefusal to deal provision could be characterized as an essential facilitiesprovision of a sort, as could the misuse of intellectual property provision.The remedies for misuse of intellectual property are not relevant totelecom facilities; thus I do not address them.

A. Abuse of dominance

64 Sections 78 and 79 deal with situations where a firm that is dominantin a particular market in Canada engages in anti-competitive conduct inthat market, or another market, in order to extend or maintain thatdominant position.14

65 Section 79(1) defines the elements of abuse of dominant position.Section 78 lists examples of anti-competitive acts.

66 The elements of abuse of dominance are three-fold:

a) Dominance;

b) Practice of anti-competitive acts; and

c) Substantial lessening or prevention of competition

67 In the Canada Pipe appeal, the Federal Court of Appeal held thateach of the three elements set out in section 79 must give rise todiscrete legal tests.15

(1) Dominance

68 The Act defines dominance by the phrase "substantially or completelycontrol". This indicates that to be dominant, a firm must have marketpower.16 Testing for market power necessarily involves defining therelevant market. The phrase "throughout Canada or any area thereof"expresses the geographic aspect of market definition, and the phrase "class or species of business", the product aspect.17

69 The definition of dominance contemplates that two or more firmsmight enjoy joint dominance over a market as a result of co-ordinatedbehaviour. However, most abuse of dominance cases involve onedominant firm.


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70 The dominance element thus involves two questions:

a) What is the relevant market (both product andgeographic)?

b) Does the firm have a substantial amount of market powerover the relevant market ("substantially or completelycontrol")?

(i) Relevant market

71 Often the outcome of abuse of dominance as well as othercompetition cases turns on market definition. Paradoxically, marketdefinition, whether product or geographic, is not a precise exercise, as the Tribunal has cautioned.18

72 The relevant market is simply the products and places that competewith the product and place in question. It is the "universe of effectivecompetition"19 in both product and geographic space.

73 The purpose of defining the relevant market is to identify thepossibility for the exercise of market power.20 Market power is, in turn,defined as the ability of a firm or firms to maintain prices above thecompetitive level over a sustained period of time.21

(ii) Product market

74 "Substitutability" is the "fundamental test or ‘touchstone’ fordetermining the boundaries of the relevant product market".22 Productsthat are close substitutes for one another are in the same market. Closesubstitutes are identified by looking at evidence that buyers are willing toswitch from one product to the other in response to a relative change inprice.

75 Evidence of substitutability can be both direct and indirect. Direct evidence of substitutability includes statistical evidence of whetherbuyers switch to another product in response to small changes in theprice of the product at issue23 and anecdotal evidence of switchingbehaviour.24 Lack of evidence of buyers actually switching betweenproducts is a strong indication that they are not in the same market.25

76 Often direct evidence of substitutability is not available and indirectevidence must be used. Indirect evidence of substitutability consists,broadly speaking, of evidence about the characteristics of the productand its buyers. Exactly which characteristics must be considered variesfrom case to case. Types of indirect evidence that have been consideredinclude:

a) End use / functional interchangeability: the question iswhether the two products can be put to the same end useby a purchaser. If they can, they might be in the samemarket. Functional interchangeability has thus been described as a "preliminary filter"26 or a "necessary but not sufficient condition"27 for finding that two products are in the same market. Even defining the end use can raiseissues. Defining it too broadly results in over-inclusion. InTele-Direct, the Tribunal noted the danger of placing


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automobiles and bicycles in the same market just becauseboth provide a means of transport.28

b) Physical and technical characteristics: a comparison ofthe physical and technical characteristics of the productscan show whether one product is better or more valuablethan another, or more suited to a particular end use.29

c) Views, strategies, behaviour and identity of buyers: do buyers of the products consider them to be closesubstitutes?30

d) Trade views, strategies and behaviour (inter-industrycompetition): do industry participants, including therespondent, consider the products to be close substitutesor competitors of one another?

e) Switching costs: the higher the cost of switching betweentwo products, the less likely it is that they are in the samemarket.31

f) Price relationships and relative price levels: a lack of correlation between the price movements of two productsover time suggests that they are not in the same market.Relative price levels between two products in two separategeographic markets can also indicate whether they are in the same market or not.32

77 The Tribunal has been willing to define product markets narrowlyeven where there are products that can be substituted for the productunder examination for some, but not all purposes. For instance, inCanada Pipe, the Tribunal found that the demand for cast iron pipe wasfalling over time as plastic pipe gradually became accepted forapplications previously reserved to cast iron pipe. Nevertheless, becausethere remained applications for which only cast iron pipe was acceptable, it constituted a separate product market, the Tribunal held.33 Similarly, in NutraSweet, other sweeteners were substitutable for aspartame in some,but not all applications.34

(iii) The hypothetical monopolist test

78 The test for market definition typically used in merger cases is the"hypothetical monopolist" test. This test works by provisionally adopting amarket delineation and asking whether a hypothetical monopolist overthat market would impose a small but significant price increase (usuallyassumed to be 5%) and sustain it for one year (hence, a small butsignificant non-transitory increase in price, or SSNIP). If the answer isyes, that is the market. If the answer is no, this means that otherproducts would constrain this price increase; thus the market isexpanded to include those other products.35

79 The Tribunal has suggested that hypothetical monopolist test maynot be appropriate in abuse of dominance cases. The question ofwhether a hypothetical monopolist can raise prices depends on theassumption that prices are at competitive levels. By contrast, abusecases necessarily involve an allegation that the respondent firm has adominant position already.36 It is unsafe to assume prices are at competitive levels if the monopolist is not hypothetical, but real. The


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Tribunal has, however, applied the hypothetical monopolist test in asimilar situation, where it found that pre-merger prices were notcompetitive, by defining the market with references to anticipated future,competitive prices.37

(iv) The cellophane fallacy

80 A related problem is the so-called "cellophane fallacy". Where a firmwith a dominant position has already raised prices above competitivelevels, evidence of apparent substitutes can be misleading. This isbecause supra-competitive prices can make purchasers switch toproducts they would not in fact choose if prices were at competitivelevels, making the products appear to be substitutes for one anotherwhen they are not. In those cases it is not appropriate to use thesupra-competitive prices to define the market. The "cellophane fallacy" isnamed after a case where the US Supreme Court is said to have fallen into this trap by finding that cellophane wrap and other flexible wrapssuch as wax paper were in the same market.38

81 One way to avoid the cellophane fallacy is to use the likely future, orcompetitive, price (where future competition is expected to lower prices),as the Tribunal noted in CWS.39 Another is to use other factors fordelineating the market than price, as the Tribunal did in three abuse ofdominance cases, Laidlaw, Nielsen and Tele-Direct.40

(v) Telecommunications product market definition

82 In the TAB, the Bureau cautions that market definition intelecommunications cases may be more difficult because of a lack ofdata:

In recently deregulated telecommunications markets, theremay be added difficulty in assessing evidence and data.For example, in an abuse of dominance analysis, the Bureau may consider evidence, such as business plans,strategic documents and data, during both the regulatedand forborne time periods but interpreting this evidence inthe context of both time periods may prove difficult.41

83 The TAB suggests that the Bureau would use the indicia set outabove, that is, the evidence of switching, the SSNIP test, andcharacteristics of the products:

For example, in considering an allegation of abuse ofdominance by a firm in its provision of local residentialtelephone service, the Bureau would first assess the willingness and ability of consumers to substitute to otherlocal residential telephone services provided by differenttechnologies (e.g., circuit switched, IP, and wirelesstechnologies) to determine whether the services providedby these technologies are in the same product market. Aspart of this exercise, the Bureau would consider whetherthere are characteristics of a particular local residentialtelephone service (e.g., reliability and clarity) that sufficientlydifferentiate it from other local residential telephone servicessuch that customers are unlikely to switch in response to aSSNIP. The Bureau would also consider whether there arecosts involved in switching, which would make switching a less likely response to a SSNIP.42


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84 The Bureau also suggests that bundling may be relevant to productmarket definition in telecommunications markets, and that markets mightbe defined around bundles.

85 To date, there has been only one example of market definition forcompetition law purposes in telecommunications markets: theRogers-Microcell merger. In allowing the merger, the Bureau commented that it had concluded that wireline and wireless telephone services werenot in the same product market, as there had been little substitutionbetween them. The Bureau concluded, however, that GSM and CDMAwireless telephone services were in the same product market.43

86 As discussed below, identifying substitutes for wholesale inputsinvolves an exercise in product market definition. However, the existing"market" for wholesale access is defined and priced by regulation.Consequently, we cannot say with confidence whether prices are above,below, or at competitive levels. This suggests that applying the SSNIPtest to existing pricing would be inappropriate.

(vi) Geographic market

87 The phrase "throughout Canada or any part thereof" in s. 79(1)(a)refers to geographic market.44 The process of delineating thegeographic market is in principle very similar to that of delineating theproduct market. The factors are essentially the same, except that they are applied in a geographic sense. Specifically geographic factorsinclude evidence of foreign competition and imports, and transportcosts.45

88 Telecommunications services obviously present special geographicmarket definition issues. As the Bureau points out,

For many telecommunications services, the provision of theservice is tied to a location and the number of competitivealternatives that are available to consumers can differdepending on where they live or carry on business.46

89 Put another way, telecommunications services must be deliveredthrough some medium, either wireline (including cable and fibre) orwireless. The choices of telecommunications service providers availableto any person necessarily depend on the ability of those providers toreach that person’s residence, either through facilities they own or lease,or by delivering applications through a broadband internet connection.

90 This fact led to the Bureau’s statement in the TAB that everyhousehold could theoretically be defined as a relevant geographicmarket. The impracticality of this leads to aggregation of locations basedon the footprints of competing networks.

91 The Local Forbearance Variation Order defined local exchanges asgeographic markets. To the extent that the same networks cover thewhole of any given local exchange, there is no harm in using localexchanges as relevant geographic markets, even if larger geographic markets could be drawn using network footprints. To the extent,however, that the networks available in a local exchange vary accordingto locations within the exchange, it may be inappropriate to use thatlocal exchange as a relevant geographic market.

(vii) Market power


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92 Market power is the ability to set prices above competitive levels andto maintain them at that level for a significant period of time.47 There are both direct and indirect indicators of market power.

93 Performance results and conduct are direct indicators of marketpower. If firm’s performance results (such as profits) or conduct (such aspricing policy) are more likely to be associated with firms that have marketpower, then they directly indicate that the firm has market power.Conversely, results or conduct similar to that of firms without marketpower indicates a lack of market power.48 Thus evidence of high profitsor high prices can be evidence that prices are above competitive levels, and thus, that a firm has market power. The Tribunal relied on evidenceof high profits or high prices in Tele-Direct,49 CWS,50 NutraSweet,51

Canada Pipe,52 and Laidlaw.53 Similarly, price discrimination can beevidence of market power. The Tribunal relied on evidence of pricediscrimination in Tele-Direct54 and CWS.55

94 Direct evidence of market power is frequently not available; normallyone must consider indirect indicators of market power: market share andbarriers to entry.56 The Tribunal follows a two-step approach. First, itexamines the market share of the respondent. Second, it considersother factors, principally whether there are barriers to entry, but also howmany competitors there are in a market and their respective marketshares, and how much excess capacity firms in the market have.

(viii) Market shares

95 Very high market shares raise a presumption, or prima facie case, of dominance, absent evidence of easy entry into the market.57 Exactlywhat market share is required to trigger this presumption is uncertain.The respondents’ market shares were near monopoly levels inNutraSweet (95%), Laidlaw (87-100%), Nielsen (100%), Tele-Direct(80-96%) and Canada Pipe (80-90%). The Tribunal commented inLaidlaw that a market share below 50% could not give rise to thepresumption of dominance.58

96 In the Abuse Guidelines and the TAB, the Bureau adopts a 35%threshold: market shares above 35% "prompt further examination"; thosebelow do not.59 The Bureau defends this on the basis that the Tribunaldid not exclude the possibility that a firm with a market share below 50%could be dominant. However, paragraph 79(1)(a) requires a showing thatthe respondent substantially or completely controls a class or species ofbusiness, not just a showing of some market power. In my view, thepossibility that the Tribunal would conclude that a firm with a marketshare of less than 50% is dominant is remote.

97 The appropriate way to measure market shares is not always obvious.While the Tribunal most frequently compares revenues earned by eachmarket participant, there are other possible measures. Most ways ofmeasuring market share involve comparing respective revenue, output orcapacity; but there can be a plethora of industry-specific statistics thatcould be used.60 It is easy to imagine scenarios where using differentmeasures would yield very different results. For instance, where anallegedly dominant firm’s competitors have more surplus capacity than itdoes, the dominant firm’s share of capacity will be less than its share ofrevenues.61


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98 In the TAB, the Bureau indicates that capacity, including networkcoverage, may be the appropriate measure of market shares intelecommunications markets. Where there are two or more facilities-based providers with substantial excess capacity, the Bureausuggests, the market shares of each would be equal. Economists referto this as 1/n ("one over n") market shares, where n is the number of such market participants. The Bureau explains the point thus:

When substantial excess capacity remains in a market,allowing firms to easily increase supply in response to anincrease in price, the ability to raise price above competitivelevels may be considerably lower than what a simple concentration measure might suggest.42

42 For example, in geographic markets where there are two independent facilities-based service providers (a facility-based service provider is one that owns andoperates its own networks) with sunk costs that are notcapacity constrained and are equally capable of offering the relevant product, the capacity market share of each would be 50%.62 [Emphasis added.]

99 It follows that, where there are three or more independentfacilities-based service providers that are not capacity constrainedserving a particular geographic market, none of them can be dominant, no matter that one of them may have a high share of customers orrevenues. Where there are two such service providers, it is unlikely thatthe Tribunal would find one of them to be dominant. How could the Tribunal find one service provider with a 50% market share to bedominant when its competitor also has a 50% market share?

100 In the result, on the analysis proposed in the TAB, the dominanceelement of the abuse of dominance test would not be met in any marketwhere there is more than one facilities-based service provider that is notcapacity constrained.

(ix) Barriers to entry

101 Without the existence of barriers to entry, there can be nodominance, because any attempt to exercise market power would attractimmediate entry:

In the absence of barriers to entry, even a single sellercannot exercise market power. Any attempt by theincumbent to price above the competitive level will attractimmediate entry by competing sellers.63

102 The question is: how easy – or hard – is it for a firm to start doingbusiness in the relevant market and establish itself as a viable competitoron a sustainable basis.64 So-called "hit-and-run" entry,65 where firmsquickly enter a market and are forced out, does not count.

103 Factors considered by the Tribunal in assessing barriers to entry inabuse of dominance cases include:

a) Observed entry and exit: evidence of sustained (orviable) entry of new competitors tends to demonstrate thatentry is easy. However, the nature of the entry is important:limited entry, or entry into niche sub-markets does not rebut


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a presumption of dominance of the larger market.66

Similarly, lack of entry, or evidence that entrants quicklyleave, is evidence of high barriers to entry.

b) Sunk costs: costs that cannot be recovered if entry isunsuccessful can be a significant barrier to entry.67 In the TAB, the Bureau notes that the telecommunicationsindustry is characterized by large sunk costs and significanteconomies of scale, density and scope.68 This wouldsupport a finding that there are barriers to entry into thisindustry.

c) Cost of entry: even costs that are potentially recoverablemay be a barrier to entry.69

d) Economies of scale: large economies of scale mean thatan entrant must enter on a large scale in order to achievecosts similar to an incumbent. This increases sunk costs and raises barriers to entry.70

e) Patents or other intellectual property: entry often requiresaccess to technology protected by patents or otherintellectual property; difficulties in obtaining this access raisebarriers to entry.71

f) Incumbent advantages: the incumbent may have certainadvantages derived from its position in the market.72

g) Conduct by the incumbent: the incumbent’santi-competitive conduct can itself create barriers to entry.73

h) Industry-specific barriers: there are often industry specificbarriers in any given industry, including regulatory barriers.

i) State of the market: a market that is mature and has littlepotential for growth is unlikely to attract entry, because it isunattractive to investors.74

(x) Market concentration and excess capacity

104 In Laidlaw, the Tribunal noted that the number of other competitorsin the market and their respective market shares is relevant. In mergercases, evidence that a market is highly concentrated, that is, that a fewlarge competitors control the bulk of the market, suggests that themerger will lessen competition.75 The Tribunal has not discussed marketconcentration extensively in the four contested abuse of dominancecases. In each of those cases, the market was concentrated in thehands of the one dominant firm; the few competitors had low market shares.

105 Excess capacity in the hands of competitors of the allegedlydominant firm weighs against a finding of dominance. These competitorscould in theory expand their production and thus their market share. It iseasier for an existing competitor with excess capacity to expandproduction than for a new competitor to enter the market. However,these competitors might have excess capacity because the anti-competitive conduct of the dominant firm has prevented them fromexpanding output.76


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(2) Practice of anti-competitive acts

(i) The test for identifying anti-competitive acts

106 Section 78 provides a non-exhaustive list of anti-competitive acts.Other conduct can be – and has been – found to be anti-competitivebecause it has characteristics in common with the conduct listed in s. 78.In NutraSweet, the Tribunal discerned that the common thread runningthrough the list in s.78 was that anti-competitive acts are performed for apredatory, exclusionary or disciplinary purpose:

A number of the acts share common features but, asrecognized by the Director and the respondent, only one feature is common to all: an anti-competitive act must beperformed for a purpose, and evidence of this purpose is anecessary ingredient. The purpose common to all acts,save that found in paragraph 78(f), is an intended negativeeffect on a competitor that is predatory, exclusionary ordisciplinary.77

107 In the Canada Pipe Appeal, Desjardins J.A. adopted this gloss onsection 78. She distinguished two aspects to "purpose". The first relatesto whether it must be subjective or objective.

[67] First, the meaning of the term purpose deserves somecomment. As the Tribunal observed in Tele-Direct, supra atp. 180, "‘purpose’ is used in this context in a broader sensethan merely subjective intent on the part of the respondent.. . it might be more apt to speak of the overall character ofthe act in question" (emphasis added). In order to applyparagraph 79(1)(b), the purpose or character of theimpugned conduct must therefore be determined. Relevantfactors to be considered and weighed to determine thisoverarching "purpose" include the reasonably foreseeableor expected objective effects of the act (from whichintention may be deemed, as I explain further below), anybusiness justification, and any evidence of subjective intent,if available (see Tele-Direct, supra at p. 180).

108 The second aspect is the type of purpose. Here, Desjardins J.A.approached the Tribunal’s gloss on section 78 as though it were itselfthe statutory text. She emphasized that the purpose must relate not toeffects on competition, but on competitors:

[68] The second aspect describes the type of purposerequired in the context of paragraph 79(1)(b): to beconsidered "anti-competitive" under paragraph 79(1)(b), anact must have an intended predatory, exclusionary ordisciplinary negative effect on a competitor. The paragraph 79(1)(b) inquiry is thus focused upon the intended effects ofthe act on a competitor. As a result, some types of effects on competition in the market might be irrelevant for thepurposes of paragraph 79(1)(b), if these effects do not manifest through a negative effect on a competitor. It isimportant to recognize that "anti-competitive" therefore hasa restricted meaning within the context of paragraph79(1)(b). While, for the Act as a whole, "competition" has many facets as enumerated in section 1.1, for the particularpurposes of paragraph 79(1)(b), "anti-competitive" refers to


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an act whose purpose is a negative effect on a competitor.[Emphasis in original.]

109 Desjardins J.A. went on to emphasize that evidence of impacts ofthe impugned acts on competition or on consumers is irrelevant. Only theeffects on competitors count for purposes of paragraph 79(1)(b).78

110 Desjardins J.A. did however confirm that it is not necessary to showsubjective intent to show that an act is anti-competitive.79 Therespondent is deemed to intend the effects of its actions.80 Evidence of a subjective anti-competitive intent is certainly helpful however, and hasbeen used by the Tribunal.81 However, it is clear from Desjardins J.A.’sreasoning that a subjective anti-competitive intent must exist, and mustbe the over-riding purpose for the conduct. That being said, a subjectiveanti-competitive intent would not make an otherwise appropriatecompetitive response anti-competitive.82

111 The Federal Court of Appeal also changed the law on businessjustification. Desjardins J.A. held that a business justification is not adefence; it only goes to rebut evidence of anti-competitive purpose, byproviding an alternative explanation for the conduct. The range ofbusiness justifications that can be accepted is limited to those that"provide a credible efficiency or pro-competitive explanation, unrelated toan anti-competitive purpose, for why the dominant firm engaged in theconduct alleged to be anti-competitive".83

112 The Tribunal had accepted Canada Pipe’s business justification thatits rebate program enabled it to sell sufficient volumes of standardproducts that it could maintain a full line of product, including specialtyproducts that were in less demand but were still important to haveavailable in the market. This, the Tribunal accepted, benefitedconsumers. Desjardins J.A. rejected this as irrelevant: "Simply stated,improved consumer welfare is on its own insufficient to establish a validbusiness justification for the purposes of paragraph 79(1)(b)".84 Sheheld that

the Tribunal’s reasons do not establish the requisiteefficiency-related link between the SDP and therespondent, and hence do not supply a legitimateexplanation for the latter’s choice to engage in theimpugned conduct, unrelated to an anti-competitivepurpose.85

113 As will be discussed below, this narrowing of the businessjustification defence could have serious consequences in any essentialfacilities case brought under section 79.

114 This is not the place to embark on a detailed criticism of the FederalCourt of Appeal’s decision in Canada Pipe. Suffice it to say that I thinkthat Desjardins J.A.’s approach to paragraph 79(1)(b) is inconsistent withthe fundamental principle that competition law protects competition, not competitors,86 inconsistent with past Tribunal jurisprudence, and willlikely lead to serious analytical problems.

115 Two of these analytical problems are, however, worth mentioning, asthey may crop up in telecommunications cases. First, the emphasis on "acompetitor" or "competitors" strongly suggests that there must be actualcompetitors in the market that experience these effects. Where there are


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no competitors, a monopolist will be able to engage in anti-competitiveconduct designed to prevent entry scot-free. The same result wouldobtain where the dominant firm’s conduct has no impact on existingcompetitors, but prevents entry by as yet non-existent competitors. Inthis, the court’s reasoning is inconsistent with paragraph 79(1)(c), whichrefers to "substantial prevention of competition" in addition to"substantial lessening". It is tempting to solve the problem by saying that"competitors" includes "potential competitors", but that would in effect beto allow effects on "competition" into paragraph 79(1)(b), which theFederal Court of Appeal has stated is not permissible.

116 Thus, if a dominant owner of a telecommunications facility refused togrant access to new entrants, but did not cut off or otherwise affect itsexisting competitors, that conduct likely could not be considered ananti-competitive act under the test as modified by the Federal Court ofAppeal.

117 The second problem is that looking at effects on actual competitorsmay lead to over-identification of anti-competitive acts. A competitor mayfair poorly not because of the impugned acts, but because its costs aretoo high, it is undercapitalized, has a poor business plan, is poorlymanaged, or has an inferior product. Unless the Tribunal is careful toisolate these factors from the effects of the anti-competitive acts, avigorous but appropriate competitive response by an incumbent may bemislabelled as anti-competitive as a result of focussing on the competitor.But isolating these factors effectively means considering the impact of the impugned acts, not on actual competitors, but on a hypotheticalefficient, well-funded competitor with a good business plan, etc. In short,we are driven to looking at the effects on competition, not on acompetitor.

118 This problem may be magnified in telecommunications markets, fortwo reasons. First, the markets are in transition from monopoly supply byILECs to vigorous facilities-based competition, and from traditionaltelephone technology to IP based technology. (Indeed, forapproximately 82% of Canadian homes that can obtain VoIP telephony over broadband cable internet, that transition may be nearly complete.)In this environment, however, there remains considerable suspicionabout the once-dominant ILECs. This suspicion is apparent in many ofthe submissions in this proceeding.

119 Second, a market that is in transition and characterized by rapidinnovation, such as the present telecommunications markets, might wellattract more entrants than a mature market, some of whom may beweak. Indeed, both the US and Canada have recently experienced a raft of failures and consolidation of CLECs with resale business models.When these entrants fail, the suspicion may fall on the ILECs.

(ii) Examples of anti-competitive acts

120 As noted above, section 78 contains a non-exhaustive list ofanti-competitive acts. In fact, most of the conduct found by the Tribunalto be anti-competitive conduct was not on the list in section 78.

121 Conduct found to be anti-competitive in past cases can be dividedinto contracting practices, and non-contracting practices. Anti-competitivecontracting practices consist of practices that lock up customers, such asexclusive contracts, particularly those with evergreen clauses and/orpunitive termination provisions.87 Meet or release, right of first refusal,right to compete, and most-favoured nation clauses can also be


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anti-competitive.88 Finally, financial inducements to exclusivity can alsobe anti-competitive.89

122 Non-contracting practices identified as anti-competitive acts to dateinclude sham litigation,90 a pattern of anti-competitive acquisitions,91

predatory pricing,92 refusal to deal,93 leveraging intellectual property toforeclose competition in other markets,94 excluding competitors from networks, marketplaces or associations,95 and leveraging dominance inone market to achieve market power in another.96

123 Potential anti-competitive acts that may be relevant to thetelecommunications industry, include:

124 Raising rivals’ costs. In the TAB, the Bureau gives a number ofexamples of potential conduct by a dominant TSP that might raise rivals’costs.97

125 Margin squeezing (s. 78(1)(a). De-regulation of wholesale access willremove regulatory barriers to margin squeezes. This is not necessarily areason to de-regulate, as margin squeezing can be challenged underthe abuse of dominance provisions. As the Bureau discusses marginsqueezing in the TAB, I do not propose to deal with it here.98 TheEuropean Union has brought two major margin squeezing cases againstILECs.99 Price squeezes can be conceptualized as an indirect way of cutting off supplies to a competitor; they are thus in principle analogousto refusal to deal or essential facilities cases.100

126 Pre-emption of scarce facilities or resources required by acompetitor, with the object of withholding the facilities or resources fromthe market (s. 78(1)(e)). This might occur where a dominanttelecommunications service provider locks up all available supportstructures or rights-of-way in a particular area.

127 Predatory pricing.101 Predatory pricing is one of the mostproblematic and controversial areas in competition law. The theory isdeceptively simple: a dominant firm lowers prices in order to drive out itscompetitors. It then raises prices again to recoup the lost profits. Theproblem is that vigorous competition also involves firms lowering prices. Anumber of important limitations have been developed to constrain the scope of predatory pricing theories and distinguish between vigorousand abusive competition. Thus, for instance, in order to be predatory,prices must be below an appropriate measure of costs. Just what thatmeasure is has been the subject of great debate. The usual candidatesare average variable costs and avoidable costs.102 But determining whatcosts are avoidable is extremely complex. Moreover, it is well accepted incriminal predatory pricing cases that the dominant firm is entitled tomatch its competitor’s price, even if that price is below the dominant firm’scosts (this is called the "meeting the competition defence"). As well, inthe US, there must be a likelihood that the predator will recoup lostprofits after forcing out or disciplining competitors. It is not clear whetherrecoupment is an essential element in Canada.

128 The TAB contains the Bureau’s most comprehensive statement todate on predatory pricing. Among other things, the Bureau adopts theavoidable cost standard; it appears to treat likelihood of recoupment asan essential element; and it recognizes the meeting the competitiondefence.


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129 The European Union fined Wanadoo, a subsidiary of FranceTélécom, for predatory pricing of its broadband internet services in July2003. The Commission’s decision was upheld by the Court of FirstInstance in January 2007.103 The case may be of little assistance, however, as the test for predatory pricing in the EU is very different fromthe test in Canada. In the EU, prices that are below average variablecosts are presumed to be predatory; prices that are above averagevariable costs but below total costs are considered predatory if they formpart of a plan to eliminate a competitor.104 Nor does the EU recognize the meeting the competition defence105 or require a showing of a likelihood of recoupment.106

130 Targeting. The TAB suggests that targeted responses by anincumbent might be an anti-competitive act. However, in my view, theTribunal’s decision in Tele-Direct all but categorically excludes "targeting"as constituting a stand-alone anti-competitive act.107

(iii) "Practice"

131 The word "practice" suggests a pattern of conduct. The Tribunal hasheld that its meaning is broad: "a practice may exist where there is morethan an ‘isolated act or acts’".108 Similarly, several differentanti-competitive acts taken together can be a "practice".109 In the result, the "practice" requirement will only exclude cases involving a few isolatedanti-competitive acts.

132 Despite the breadth of this definition, it is difficult to see how asingle denial of access by an owner of a facility could constitute a"practice". Indeed, absent a policy of denying access by the owner, itwould be hard to infer that the owner had the requisite anti-competitivepurpose.

(3) Substantial lessening or prevention of competition

133 The final element is whether the practice of anti-competitive actssubstantially lessens or prevents competition. Substantial lesseningrefers to a reduction in the level of competition from what existed beforethe anti-competitive conduct started. Put another way, if theanti-competitive conduct increases the dominant firm’s market power,competition is lessened. Substantial prevention generally refers to asituation where the market was not competitive (or less competitive) atthe beginning, but would have become competitive (or, morecompetitive) had the dominant firm not engaged in the anti-competitiveconduct. Put another way, if the dominant firm’s market power wouldhave decreased but for the anti-competitive conduct, competition isprevented.

134 In the Canada Pipe Appeal, Desjardins J.A. held that a relative, or"but for" assessment must be carried out. That is, the level ofcompetition in the market with the impugned practice in place must becompared with the competition without the impugned practice. Thecomparison is carried out over three time frames, past, present, future:

...the question that must be assessed for the purposes ofparagraph 79(1)(c) is, would the relevant markets – in thepast, present or future – be substantially more competitivebut for the impugned practice of anti-competitive acts?110


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135 As well, in the Canada Pipe Appeal, Desjardins J.A. held that theabsolute level of competition is irrelevant, nor is the fact of entry in theabsolute sense.111

136 Subsection 79(4) directs the Tribunal to consider whether thepractice is a result of superior competitive performance in determiningwhether a practice of anti-competitive effects substantially lessens orprevents competition.

137 It is unclear what, exactly, subsection 79(4) means. The Abuse Guidelines suggest that subsection 79(4) might be engaged where a firmexploits legitimate competitive advantages such as lower costs, betterdistribution or production techniques, or a broader array of productofferings.112 This provides little assistance: exploiting these advantages is unlikely to constitute a practice of anti-competitive acts in the firstplace. As well, subsection 79(4) does not appear to create a defence; itmerely instructs the Tribunal to consider this factor. In Canada Pipe, theTribunal accepted that the advantages that Canada Pipe’s Canada-widedistribution network and broad product range gave it met this test.113 An ILEC facing an abuse of dominance proceeding likely would argue thatthis reasoning applies to its existing network and product range, suchthat its conduct falls within subsection 79(4).

(4) Remedies

138 Under section 79, the Tribunal can make orders designed to remedy the substantial lessening or prevention of competition caused by thepractice of anti-competitive acts. The Tribunal cannot award damages,and cannot make punitive orders.114 The Tribunal’s approach inchoosing a remedy is "only to go as far as it considers necessary in orderto restore competition in the relevant markets".115 In Southam, the Supreme Court enunciated a similar principle, noting that in a mergercase, the test is whether the remedy eliminates the substantial lesseningof competition, not whether it restores the pre-merger competitivesituation. The least intrusive of the possible effective remedies should bepreferred.116

139 The Tribunal can make three kinds of remedial orders under s. 79:

a) It can order the respondents to stop the practice ofanti-competitive acts;

b) It can order the respondents to take positive action toovercome the effects of the practice of anti-competitiveacts;

c) It can order the sale of assets or shares.

140 Section 79 envisages that the main remedy will be an order that therespondent stop the anti-competitive conduct (option a). The Tribunalcan only make a mandatory or structural order (options b and c) if anorder prohibiting the practice of anti-competitive acts is insufficient. Thereis an additional limitation on the mandatory or structural orders in s.79(3): the Tribunal can interfere with the rights of the person againstwhom the order is made (or the rights of any other person affected by the order) only to the extent necessary to achieve the purpose of theorder. While an order breaking up a dominant company is possible, theTribunal has never ordered the sale of assets or shares in an abuse of


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dominance case.

141 The distinction between an order prohibiting a person fromengaging in an anti-competitive act, and an order mandating positiveacts, is not always clear. For example, in Tele-Direct, the anti-competitiveact was discriminating against consultants and customers who usedconsultants. The Tribunal prohibited Tele-Direct from rejecting ordersfrom customers who used consultants, and from "not processing" suchorders. This, of course, amounts to a requirement that Tele-Direct acceptand process such orders.117 Any order "prohibiting" a refusal to grantaccess to an essential facility would likely involve convoluted mandatoryprovisions disguised as prohibitions, and/or a mandatory order.

(5) Is denial of access to an essential facility ananti-competitive act?

142 For purposes of this proceeding, the key question is whether therefusal of a dominant firm to grant access to a competitor to an essentialfacility that it owns could be an anti-competitive act under section 79.The CRTC, as an industry regulator, can impose a duty on TSPs to grantaccess to essential facilities, regardless of whether the doctrine isrecognized under section 79. However, to the extent that parties are urging the CRTC to adopt competition law essential facilities principles indefining when it will mandate access to wholesale services, it is importantto consider what the competition law in Canada on essential facilities might be. As well, to the extent that the CRTC forbears from mandatingaccess to wholesale facilities, the Competition Act will apply. Thus it isrelevant to consider whether the Tribunal might mandate access even where the CRTC has not.

143 As discussed in detail below, in my view neither the statutorylanguage of sections 78 and 79, nor the case law, permits one to saywith certainty whether, or not, denial of access to an essential facility canbe an anti-competitive act.

(i) Sections 78 and 79 are inconclusive

144 First of all, denial of access to an essential facility by an airline islisted among the anti-competitive acts, at paragraph 78(1)(k). Thisprovision was added in 2000, shortly after the Air Canada-Canadianmerger left Canada with one dominant airline. Otherwise, denial ofaccess to an essential facility is not listed in section 78. One could arguefrom this that denial of access to an essential facility in other industries istherefore not an anti-competitive act using the principle of statutoryinterpretation expressio unius, exclusio alterius. This argument is unlikelyto be decisive, however. The list in section 78 was deliberately leftopen-ended, and paragraph 78(1)(k) was added long after theenactment of section 78. Assuming it was open to the Tribunal to findthat denial of an essential facility was an anti-competitive act before theaddition of paragraph 78(1)(k), there is nothing in the 2000 amendmentsto change that.

145 An argument in favour of recognition of essential facilities can bemade from the inclusion of paragraph 78(1)(a), margin squeezing. If adominant firm cannot be made to supply a competitor, then it would beinconsistent to require that if the dominant firm chooses to supply acompetitor, it must not squeeze the competitor’s margins by charging thecompetitor too much in the upstream market. Thus recognition thatdenial of access to an essential facility can be an anti-competitive actmay be implicit in the recognition of margin squeezing as an


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anti-competitive act. I think this is a strong argument, but I am not surethat it would be determinative.

(ii) The case law is inconclusive

146 The Tele-Direct case is the only contested case to consider refusalsto deal under the abuse of dominance provisions.

147 Tele-Direct was an application under the tied selling (s. 77) andabuse of dominant position provisions of the Competition Act. Tele-Direct (Publications) Inc., a subsidiary of Bell Canada and BCE Inc., publishedYellow Pages directories. The Director of Investigation and Research118

accused Tele-Direct of a variety of anti-competitive conduct directed atindependent advertising service suppliers. The Director alleged thatTele-Direct engaged in tied selling by forcing or inducing customersseeking advertising space in its directories to buy telephone directoryadvertising services as well. The Director also accused Tele-Direct ofanti-competitive acts in two markets, the market for advertising space,and the market for advertising services.

148 The Tribunal held that telephone directory advertising was therelevant product market, and that Tele-Direct had control or marketpower over this market. The Tribunal held that Tele-Direct had tied thesale of advertising space to advertising services, and prohibited it fromcontinuing this practice.

149 The abuse of dominance case consisted of two separate cases.The first accused Tele-Direct of abusing its dominant position in themarket for telephone directory advertising space. The allegedanti-competitive act consisted of various competitive responses that theDirector claimed constituted "targeting". The Tribunal rejected this theory.

150 The second accused Tele-Direct of leveraging its market power overthe advertising space market into the advertising services market. Thiswas a leveraging case, as Tele-Direct did not have market power in theservices market. The Director alleged that Tele-Direct engaged inanti-competitive acts in its dealings both with agents and consultants.With respect to agents, the Director alleged that Tele-Direct squeezedtheir returns through various tactics, and discriminated against them inproviding space on less favourable terms than those available toTele-Direct’s internal sales force. The Tribunal rejected these allegationson the ground that the lack of erosion of the agents’ market shareshowed that Tele-Direct’s actions had not given rise to a substantiallessening of competition.

151 With respect to consultants, the Director attacked Tele-Direct’s policyof not dealing with consultants as agents for a customer, and varioustactics employed by Tele-Direct against consultants. Consultantsoperated by suggesting to Yellow Pages advertisers that they couldsave money by using smaller ads or removing colour. They were paid outof the savings achieved by the customer. Tele-Direct had a policy of notaccepting orders placed by consultants for customers. Tele-Direct alsoused various tactics against consultants.

152 Tele-Direct argued that, as a matter of law, it was not obliged to helpits competitors, and thus refusal to do so could not be ananti-competitive act. Tele-Direct also argued that anti-competitive actsinvolved doing something, as opposed to not doing something:

Each of the anti-competitive acts listed in section 78 require


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the dominant firm to actively initiate some action. . . . Noneof the listed acts are triggered simply by the dominant firmnot doing something or refusing to assist. . . .119

153 The Tribunal stated that it agreed with the general proposition thatcompetitors do not have to help one another, but that this might notapply in a case under section 79:

As stated above, as a general proposition, competitorsshould not be required to assist one another. But, thisgeneral proposition may be shown to be inapplicable in agiven section 79 case by the Director proving that the "act" of the respondent meets the elements of that section and isan anti-competitive act leading to a substantial lessening ofcompetition. Then, any order of the Tribunal which may issue is, by definition, not an order to "assist" a competitorbut rather, in the case of subsection 79(1), an order tocease and desist from anti-competitive conduct.

¶ 589 It is, therefore, not sufficient, in circumstances suchas these, to argue the general proposition. Nothing can bedetermined by simply labelling the alleged anti-competitive"act" as "doing something" (active) or "not doingsomething" (passive). The anti-competitive effect of the conduct of the respondents, whether "active" or "passive",must be weighed against any business justification in orderto conclude whether there has or has not been asubstantial lessening of competition. That can only be doneby reference to the evidence.120

154 The Tribunal thus proceeded to weigh the anti-competitive effects ofthe acts against the business justification proffered by Tele-Direct.Tele-Direct’s refusal to deal might have two types of adverse effects: itmight raise consultants’ costs and damage their reputations, the Tribunalheld. However, Tele-Direct’s refusal to deal did not impose any significantcost increases, or even increase consultants’ costs at all. Similarly, theTribunal could not attribute any damage to consultants’ reputation to therefusal to deal (as opposed to Tele-Direct’s other practices).121

155 By contrast, Tele-Direct would face additional costs to deal withconsultants, because it would have to set up an interface to deal withthem and a system to deal with the fact that consultants do not pay upfront when submitting the order (unlike agents). The Tribunal acceptedthat this was a valid justification for Tele-Direct’s not dealing withconsultants:

In the circumstances, we think that the additional costs thatTele-Direct would incur if it were forced to deal withconsultants directly on behalf of advertisers is a validjustification for not doing so, given that no adverse cost effects on agents were proven and that any negativereputational effects that are attributable to the refusal todeal directly are, at best, weak.122

156 The Tribunal also addressed Tele-Direct’s refusal to supply itsspecifications to consultants. On this point the panel split. The majority,consisting of the judicial member, Justice Rothstein, and a lay member,Christine Lloyd, held that this refusal had not adversely affected theconsultants. The potential for customers confusing consultants with


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Tele-Direct representatives if consultants used the specifications fromTele-Direct to suggest they had a relationship with Tele-Direct provided avalid business justification, the majority held.

157 The Tribunal’s full-time economist, Dr. Frank Roseman, disagreed.He considered that Tele-Direct’s refusal to supply specifications wouldlikely "significantly hamper the consultants’ ability to compete", and thatthere was no business justification for this refusal.123

158 Unfortunately, the Tribunal did not articulate any test in Tele-Directfor the degree of impact that must be felt by competitors before a refusalto deal would become an anti-competitive act. The Tribunal did considerwhether the refusal would increase consultant’s costs, and at one pointreferred to the fact that they were not "significantly" increased. However,there is no exploration of what "significantly" might mean in thecircumstances. Nor is there any discussion of whether there must be noalternative feasible sources of supply (presumably because, here, thereobviously were none). Dr. Roseman, in his dissent, used the phrase"significantly hamper", which may be an improvement, but there is nofurther indication of what this might mean.

159 As well, the Tribunal’s approach of balancing the impact ofcompetitors against the cost or inconvenience to the respondent couldlead to an overbroad approach to refusals to deal. By using thisanalysis, the Tribunal could end up ordering respondents to supplycompetitors even though the impact of the refusal to deal was minimal,simply because the inconvenience to the respondent was less than theimpact on competitors. This balance of inconvenience approach wouldnot, in my view, be an appropriate basis for forcing dominant firms tosupply their competitors.

160 The Tribunal’s approach to business justifications has in any eventbeen over-ruled by the Federal Court of Appeal. Based on the FederalCourt of Appeal’s reasoning, it seems unlikely that the costs to thedominant firm of supplying a competitor could be a factor at all in theanalysis, except to the extent that they could be included in an efficiencyargument (the dominant firm might, for example, argue that it is inefficientto supply the competitor because of the costs involved).

161 The Tribunal’s suggestion that an order to cease an anti-competitiveact, where the anti-competitive act is a refusal to supply or assist acompetitor, is not an order to supply or assist the competitor, makes nosense to me. This is exactly the same kind of semantic reasoning theTribunal accused Tele-Direct of. Indeed, for an order to "cease" refusingto deal to be meaningful and enforceable, it must specify the termsunder which the respondent will supply its competitor.

162 The fact is, there is a big difference between doing something andnot doing something. In criminal law, it can mean the difference betweengoing to jail and remaining free. Tele-Direct was correct in its submissionthat each of the acts enumerated in section 78 involved the respondent"doing something".124 Moreover, all of the acts found by the Tribunal inthe contested abuse of dominance cases involve "doing something".There is, in my view, a big difference between engaging in theanti-competitive acts listed in section 78 or in the cases, and refusing tosupply a competitor.

163 It is interesting to contrast the Tribunal’s approach to refusal to dealwith its approach to refusal to license intellectual property in Tele-Direct.The Tribunal refused to qualify Tele-Direct’s refusal to license its


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trademarks (such as the well-known "walking fingers" logo) to competitorsas an anti-competitive act, holding that the right to determine whether ornot, and to whom, to license a trade mark, was inherent in the nature ofthe right to license the trademark.125 This finding was not made undersection 79(5), which exempts acts engaged in pursuant only to theexercise of certain intellectual property rights.

164 All property, not just IP, is a legal construct. Property is usuallydefined as a "bundle of rights".126 The right to control "whether or not,and to whom, to grant a licence" is just as inherent in the legal conceptof property itself as it is in intellectual property.127 Thus the Tribunal’sreasoning in relation to trade marks could be applied to any kind ofproperty, not just IP.

165 In summary, while the Tribunal has shown a willingness to treatrefusals to deal as potential anti-competitive acts, there is insufficientjurisprudence to say with certainty whether refusal to grant access to anessential facility would be an anti-competitive act, nor what the testwould be in Canada.

(iii) Essential facilities in the airline industry

166 After Air Canada took over Canadian Airlines in December 1999,leaving Canada with one dominant airline, airline industry-specificstatutory and regulatory provisions were added to the Competition Act. In February 2001, the Bureau published draft Enforcement Guidelineson the Abuse of Dominance in the Airline Industry (the "Airline Guidelines") to explain these provisions. The airline industry-specificprovisions remain on the books, although the Airline Guidelines were never finalized. Interestingly, although the Abuse Guidelines were finalized in July 2001, they only mention denial of access to an essentialfacility as a possible anti-competitive act, without discussion.

167 Paragraph 78(1)(k) codifies the essential facilities doctrine as itapplies to airlines:

(k) the denial by a person operating a domestic service, asdefined in subsection 55(1) of the Canada TransportationAct, of access on reasonable commercial terms to facilitiesor services that are essential to the operation in a market ofan air service, as defined in that subsection, or refusal bysuch a person to supply such facilities or services on suchterms.

168 It should be noted that paragraph 78(1)(k) does not contain anexpress purpose requirement. Purpose is thus not relevant to essentialfacilities in the airline industry.

169 In August 2000, the government made the Regulations RespectingAnti-Competitive Acts of Persons Operating a Domestic Service (the "Airline Regulations"). Section 2 defined essential facilities for purposesof paragraph 78(1)(k):

ESSENTIAL FACILITIES AND SERVICES

2. (1) For the purposes of paragraph 78(1)(k)of the Competition Act, facilities and services that are essential to the operation in a marketof an air service, as defined in subsection55(1) of the Canada Transportation Act, are


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those

(a) that are required in order to provide acompetitive air service;

(b) that cannot reasonably or practicably bepurchased, acquired, provided or replicated by another air carrier on its own behalf;

(c) that are effectively controlled by the aircarrier who denies access to them or refuses supply of them; and

(d) that can be feasibly provided to another aircarrier, having regard to operational or safetyconsiderations, or legitimate business justifications of the air carrier referred to inparagraph (c).128

170 The similarity of these criteria to those derived from the US cases byProfessor Robinson is obvious.

171 The Bureau unpacks these elements somewhat in the AirlineGuidelines. The guidelines explain that the first element means that "itmust not be possible to offer the competitive air service without thefacility or service for which access is being denied".129

172 The Bureau also explains the term "competitive air service". It isbasically meant to close a loophole, and prevent the dominant airlinefrom arguing that the facility in question was not required to operate anair service generally, as opposed to one that competes with theparticular route in question.130

173 The Bureau cautions, however, that "competitive air service" doesnot mean identical air service.131 While the Bureau does not expand onthis, given the competition law context "competitive" must mean that theair service is in the same product market as the dominant airline’s airservice.

174 The Bureau does not expand much on the second element. Itsuggests it will consider whether the competitor could have provided thefacility for itself on reasonable terms.132

175 Similarly, the Bureau merely points out that the third element,controlled by a dominant carrier, makes it clear that the dominant carriermust be in a position to grant access because it controls the facility.133

176 The fourth element, feasible to provide, permits the introduction oflegitimate business reasons for refusing access. The Bureau suggestsas an example that the dominant carrier might need the facility itself andnot have spare capacity to provide access, without investing in newfacilities. The Bureau appears to accept that it is not reasonable toexpect a dominant firm to invest in new facilities to supply a competitor.134

177 There have been no cases involving denial of an essential facility inthe airline industry.

(iv) Essential facilities in the TAB


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178 The Bureau states the doctrine in the TAB in general, non-industryspecific terms. It is clear, therefore, that the Bureau regards essentialfacilities as being of general application in competition law.

179 The Bureau’s statement of the essential facilities doctrine is also notbased on any Canadian precedent – there is none, apart from theincomplete analysis in Tele-Direct, and the Airline Regulations, asdiscussed above. The Bureau’s test has therefore not been tested in thecrucible of a contested case, nor against facts other than thoseconsidered by the Bureau in its drafting. This is an important point,because real cases tend to throw into vivid relief any defects in proposedlegal tests.

180 The Bureau begins by defining as essential facility in economicterms:

For the purposes of section 79 of the Act, an "essential"facility is an input that provides the firm controlling it with thepower to lessen or prevent competition in a relevantdownstream market.135

181 The Bureau did not add the modifier "substantially" to "lessen orprevent". This may be problematic. Competition law recognizes that intheory there can be a lessening or prevention of competition that is lessthan "substantial". Without the "substantial" modifier, a facility thatprovides the firm controlling it with the power to lessen or preventcompetition downstream by a trivial degree could nonetheless be considered "essential" under this definition. Of course, no remedy wouldbe available under the Competition Act, nor should the CRTC mandate access under such circumstances. It seems wrong in principle, however,to define "essential facilities" in such a way that facilities that are notreally essential meet the test. I am inclined to assume that this definitionwas meant to include the modifier "substantial".

182 The Bureau cautions, however, that

Section 79 of the Act is concerned with abuse of thismarket power that has resulted, results or is likely to result ina substantial lessening or prevention of competition, not theexercise of any market power inherent in the facility.

183 This follows, as the Bureau notes in a footnote, from the principlethat the Competition Act abuse of dominance provision is not concernedwith the existence of dominance, but with its abuse. The distinctionbetween exercise of market power inherent in the facility, and abuse ofthat market power, is difficult to draw in practice. I have difficulty seeinghow a mere denial of access could constitute abuse of dominance,except in limited circumstances.136

184 The Bureau then notes that in an essential facilities case, the actualconduct at issue would be "an actual or constructive denial of access tothe facility". A constructive denial of access would be conduct that isequivalent to denying access, such as terms of access that areprohibitively expensive.

185 I set out the Bureau’s test below, for convenience:

(i) A vertically integrated firm that is dominant in twomarkets. The first relevant market is the upstream market (or


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wholesale market) for the facility. The second relevantmarket is the downstream market (or retail market) in which the facility is an input. A necessary condition for concludingthat there is dominance in the upstream market is that it isnot practical or feasible for competitors to duplicate thefacility in question.

(ii) A denial of access to the facility for the purpose ofexcluding competitors from entering or expanding in thedownstream market or otherwise negatively affecting their ability to compete.

(iii) The denial has had, is having or is likely to have theeffect of substantially lessening or preventing competition inthe downstream market. [Footnotes omitted.] 137

186 This test has already been the subject of extensive comment byeconomists retained by the parties. I will comment briefly on eachelement.

187 The first element is really two elements: dominance in the upstreammarket, and dominance in the downstream market (I refer to this as the"double dominance requirement"). A qualification is added to the firstelement, namely, that the vertically integrated firm is not considereddominant unless it is not practical or feasible for competitors to duplicatethe facility.

188 The double dominance requirement is problematic. I agree that on apractical level, it is a useful screen, because if the vertically integratedfirm is not dominant in the downstream market, one must questionwhether the purported essential facility really is essential. However,maintaining this requirement as a matter of law is inconsistent with thepossibility of a firm that is dominant in an upstream market to leveragethat dominance into the downstream market by cutting off itscompetitors. Thus I would regard lack of dominance in the downstream market as strongly indicating, and perhaps even raising a rebuttablepresumption, that the facility is not essential and that the refusal to grantaccess will not substantially lessen or prevent competition.138 It should be noted that in the telecom industry, only downstream competitors thatare not dependent on the upstream dominant firm should be countedwhen considering this factor.

189 The second difficulty that I have with the first element is that thedefinition of "dominance" in the upstream market is different from thedefinition of dominance in the downstream market, where, presumably,dominance would be defined in the usual way (as discussed above). Iagree that the "not practical or feasible for competitors to duplicate thefacility" requirement is an essential element of any essential facilitiestheory. However, it is potentially problematic to play around with thedefinition of "dominance" in order to fit this in. The statutory languagesetting out the dominance requirement is common to all anti-competitiveacts, which gives rise to the presumption that the requirements forestablishing dominance will not vary depending on the anti-competitiveact being alleged. Consequently, this element would be better placedunder paragraph 79(1)(b). That being said, it must be admitted that theBureau’s approach in the TAB is consistent with its approach to marginsqueezing in the Abuse Guidelines, where the Bureau equateddominance in the upstream market with there being no alternative sources of supply.139


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190 As discussed above, the Bureau’s approach to market shares in thetelecom industry results in 1/n market shares where there are competingnetworks that are not capacity constrained. It is unlikely that a networkowner could be considered dominant in these circumstances.

191 The first element stated by the Bureau maps to paragraph 79(1)(a)("...substantially or completely control... a class or species of business"),and the third, to paragraph 79(1)(c) (substantial lessening or preventionof competition). The second element stated by the Bureau shouldtherefore map to paragraph 79(1)(b), and define the nature of theanti-competitive act.

192 The Bureau’s second element focuses exclusively on intention.While the point is arguable, given the heavy emphasis of the FederalCourt of Appeal in Canada Pipe on intention, earlier case law in theTribunal focussed on whether the character of the act was predatory,exclusionary, or disciplinary. Intention was inferred from the character ofthe act, in the absence of evidence of a subjective intention.

193 As stated above, the "not practical or feasible to duplicate" elementshould form part of the inquiry into the character of the act. A similarconcept is found in one statutorily enacted essential facilities provision,paragraph 78(1)(k), relating to airlines.

194 Another important issue is whether the dominant firm canreasonably be expected to supply the facility. This is expressly requiredby the Airline Regulations, and the Bureau touches on it in its discussionof the second element. In this discussion, the Bureau also repeats the"not practical or feasible to duplicate" requirement. It also adverts to thecapability of the supplier to supply the facility:

With a finding of market power, a denial of access is ananti-competitive act when its purpose is to exclude orimpede actual or potential competitors. To infer such apurpose, it must be difficult or impossible for those competitors to substitute other inputs or to practically orreasonably duplicate the facility. The requirement that it isnot practical or feasible for a competitor to duplicate thefacility means that such an entrant would not find it feasibleto enter or compete effectively if it had to self-supply thefacility. At the same time, for the purpose to beanti-competitive, the supplier must have the necessarycapacity, or have the willingness and ability to build thenecessary capacity, to supply those competitors.140

195 The third element of the test in the TAB is simply paragraph 79(1)(c):substantial lessening or prevention of competition. As held in theCanada Pipe Appeal, this involves a comparative assessment of themarket with, and without, the impugned refusal to deal.

196 The Bureau has indicated it will take a narrow approach to thiselement:

Before the Tribunal is able to issue any remedial orderunder section 79, it must be shown that the practice ofanti-competitive acts must actually, or be likely to,substantially lessen or prevent competition in thedownstream market. Accordingly, if control of the facility is asource of dominance in both an upstream and downstream


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market and the denial of access has been for ananti-competitive purpose, the Bureau’s "but for" analysiswould then focus on whether the denial of access leads tomaterially higher prices downstream than would occur if thedominant firm charged the profit-maximizing access price todownstream competitors.55

55 The "profit-maximizing access price" would be that at thetime of the denial (i.e., assuming the downstream marketstructure absent the denial).141

197 As I understand this paragraph, the comparison is made betweenthe following two situations. In the first, "with" the denial of access, theincumbent vertically integrated firm may, or may not, have market powerin the downstream market. If it has market power downstream as a resultof its denial of access, then it is able to – and likely will – chargemonopoly prices in that market. If it does not have market powerdownstream, it will not.

198 In the second situation, "without" denial of access, thevertically-integrated firm grants access to a competitor. Now if thevertically-integrated firm had market power downstream, and decided to grant access voluntarily, it would be able to price access up to the pointwhere its competitor could not beat the monopoly prices it was chargingdownstream. So the competitor ends up charging essentially the same price as the incumbent in the downstream market. It follows thatcompetition has not been increased by granting access; put anotherway, denial of access has not prevented competition.

199 Thus the Bureau appears to have recognized the "single monopolyprofit critique", which holds that there is only one monopoly profit to beearned.142 It does not matter whether the monopoly profit is earnedupstream or downstream.

200 The July 2005 report by the EU’s Economic Advisory Group onCompetition Policy, An economic approach to Article 82"("EAGCPReport") explains:

However, the monopolization of a downstream market neednot have anticompetitive effects per se. After all, there isonly one final market and only one monopoly profit to bereaped. If the dominant firm is able to capture the monopolyprofit of the final market even if there is downstreamcompetition, then monopolization of the downstream market cannot have anticompetitive effects because there is nocompetition anyway.143

201 It follows that the situations where the Bureau’s test would be metare very limited.144

202 The fact that the Bureau’s test appears to tolerate monopoly pricingby the incumbent may strike some as odd. It is, however, correct from acompetition policy standpoint. The abuse of dominance provisions donot exist to provide a remedy for existing market power. They are onlyengaged when firms that have market power engage in anti-competitiveconduct in order to preserve or extend their market power. The Tribunalstated this point in Tele-Direct:

section 79 is not intended to condemn a firm merely for


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having market power. Instead, it is directed at ensuring thatdominant firms compete with other firms on merit and notthrough abusing their market power.145

B. Refusal to deal

203 Section 75 allows the Tribunal to intervene in certain cases where aperson’s business is suffering because of an inability to obtain a supplyof a product needed for that business. There have been only threeapplications under s. 75 by the Commissioner, the last being in 1997.However, now that private applications are allowed under s. 75, thisprovision is assuming greater importance. The first application to go to afull hearing, B-Filer, was heard and decided in 2006. Fifteen applicationsfor leave to commence a private application under s. 75 have been filed;leave has been granted in five, and denied in nine. One application waswithdrawn.146

204 The elements that must be shown before the Tribunal canintervene, as set out in subsection 75(1), are:

(a) a person is substantially affected in his business or isprecluded from carrying on business due to his inability to obtain adequate supplies of a product anywhere in amarket on usual trade terms,

(b) the person referred to in paragraph (a) is unable toobtain adequate supplies of the product because ofinsufficient competition among suppliers of the productin the market,

(c) the person referred to in paragraph (a) is willing and ableto meet the usual trade terms of the supplier or suppliersof the product,

(d) the product is in ample supply, and

(e) the refusal to deal is having or is likely to have anadverse effect on competition in a market [Emphasisadded.]

205 It is immediately apparent that the test under section 75 is similar tothe essential facilities doctrine as developed in the US, although thereare differences.

(1) Inadequate supply of a product in a market

206 The first step, as always, is to define the market surrounding theproduct whose supply has been refused, that is, the upstream market.Market definition will essentially determine the question of whether thecomplainant is able to obtain an adequate supply of a product in amarket. The broader the product or geographic market, the more likely there are alternative sources of supply. In the two successful cases todate, the product market was limited to the particular product that thecomplainant was unable to obtain: genuine Chrysler parts in Chrysler147

and Xerox copier parts in Xerox.148

207 In B-Filer,149 the Tribunal picked up on its statement in Chrysler that "In the case of para. 75(1)(a), the ultimate test concerns the effect onthe business of the person refused150 The Tribunal then articulated


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what it called the "Chrysler test" for market definition under paragraph75(1)(a):

For the purposes of 75(l)(a), products are substitutes, andso are included in the same market, if a person is notsubstantially affected in his business (or if the person is notprecluded from carrying on business) as result of switching to these other products.151

(2) Business substantially affected

208 This requirement raises two questions: first, what is the relevantbusiness – does the business that is "substantially affected" refer to the"specific line or product" whose supply has been refused; or does it referto the entire business of the complainant? Second, how substantiallymust the complainant’s business be affected?

209 In Chrysler, the Tribunal answered the first question as follows: "theeffect on the entire activity of which the refused supplies are a partshould be used" and elaborated criteria for making this determination.152

210 The Tribunal has held that "‘substantial’ should be given its ordinarymeaning, which means more than something just beyond de minimis".153

211 If the complainant substitutes the input with another input that is inthe same product market as the refused input, then its business will nothave been substantially affected.154 The Tribunal has dismissed anumber of applications for leave on the basis that the lost sales did notconstitute a sufficiently large percentage of overall sales.155

212 There are no cases interpreting paragraph 75(1)(a) in the telecomindustry, nor has the Bureau provided any guidance on section 75 as itapplies in this sector. Suppose that, after the CRTC ends mandatoryunbundling in a given geographic market, an ILEC cuts off CLECs thatobtain wholesale services and facilities from it. Suppose also that noother facilities-based TSP in the market is willing to provide wholesaleservices and facilities to that CLEC. If that market represents asufficiently large percentage of the CLEC’s overall business, then theCLEC will likely be able to establish this element. If that market onlyrepresents 10% or so of the CLEC’s sales, it is unlikely to be"substantially affected" under the analysis employed by the Tribunal todate. If the CLEC is able to point to national accounts it has lost, is likelyto lose, or perhaps is unlikely to gain, as a result of not being able toprovide services in all Canadian markets, that might get the CLEC overthe threshold. Also, the CLEC might try arguing being forced out ofbusiness in a particular geographic market meets the test, regardless ofthe percentage of its revenue involved.

(3) Because of inadequate competition

213 Section 75(1)(b) requires that the complainant’s inability to obtainadequate supplies of the product be because of insufficient competitionamong suppliers. This imports two requirements: first, at the time of therefusal to supply, a "particular market situation must exist",156 namely, "insufficient competition among suppliers". A market of many suppliersacting independently would not involve insufficient competition; a marketwith a monopoly supplier would.157

214 The second requirement is that the insufficient competition must be


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the cause of the complainant’s inability to obtain adequate supplies; thatis, "the overriding reason that adequate supplies are unavailable mustbe the competitive conditions in the product market".158

215 The presence of an objectively justifiable business justification mayrebut an inference that insufficient competition is the cause of thecomplainant’s inability to obtain adequate supplies.159

216 An ILEC cutting off a CLEC might have difficulty showing anobjectively justifiable business justification. While the ILEC mightreasonably say that the price at which it had been forced to sellwholesale services was insufficiently remunerative, the response would be that the ILEC should increase the price rather than cut off the CLEC.If the ILEC could show that it needed the facilities, however, and wouldhave to build new ones if it did not cut off the CLEC, that may be alegitimate business justification.

(4) Pre-conditions to relief: usual trade terms and amplesupply

217 Sections 75(1)(c) and (d) establish two preconditions to thecomplainant’s obtaining any relief. The complainant must be "willing andable to meet the usual trade terms of the supplier or suppliers of theproduct", and the product must be in ample supply.

218 "Trade terms" is restrictively defined in subsection 75(3) as "terms inrespect of payment, units of purchase and reasonable technical andservicing requirements". "Servicing requirements" relates to upkeep ormaintenance requirements. Thus contractual conditions of supply, apartfrom those relating to payment and units of purchase, are not "tradeterms".160

219 The phrase "usual trade terms of the supplier" necessarily impliesthat the supplier is in fact engaged in the business of supplying theproduct. Thus, section 75 will not apply if the vertically integrated firmdoes not supply the upstream product to any third party. There would beno basis upon which the Tribunal could find that the applicant was willingto meet the supplier’s usual trade terms, as the supplier would not haveany usual trade terms. Thus, if a CLEC decided not to supply wholesaleservices to anyone, section 75 could have no application in respect ofthat CLEC.

220 Further, for the concept of "usual trade terms of the supplier" tomake sense, those terms must not have been imposed by regulation.The purpose of the requirement must be to ensure that the supplier isonly required to supply the applicant in accordance with the same termsunder which it has freely chosen to supply others. Such terms,presumably, do not impose an unreasonable hardship on the supplier.Terms imposed by regulation are not really the suppliers’ terms.

221 The telecom industry presents a transition problem here. It would beinappropriate to treat the regulated prices set by the CRTC as "usualtrade terms" in a deregulated environment. The lack of a history of salesgiving rise to "usual trade terms" will give rise to difficulties in anyapplication by a CLEC under section 75.

(5) Adverse effect on competition

222 Section 75(1)(e) requires that the refusal to deal "is having or islikely to have an adverse effect on competition in a market". This


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requirement was enacted in 2002, after Chrysler and Xerox were decided. B-Filer is the only case to consider this provision so far.

223 The Tribunal held that, like the substantial lessening requirement inthe abuse of dominance provision, the adverse effect requirementmandates a comparative assessment of the competitiveness of themarket with, and without, the refusal to deal. The competitiveness of themarket refers to the degree of market power that prevails in the market,the Tribunal held. Thus,

for a refusal to deal to have an adverse effect on a market,the remaining market participants must be placed in aposition, as result of the refusal, of created, enhanced orpreserved market power.161

224 However, section 75 sets a lower threshold than the "substantial"threshold required by section 79 (and several other provisions in theCompetition Act).162 The adverse effect need not be in the sameproduct market as the refused product.163

(6) Remedy

225 The remedy available under s. 75 is narrow: the Tribunal can orderany supplier of the product (not necessarily the one that cut thecomplainant off) to accept the complainant as a customer on usual tradeterms.

226 Moreover, the Tribunal is unable to impose a time limit on its orderunder s. 75.164 An application under s. 106 is the only way to vary orterminate an order under s. 75.

227 The Tribunal has a residual discretion to refuse an order eventhough all of the statutory requirements are met.165

(7) Is section 75 an essential facilities provision?

228 It should be apparent from the foregoing that section 75 sharesmany similarities with the essential facilities doctrine as developed by UScases. For instance, section 75 has requirements that are equivalent toessentiality and non-duplicability. That is, if the complainant is able tosubstitute another input for the refused product without serious impacton its business, no remedy will be available under section 75.

229 However, as mentioned above, section 75 probably is not availablewhere the owner of the input does not supply it to anyone. As well, thecompetitive effects test is lower than the test applicable in an abuse ofdominance case.

C. Forum shopping

230 To the extent that the CRTC forbears from mandating access towholesale services, CLECs who consider that they have been deniedaccess to an essential facility will have three options:

a) They can apply to the CRTC for a determination of thematter.

b) They can complain to the Competition Bureau under theabuse of dominance provisions.


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c) They can apply to the Tribunal for leave to commence aprivate application.

231 Forbearance thus unavoidably creates forum shopping opportunitiesfor aggrieved CLECs. CLECs’ choice of forum will naturally be based onwhere they think they have the best chance of winning. This in turn willdepend on a combination of the legal test applicable in each forum andthe particular facts.

232 To the extent that the legal test is appreciably easier to meet in oneforum than another, CLECs will naturally gravitate to that forum. Thus ifthe CRTC establishes a test for essential facilities that is much harder tomeet than the tests applicable under the Competition Act, CLECs will be more likely to apply to the Commissioner or the Tribunal than the CRTC.One complicating factor is that because the test applicable to denial ofaccess to an essential facility under section 79 is uncertain, it will bedifficult for CLECs to evaluate which forum will give them a better shot.

233 A related issue that will likely arise is whether decisions by the CRTCwill be regarded as res judicata by the Tribunal, and vice versa. I do not intend to attempt to resolve this issue.

V Defining "essential facilities" for purposes oftelecommunications regulationA. Past CRTC definitions

234 Through a series of decisions, the CRTC has produced a test forwhen it will mandate wholesale access of an essential facility. A briefsurvey of those decisions is therefore an appropriate starting point.

(1) Review of Regulatory Framework

235 In September 1994, the CRTC issued its Review of RegulatoryFramework decision.166 As its name suggests, this decision announcesa new regulatory framework intended to increase competition andreliance on market forces in the telecommunications industry, and assist in the development of the "information highway", which was then a termmuch in use.

236 The CRTC wanted to promote local competition, but recognized thatlocal exchange networks were monopoly products owned by verticallyintegrated incumbents. The CRTC rejected structural separation ofwholesale and retail services. Instead, it announced a regulatory framework that included the following:

a) New rate bases and tariffs designed to increase equitybetween incumbents and competitors;

b) Local price floors to prevent anti-competitive pricing;

c) Removal of barriers to entry through open access,unbundling and co-location;

d) Price caps in the "utility" segment (bottleneck services).

237 The CRTC thus held that telephone companies should provideco-location where requested and directed them to file tariffs for access tolocal switches that is comparable in terms of price and quality to theaccess they provide to their own long distance operations. The CRTC also held that telephone companies must provide unbundled services.


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The CRTC appears to have adopted a form of "negotiate first" approach,directing that competitors should advise incumbents of their unbundlingrequirements, and the incumbents should file tariffs. The CRTC alsoadopted the principle of reciprocal access and interoperability.

238 Overall, the discussion of wholesale access in the Review ofRegulatory Framework decision is stated in broad terms. The CRTCconsidered that bottleneck services, as well as those subject to dominantsupply, should be unbundled. While the decision does not elaborate an"essential facilities" test, the decision clearly rests on an appreciation ofthe essentiality of certain facilities:

In telecommunications, the monopoly product (the localexchange network) is, as a practical matter, the sole sourceof ubiquitous switched distribution to end users, and is,therefore, an essential input, one on which both the vertically integrated firm and its competitive marketrivals depend.

The Commission agrees that the telephone companieshave both the incentive and the opportunity to use theirvertically integrated structures to lessen competition byexploiting control over bottleneck facilities.167

(2) Local Competition decision

239 In May 1997, the CRTC issued its decision in the Local Competitionproceeding.168 The CRTC adopted a test for determining when a facilityis essential derived from competition policy:

73. The Commission considers that either too narrow or toobroad a definition of an essential facility may impair thedevelopment of competition. If it is too narrow, competitorsmay not be able to enter the market because of an inabilityto obtain the necessary network components. If it is toobroad, giving overly generous access to ILEC inputs, CLECs may not have sufficient incentives to invest intheir own facilities, and would enter and remain in themarket primarily as resellers. The Commission is of theview that efficient and effective competition will be bestachieved through facilities-based service providers;otherwise, competition will only develop at the retaillevel, with the ILECs retaining monopoly control of wholesale level distribution.

74. In light of the above, the Commission concludes thatILECs should generally not be required to makeavailable facilities for which there are alternative sources of supply or which CLECs can reasonablysupply on their own. Accordingly, the Commissionconsiders it inappropriate to define an essential facility as afacility that is provided by a dominant firm with market powerbecause it would require facilities to be treated as essentialeven in the face of the demonstrated feasibility ofalternative provision, including self-supply. The Commissionconcludes that to be essential, a facility, function, orservice must meet all three of the following criteria: (1) itis monopoly controlled; (2) a CLEC requires it as aninput to provide services; and (3) a CLEC cannot duplicate it economically or technically. Facilities that


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meet this definition shall be subject to mandatoryunbundling and mandated pricing. As well, the tariffed ratesfor these facilities shall be treated as costs in the imputationtest. [Emphasis added.]

240 A number of points in this reasoning are noteworthy. First, the CRTCannounces a clear goal of achieving facilities-based competition.Resellers are not expected to remain resellers; they should haveincentives to develop their own facilities.

241 Second, the CRTC recognized that if unbundling was too generous,CLECs would not be incented to develop their own facilities.

242 Third, the CRTC initially made it clear that ILECs should not have tounbundle facilities for which there are alternative sources of supply orthat CLECs can self-supply; that is, facilities that are not essential. Ofcourse, the CRTC departed from this principle later in the same decision.

243 Fourth, the test for an essential facility in the Local CompetitionDecision is similar to that derived from US case law by ProfessorRobinson. The main difference is that the Local Competition test refersto the facility as being essential to "a CLEC", whereas ProfessorRobinson says "essential to competition". This is in fact a big difference,if what is intended by "a CLEC" is that if one CLEC requires the facilitywhere others do not, the facility will be "essential". The same differenceexists in the non-duplicability element. If the focus is on "a CLEC" asopposed to competition/competitors generally, the danger is that anunderfunded or poorly managed CLEC will be coddled.

244 The CRTC then defined three essential facilities: central officecodes, subscriber listings, and local loops in certain bands (small urbanand rural areas). The CRTC also ordered unbundling of certain otherfacilities for a period of five years, even though it found that thesefacilities did not meet the requirements for an essential facility. Therewere, generally, local loops in urban areas, and various kinds oftransiting. The CRTC did not make a finding on 911 service, butaccepted Stentor’s proposal to make it available to CLECs. Similarly,although it found that Message Relay Service was not essential, theCRTC accepted Stentor’s offer to unbundle it and price it as an essentialfacility.

245 Interestingly, the CRTC held that rights-of-way and supportstructures were not essential facilities, because of the framework in theTelecommunications Act 1993. The CRTC also found that inside wireand local switching were not essential facilities. Nor were directoryassistance and white pages directories, but this was because the CRTCordered exchanges of subscriber listings.

246 The CRTC ordered that essential services be priced at Phase IIcosts plus a 25% markup, in order to recognize common costs in additionto Phase II costs.

247 The CRTC imposed certain obligations on all LECs, includingCLECs, such as interconnection, 911 service, privacy protection, andsubscriber listings.

(3) Subsequent decisions

248 As noted in the Public Notice for this proceeding, in the Price Cap Regulation and Related Issues decision, the CRTC began using the term"Competitor Services" to describe services used by competitors, including


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interconnection services used by wireless carriers. The CRTC stated thatit intended to designate services designated as competitor services in afollow-up proceeding.169

249 The follow up proceeding was Final Rates for Unbundled LocalNetwork Components, wherein the CRTC established rates for wholesaleaccess to unbundled services. This decision is illustrative of thecomplexity of establishing cost-based pricing for wholesale access.170

250 In Regulation Under the Telecommunications Act of CertainTelecommunications Services Offered by "Broadcast Carriers", the CRTCreferred to previous findings that the retail internet service market washighly competitive. There were numerous providers and switching wasrelative easy. Cable companies were not yet a major factor and did not have market power. The CRTC noted that

...the retail level ISs market is characterized by rapid andsignificant innovation, minimal barriers to entry and minimalrestrictions on competitors’ ability to increase supply inresponse to a non-transitory price increase.171

251 The CRTC then reached the opposite finding in the market for highspeed access services (that is, wholesale access to underlying facilitiesfor high speed internet access), finding that the incumbent cablecos andtelcos had substantial market power and that it would therefore regulaterates and terms on which they provide access.

252 There does not appear to have been an analysis or determinationas to whether high speed access services from cablecos were an"essential" or "near-essential" facility in this decision.

253 In September 1999, the CRTC ordered incumbent cablecos thatoffer high speed internet access to make these services available forresale at a discount of 25% from the lowest retail price they charge. Thecablecos had not, at this point, provided access as provided for indecision 98-9, for technical reasons. The CRTC declined to order thatthey provide immediate access.

254 As noted in the Public Notice for this proceeding, in 2001, theCRTC’s order Local competition: Sunset clause for near-essentialfacilities extended indefinitely mandated wholesale access to"near-essential" facilities. The CRTC did so on the basis that thesefacilities are "critical inputs required by entrants" and that ILECs are theonly source of these facilities in virtually all cases. Despite this, the CRTCdeclined to re-categorize near-essential local loops as essential.172

255 In its 2002 decision, Regulatory framework for second price capperiod,173 the CRTC announced the price cap régime that would applyto ILECs for the next four year period. Among the objectives of thepricing régime was fostering facilities-based competition. The CRTCdivided Competitor Services into Category I, essential and near-essentialservices, and Category II, services developed for use by TSPs.174

256 The CRTC noted that, by the end of 2000, competitors served10.3% of the business market (but up to 16% in large urban centres)and only 0.2% of the residential market. It concluded that local competition is in its early stages, and almost non-existent in residentialmarkets.175 The CRTC noted that quality of service provided by ILECs toCLECs was substandard in an unacceptably high number of months.176


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257 The CRTC was alive to the concern pricing wholesale access toILECs’ facilities were priced too low would introduce disincentives to theconstruction of facilities and harm an important source of revenue forexisting facilities-based CLECs. It thus rejected proposals for steeplydiscounted pricing of wholesale access.177

258 The CRTC considered proposals to designate new services asCompetitor Services. It designated Digital Network Access services("DNA") as a Category I Competitor Services, although it recognized thatwas some self-supply of some components of DNA facilities. It rejectedDistributel’s submission that Centrex tie trunk terminations should also bedesignated.

259 The CRTC reduced the markup on Category I services to 15%above Phase II costs (from 25%), and addressed certain specific markupissues.

260 The CRTC reached the conclusion that the monitoring régime thenapplied to ensure quality of service was not sufficient. It decided tointroduce incentives, in the form of rate adjustments, including rateadjustments for competitors.

261 In June 2002, the CRTC dismissed a complaint by some internetservice providers. The complaint was basically in the nature of a marginsqueezing complaint. The IPSs said that Bell offered wholesale DSL forup to $228 per month while charging retail customers $34.95 for DSL. The CRTC relied on earlier findings that low and high speed internetaccess were in the same product market and that there was a highdegree of competition between telcos and cablecos for high speedresidential internet access.178

262 In its 2004 decision, Ethernet Services, the CRTC approved, on aninterim basis, Bell Canada’s application to offer Ethernet services. At thesame time, the CRTC ordered Bell Canada and other ILECs to makeEthernet services available to competitors on an interim basis, until theCRTC could determine the adequacy of Ethernet substitutes.

263 In its 2005 decision, Competitor Digital Network Services,179 the CRTC re-affirmed its finding in decision 2002-34 that ILECs shoulddevelop and make available competitor DNA ("CDN") services. The CRTCfound that competitors relied heavily on ILEC provided DNA; non-ILECsupply (self-supply and third party supply) of DNA was 23% of the total, but that certain adjustments would reduce this number.180 Competitors faced greater constraints on facilities construction than ILECs, andcompetition in the local wireline market continued to be very limited, theCRTC found.

264 The CRTC examined each of the various services that make up CDNservices. The CRTC seems to have applied two slightly different tests indetermining whether to mandate access to a particular service. In somecases, current reliance by CLECs led to mandating access. In others, thefeasibility of self-supply from a cost perspective was considered.

265 The CRTC then considered whether these services should beassigned to Category II or II, and, within Category I, whether they wereessential services. The CRTC held that only two services were essential(optical CO co-location link and other CO connecting link). DS-0 andDS-1 access were classified as Category I near essential services. Theremaining services were classified as Category II services.


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266 The CRTC determined that competitors could use any of the CDNservices in conjunction with other ILEC services or non-ILEC services.181

267 In January 2007, the CRTC issued an order, Ethernet Services, containing its final determination on Ethernet services.182 The CRTC did not expressly apply the test for essential services it first elaborated inDecision 97-9. It did, however, find that the same constraints apply toEthernet services as apply to fibre-based CDN services.183 The CRTCnoted its finding in Decision 2005-6 that third-party fibre-based suppliershave the potential to increase their supply to competitors,184 and heldthat incentives to build fibre-based facilities would be unduly diminished ifit designated Ethernet access services as Category I, and it classifiedthem as Category II. The CRTC also classified Ethernet transportservices as Category II because competitors have other options. Itclassified Ethernet CO link services as Category I because only ILECs can supply them.

268 Taken as a whole, the CRTC’s decisions after the Local Competitiondecision show an increasing departure from the principled approacharticulated in that decision toward what comes close to a presumption infavour of wholesale access. The CRTC went from the view that "ILECsshould generally not be required to make available facilities for whichthere are alternative sources of supply or which CLECs can reasonablysupply on their own" to doing exactly that.

B. The Commissioner of Competition’s definition

(1) The elements of the definition

269 The Commissioner of Competition has proposed a variation on thedefinition of an essential facility in the TAB for purposes of determiningwhether to mandate wholesale access:

The firm controlling the facility in question is vertically integratedand dominant in two markets. The first relevant market is theupstream market (or wholesale market) for the facility. The secondrelevant market is the downstream market (or retail market) inwhich the facility is an input. A necessary condition for concludingthat there is dominance in the upstream market is that it is notpractical or feasible for competitors to duplicate the facility inquestion;Mandating access to the facility is likely to result in competitorsentering or expanding in the downstream market; andSuch entry or expansion is likely to result in competition sufficientto allow for removal of economic regulation in the downstreammarket within a reasonable period of time.

(2) The downstream dominance requirement

270 The first element is virtually identical to the first element in the test inthe TAB. It retains the double-dominance requirement and retains thenon-duplicability requirement as part of the test for dominance.

271 The comments I made about these requirements above apply hereas well. However, my concern about having a different standard fordominance may not arise here, given that this test is not intended to bea test under section 79.

272 The Bureau explains why it would require a showing of downstream


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dominance in its Supplementary Evidence:

The requirement for dominance downstream is to recognizethat if the owner of the facility is not dominant downstream,it does not have market power that is durable andsignificant. In these circumstances, there is alreadyfacilities-based competition in the downstream market, and thus the benefits of mandated wholesale access willbe limited. Moreover, mandating wholesale access couldbe a disincentive for further investment by competitors intheir own facilities so the costs of mandating access couldbe high. Consequently, the benefits from any increase incompetition resulting from mandated access is unlikely towarrant the costs of mandated access. [Emphasisadded]185

273 It is clear from that the Bureau is limiting its consideration tofacilities-based competitors downstream. This is obviously sensible:otherwise an ILEC could point to downstream competitors that dependon it for access under the current mandatory regime to argue that thecompulsion to provide them with access should be removed.

274 Given the Bureau’s 1/n market shares for facilities-basedcompetitors that are not capacity constrained, the presence of onefacilities-based competitor means that the owner of the facility is notdominant downstream. Thus if there is one facilities-based competitor, inaddition to the ILEC, the Bureau’s test is not met and access should notbe mandated to the facility.

275 I agree that the Bureau’s downstream dominance requirement is auseful screen, although it may, technically, be redundant. There are tworeasons for this. First, what we care about is competition in thedownstream market. If the owner of the facility does not have marketpower in this market, then there is no problem to fix. Second, if there isfacilities-based competition in the downstream market, it follows that ishas been practical and feasible for at least one competitor to duplicatethe facility in question. Unless we adopt some arbitrary target for thenumber of facilities-based competitors we want in the downstreammarket, that is the end of the matter, and an element of the test cannotbe made out and the facility is not essential.

(3) The "strict" and "weaker" interpretations of thenon-duplicability element

276 I find the Bureau’s discussion of the "strict" and "weaker"interpretations of the non-duplicability requirement confusing. As Iunderstand it, the difference stems from effectiveness of a competitorthat has duplicated the facility. One is looking at the costs of duplicatingthe facility, as opposed to actual competitors.

277 Thus I am not sure that this is not just another way of stressing thatthe requirement is not that it must be impossible to duplicate the facility,but that it must not be practical or feasible for a reasonably efficientcompetitor to duplicate the facility. Professor Robinson makes this verypoint in his first report:

Non-duplicability. Non-duplicability, of course, refers to theabsence of any source of supply for the facility in questionother than the monopolist owner. Practical non-duplicabilitycan be a product of a number of different constraints that


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make self-provision impractical. For example, there might betechnical or legal constraints (such as a patent) onself-provisioning. However, the usual ground for findingthat a particular functionality cannot be duplicated is that it is not feasible to do so because market conditionsdo not make it economical to do so (the demand for theend services enabled by the facility will not support thecost of duplicating a particular facility). Consistent with the definition of essentiality above, non-duplicability is anobjective condition of the market, not the financial status ofa particular rival. If it is practical for a reasonably efficientcompetitor to self supply the facility in question, it is notrelevant whether a particular entrant can do so.186

278 That being said, Professor Robinson also stresses that "‘essential’ isnot the same as ‘convenient’".187 That is, the fact that the alternative ismore expensive is not a reason to mandate access – unless,presumably, the cost difference makes duplicating the facilityuneconomic.

(4) Forbearance based competitive effects test

279 The second and third elements in this definition are functionallyequivalent to the substantial prevention part of the third element in theTAB. If the first element in the Bureau’s definition is satisfied, thenneither the upstream nor the downstream markets are competitive. Thesecond and third elements ask the question: will competition beincreased, and by how much, if we mandate access? The question couldbe turned around to ask: if we do not mandate access, will competitionbe prevented, and to what degree?

280 In its Supplementary Evidence, the Bureau explains the second andthird elements by pointing to a distinction between "substantial lesseningor prevention of competition" and "competition sufficient to allow for theremoval of economic regulation". I do not agree with this distinction. Inprinciple, "competition sufficient to allow for the removal of economicregulation" would be a substantial increase in competition, which wouldimply that any denial of the owner to grant access to the facility wouldlead to a substantial prevention of competition.

281 The Bureau explains in its Supplementary Evidence what it meansby "competition sufficient to allow for the removal of economicregulation":

The Bureau’s test assumes that retail forbearance occursonly when there is competition in downstream markets thatis sufficient to replace regulation as a means of controllingthe exercise of market power. If retail forbearance isgranted prior to the establishment of such competition,there will be pressure to inefficiently expand the wholesaleregulation regime as an imperfect substitute for retailregulation.188

282 In other words, the Bureau’s third element requires an improvementin the downstream market from a situation where the owner of the facilityis dominant, to one where the facility owned cannot exercise marketpower (or, at any rate, has less scope to exercise market power). I wouldhave thought that if that test were met, the substantial prevention ofcompetition test would also be met.


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283 However, the test for local forbearance assumed by the Bureauabove is not the test. When viewed against the test for forbearance fromlocal rate regulation as set out in Decision 2006-15 as modified by theLocal Forbearance Variation Order, "competition sufficient to allow forthe removal of economic regulation" turns out to be a very low threshold.That test (which was set out above) consists of three alternative tests,any one of which is sufficient to impel forbearance (provided quality ofservice requirements are met).

284 The first is the test for a finding that the ILEC does not have marketpower proposed by the Bureau. Its main requirement is the presence oftwo facilities-based providers, where the competitor has similar or lowercosts and neither is capacity constrained.

285 The second test is based simply on the presence of at least twoindependent facilities-based TSPs able to serve at least 75% of themarket, including mobile wireless services. Given that there are at leasttwo facilities-based mobile wireless providers in most (if not every) majorCanadian city, this test comes down to a mere requirement for onefacilities-based fixed-line provider.

286 The third test relates to business customers and is also based onthe presence of a competitive, fixed-line provider that serves businesscustomers.

287 It is important to note that "facilities-based", for purposes of thesecond and third tests, includes a carrier that leases its lines, presumablyeven those whose lines are leased from the ILEC.

288 It follows from this test that if mandating access would be likely tocause entry or expansion of a CLEC relying on wholesale access, withthe ability to serve 75% of the market, the second forbearance testwould be met (assuming the QoS requirements are also met) and thusalso the second and third elements of the Bureau’s test.

289 In its Supplementary Evidence, the Bureau cautions that thedefinition of "facilities-based" imposed by the Local ForbearanceVariation Order must be interpreted narrowly.189

290 The problem with the Bureau’s advice is that it is not open to theCRTC to adopt a different test for local forbearance than that set out inthe Local Forbearance Variation Order. As well, I see nothing in thedefinition of "facilities-based" in that order that supports a "narrowinterpretation" that would exclude competitors that rely on facilitiesleased from an ILEC. On the contrary, the order says that TSPs that usea combination of their own facilities and facilities leased from "otherservices providers" are "facilities-based" service providers. "Otherservices providers" must mean what is says, and include the local ILEC.

291 Finally, and perhaps most importantly, events have overtaken theBureau’s test. In July, the CRTC announced that it was forbearing fromlocal rate regulation in most major Canadian cities, and even somesmaller ones. The Bureau’s forbearance-based test has thus becomevirtually meaningless.

C. Definitions proposed by the parties

(1) The Companies’ definition

292 The Companies (Bell Canada and affiliates, and SaskTel) support


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the Bureau’s approach as set out in the TAB.

293 There is one apparent difference between the Companies’approach and the Bureau’s. The Companies’ test requires significantmarket power. The Tribunal has long equated the requirement in section79 of the Competition Act of showing substantial or complete control of amarket as requiring proof of market power. However, merely having alittle bit of market power would not, in my view, meet the statutoryrequirement of showing substantial or complete control. This issue hasnever come up in an abuse of dominance case as in every case, therespondent did have significant market power.

294 I note that the Companies, relying on Dr. Taylor’s report, argue thatthe TAB test is substantively the same as the test in the Local Competition decision, which is in turn based on the same test as thatproposed by Telus.

(2) Telus’ definition

295 Telus is an ILEC in Alberta and British Columbia and a CLECprimarily serving business markets in other provinces. Telus also offerswireless telephony.

296 Relying on Dr. Weisman, Telus proposes the following the three parttest for determining whether a facility is essential:

An essential facility is a facility, function, or service that at aminimum satisfies all three of the following criteria: (1) it is"monopoly" controlled; (2) CLECs require it as an input toprovide services; and (3) CLECs cannot duplicate iteconomically or technically.190

297 Professor Robinson’s phrasing is slightly different, but notsubstantively so, except that he adds a requirement that it be feasiblefor the owner of the facility to provide access:

(1) control of the essential facility by a monopolist; (2) acompetitor's inability practically or reasonably to duplicatethe essential facility; (3) the denial of the use of the facilityto a competitor; and (4) the feasibility of providing thefacility.191

298 This test is based, as Professor Robinson says, on decisions of thecircuit courts in the US (federal appeal courts). As Professor Robinsonconcedes, the status of the doctrine has not been finally determined inthe US. Indeed, the Trinko case, the US Supreme Court pointed out thatit had never recognized the doctrine:

This conclusion would be unchanged even if we consideredto be established law the "essential facilities" doctrinecrafted by some lower courts, under which the Court ofAppeals concluded respondent's allegations might state a claim. ... We have never recognized such a doctrine, ... and we find no need either to recognize it or to repudiateit here. [Emphasis added; citations omitted]192

(i) Monopoly control

299 Dr. Weisman and Professor Robinson make it clear that the firstrequirement, monopoly control, means just that: the facility must be a


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natural monopoly controlled by one owner.193

300 Whatever the merits of the monopoly requirement from a theoreticalstandpoint, it is a difficult fit with Canadian competition law. The firstelement of section 79, dominance ("substantially or completely control"),requires a high degree of market power, but not monopoly.194

(ii) Essentiality

301 Professor Robinson points out that the essentiality requirement"should be defined by reference to the functionality not the form of thefacility".195 I agree, so long as "functionality" is not taken to imply thatfunctional interchangeability is the only factor to be considered. Aproduct market needs to be defined upstream as well as downstream.Any upstream products that are good substitutes for the supposedlyessential facility must be included. This exercise will, of course, affect notonly the determination of whether the facility is essential, but whether theowner of it is dominant.

302 An important question is, essential for whom? Dr. Weisman points tohis use of "CLECs" as opposed to "a CLEC". What he means is allCLECs, or CLECs in general:

It is important to recognize that the second necessarycondition states that "CLECs require it as an input toprovide services" rather than "a CLEC requires it as aninput to provide services" as provided in the CRTC’s currentdefinition of an essential facility. Indeed, a single CLEC that does not require the input to provide thedownstream service is sufficient to establish that thefacility, function or service is not essential. This isnecessarily the case because the CLEC that does notrequire the input has served to establish that thefunctionality can be duplicated and if it can be duplicated it is not essential.196

303 I agree, up to a point. Where a CLEC has duplicated the facility, itfollows that the facility can be duplicated. This may not follow, however,where an incumbent cableco has upgraded its network to handle highspeed internet, and thus also VoIP. Incumbent cablecos haveadvantages similar to those of ILECs when it comes to facilities inresidential markets. Thus the fact that a cableco has duplicated thefacility may not mean that another competitor also can.

304 Another consideration with Dr. Weisman’s use of "CLECs" is that notall CLECs are offering the same products. Residential local and longdistance telephone service can now be offered throughaccess-independent VoIP services. Thus it would be difficult for a localand long distance provider to claim that local loops are an essentialfacility for CLECs generally. However, this does not answer a claim by aCLEC that offers high speed internet service that it needs access tofacilities. Thus the essentiality of a facility may turn on the productsoffered in the downstream market.

(iii) Non-duplicability

305 This essentiality and non-duplicability elements are related. If thesupposedly essential facility or its functionality can be duplicatedeconomically, then it cannot be essential.


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306 Professor Robinson also points out that we do not look at whatactual competitors think they need; rather, we ask whether hypotheticalreasonably efficient competitors need the facility.197

307 Professor Robinson uses the phrase "practical non-duplicability",and observes:

the usual ground for finding that a particular functionalitycannot be duplicated is that it is not feasible to do sobecause market conditions do not make it economical to do so (the demand for the end services enabled by the facilitywill not support the cost of duplicating a particularfacility).198

308 I think another way of saying this might be: if the cost of duplicatingthe facility is so high that the competitor’s service could not be priced tocompete with the incumbent’s, then it is not feasible to duplicate thefacility.199 As discussed above, I think this is less at odds with theBureau’s approach than Professor Robinson asserts.

309 Professor Robinson also points out that, like essentiality,duplicability refers to the function, not the facility. He stresses that this isa particularly important consideration in an industry where technology ischanging:

As with the element of essentiality the non-duplicabilityinquiry is an instrumental one and should not be tied to anyparticular means of obtaining it. Especially in a field ofchanging technology – telecommunications is a particularapt example -- it will often be possible to provide a particularproduct or service with alternative inputs even thoughconventionally the product or service was provided by anasset that cannot be replicated.200

310 I agree.

(iv) Feasibility of providing access

311 Professor Robinson points out that the facilities owner should nothave to incur unusual costs or suffer distortions in its business, such asdisadvantaging its own customers in order to accommodate itscompetitors’ customers, in order to share.201

312 I agree in principle. In particular, ILECs should not generally have toinvest to build or expand a facility in order to share it. Generallyspeaking, if the ILEC can build it, so can the CLEC. There may beexceptions. For instance, if the ILEC owns the physical space or supportstructures required for the facility, it may be appropriate either to requirethe ILEC to grant access to the space or support structures, or to buildthe facility for the CLEC if it is not prepared to grant access. Presumablyin those cases the CLEC should be granted access to build its ownfacilities, however.

(v) Implied competitive effects test

313 Telus’ approach contains an implied competitive effects test.Professor Robinson states:

If a facility is truly essential, its control must allow the owner


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to prevent or foreclose competition. In fact this seems tobe implied as well by the Bureau’s definition ofnon-duplicability, below.202

314 While Professor Robinson’s statement may be a correct statement ofthe law of the US, it is not consistent with the Competition Act. Here it is important to recognize the difference between the US monopolizationprovision in the Sherman Act, and the abuse of dominance provision inthe Competition Act. Sherman Act §2 reads as follows:

Every person who shall monopolize, or attempt tomonopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade orcommerce among the several States, or with foreignnations, shall be deemed guilty of a felony, ...203

315 Section 2 contents itself with stating the general principle – thoushalt not monopolize – and leave the details to be worked out by thecourts. There is thus considerably more scope for US courts to adoptdifferent tests depending on the particular theory of monopolizationunder consideration.

316 By contrast, sections 78 and 79 of the Competition Act contain adetailed code, including an express competitive effects test, substantiallessening or prevention of competition. It would be inconsistent with thisprovision for the Tribunal to say that complete foreclosure of competition– total prevention – is the standard to be applied in abuse of dominancecases.

317 Telus takes up Professor Robinson’s point and asserts that "theessential facilities doctrine is concerned exclusively with the prevention ofcompetition in a downstream market and not a mere lessening of thatcompetition".

318 This is not quite right. First, in paragraph 79(1)(c), and elsewhere inthe Competition Act, "substantial" modifies both "lessening" and"preventing".204 The Competition Act does not, anywhere, rely on a totalprevention standard.

319 Second, it is quite conceivable that an essential facilities case mightinvolve a substantial lessening of competition. Suppose an owner of anessential facility cuts off a downstream competitor that relies on it foraccess to the facility. Assuming all the other elements of the test aremet, the denial of access would have caused a substantial lessening ofcompetition as well as a substantial prevention of competition.

(3) Rogers’ definition

320 Rogers is a cableco and both a facilities-based andwholesale-access based competitor, primarily in residential markets. Rogers offers wireless telephony. Rogers also offers portable wirelessbroadband internet, through a joint venture with Bell.

321 Rogers proposes the following definition of "essential facility":

An essential facility means:

(i) an input used to provide services in downstream markets;

(ii) where the input is controlled by a supplier that


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possesses market power in respect of its supply, such that,absent mandated supply of the input on regulated terms,the supplier could use its market power in the relevant upstream market to prevent or lessen competition in therelevant downstream markets; and

(iii) it is not feasible to duplicate the input, having regard toeconomic and/or technical factors.205

322 This test sets a lower threshold than either the Competition Bureau’stest or Telus’. This is because it only requires that the owner of theupstream facility be able to prevent or lessen competition downstreamthrough the exercise of market power upstream, as opposed to requiringa substantial prevention or lessening of competition.

323 There is no express "essentiality" requirement. Essentiality may beimplicit in the requirement that the owner of the facility could use itsupstream market power to lessen or prevent competition downstream. Ifthere are substitutes for the upstream facility, then any attempt toexercise market power upstream should in theory cause downstreamcompetitors to switch, and the downstream market should remainrelatively unaffected.

324 Similarly, this test does not directly answer the "essential for whom"question. Given the low competitive effects threshold – mere lesseningor prevention, instead of substantial lessening or prevention, it might beinferred that the answer is "a competitor" rather than "competitors"generally. This is because knocking out one competitor might lessencompetition a bit, but not substantially.206

325 The third element of Rogers’ definition appears to be substantivelythe same as the equivalent requirement in Telus’ and the Bureau’s test.The debate lies in the application of this element.

326 In its submission, Rogers places considerable emphasis oneconomic and technical barriers to construction of facilities. As discussedabove, the Tribunal has accepted that a combination of economies ofscale and sunk costs give rise to a barrier to entry. The Tribunal hasrecognized that incumbents may have certain advantages derived fromtheir incumbency that constitute a barrier to entry, although I do notbelieve that "first mover cost advantages" has been accepted as a barrier to entry. I am not at all sure that "absolute cost advantages"would be accepted as a barrier to entry. Competition law encouragesefficient entry. My understanding is that an entrant with higher costs isnot generally considered efficient in comparison to the incumbent.

327 That being said, to the extent that building up facilities results in acost structure that is too high for the entrant to be able to compete, it isnot feasible or practical to build the facility, as discussed above.

328 In any event, Rogers’ evidence shows that even under the currentrégime, which, arguably, under-incents facilities building by bothincumbents and competitors, Rogers and the predecessor to its CLECoperations, Call-Net, found it economical to engage in a massive facilitiesbuilding and upgrading project.

329 Rogers proposes various criteria for applying its definition ofessential facilities. Generally speaking, for business markets, Rogersproposes that facilities be considered essential if the number of businesslines is less than a certain number (the threshold varies depending on


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the facility) and there are fewer than four fibre-based collocatedcompetitors in the market.207 The basis for this four-competitor rule is notbecause that is what is required for retail competition, but because, inRogers’ estimation, if there are fewer than four such competitors, othercompetitors will not be able to obtain access to the facility withoutregulatory compulsion.208 In short, Rogers’ test appears to be aimed atensuring that there are incentives for facilities owners to grant wholesaleaccess to their facilities.

330 So far as local loops are concerned, Rogers says they will always beessential.209

(4) MTS Allstream’s definition

331 MTS Allstream is the ILEC in Manitoba (MTS) and a CLEC in otherprovinces (Allstream, formerly AT&T Canada).

332 MTS Allstream’s believes that the CRTC’s access régime has beentoo narrow. It proposes expanding it.

333 MTS Allstream proposes adopting the Competition Bureau’sdefinition of an essential facility in the TAB, but not the Bureau’s test.210

My comments about the missing modifier, "substantial", therefore applyhere as well.

334 MTS Allstream comments that

Under the proposed definition, essential services wouldinclude any facility or service that is critical to a competitor'sability to compete effectively in one or more downstreamretail telecommunications service markets and is controlledby a dominant, vertically integrated carrier (in this instance,a former monopoly carrier). More specifically, essentialservices would include any facility or service that in large part is only available from a former monopoly carrier and forwhich it is "difficult or impossible for downstream competitorsto substitute toward other inputs or to practically orreasonably duplicate."211 [Emphasis added.]

335 MTS Allstream then proposes the following test for identifying anessential facility:

a. The facility or service provided by the former monopoly isrequired as an input by a competitor or competitors toprovide downstream retail services; and

b. The former monopoly dominates the wholesale supply ofthe facility or service.212

336 Although MTS Allstream incorporates a form of essentialityrequirement (using the terms "critical" and "required"), when MTSAllstream applies this test, it looks at reliance in fact on the facility. Forexample, in the case of unbundled local loops, MTS Allstream points tothe fact that in 2005, 40% of competitors’ residential local lines wereprovided using leased loops.213 In other words, MTS Allstream iseffectively relying on a presumption that if the facility is being used, it is"critical" or "required".

337 Whereas Telus’ answer to the question "essential for whom" was all


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competitors, MTS Allstream’s answer appears to be any competitor. MTS Allstream defines an essential facility as a facility that is critical to orrequired by a competitor. This is consistent with MTS Allstream’sapplication of its test, where unbundled local loops are said to beessential even though the majority – 60% – of competitors’ local lines donot use leased loops.

338 MTS Allstream insists on the principle of "competitive neutrality". Ittakes issue with the CRTC’s stated preference for facilities-basedcompetition.214 MTS Allstream also cites the Policy Direction’s direction "not to artificially favour either Canadian carriers or resellers". However,under paragraphs 1(b)(iii) and (iv), these principles only apply where theCRTC is relying on non-economic regulation, including arrangements fornetwork interconnection and access. As the decision whether to regulatehas already been made before these principles come into play,competitive neutrality has no application at the stage of decidingwhether to regulate. The fact that paragraph 1(c)(ii) states that thisreview must take competitive neutrality into account does not change atwhat stage of the decision making it applies.

339 Further, as I argue above, the over-riding instruction in the Policy Direction are the two principles of maximum reliance on market forces,and minimally intrusive regulation, when regulation is used.

340 The Policy Direction also states the regulatory goal for thisproceeding: "increasing incentives for innovation and investment in andconstruction of competing telecommunications network facilities".215

341 Finally, the Local Forbearance Variation Order expressly states thegovernment’s preference for facilities-based competition:

Whereas the Governor in Council considers thatfacilities-based competition is a durable form of competition that delivers the greatest benefits to consumers, imposescompetitive market discipline on incumbents andstrengthens investment in telecommunications infrastructure

342 Consequently, MTS Allstream’ submission that the CRTC cannotfavour facilities-based competition over wholesale access basedcompetition is inconsistent with the directions to the CRTC and musttherefore be rejected.

(5) Primus’ definition

343 Primus is a CLEC offering local and long distance telephony, resoldcellphone service, and broadband internet. Primus also offers anaccess-independent VoIP service.

344 Like MTS Allstream, Primus supports the Bureau’s definition butproposes a test for identifying essential facilities that is different from theBureau’s test. Primus’ test is as follows:

(a) It is an input important to a competitor or new entrantin order to compete effectively or efficiently in the provisionof retail services; and

(b) The firm controlling the input is assumed to possessthe power to lessen or prevent competition indownstream markets provided the CRTC has not determined, as a matter of fact, that there is sufficient


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evidence of an effective substitute for the input availableat a competitive price as part of a sustainable, vigorouswholesale market (i.e. a feasible alternate source ofsupply of the input). [Emphasis added.]216

345 The first criterion replaces the essentiality requirement with arequirement that the facility be "important" to "a competitor". Primusmakes it clear that "importance" is a relatively low threshold: "it will benecessary to make a determination that the facility or service is of some importance" [emphasis added]. Primus is thus proposing, not a test foressential facilities, but a test for important facilities.

346 The second criterion begins with a presumption that every owner ofa facility has the power to lessen or prevent competition downstream.While that presumption may have been valid before the advent of VoIPtelephone service over broadband cable internet, it is no longer a validpresumption. In my view, market power must be proven, not assumed.

347 The proof required to displace the presumption of market power isthat there is a vigorous wholesale market for the facility. In other words,under this test it does not matter whether the retail market is competitiveor not. What matters is whether a competitor can get into the retailmarket by obtaining the upstream input. This reasoning could lead toabsurd results. Suppose there were five facilities-based competitorsoffering broadband internet and telephony (traditional or VoIP) andcompeting vigorously in a particular market. But none of the five offerswholesale access. Under Primus’ test, those upstream facilities would beconsidered essential.

348 It is apparent that Primus’ test is intended to ensure that any andevery wholesale access-based competitor can enter any market it wantsto. It is, in short, a test designed to protect competitors, not competition, and, as such, fails the satisfy one of the fundamental principles ofcompetition law.

(6) Cogeco’s definition

349 Cogeco is a cableco and a facilities-based competitor. It takes theposition that mandatory access to non-essential services should bephased out:

In many markets competition has evolved to a stage that nolonger requires the ILECs to provide some wholesaleservices, including unbundled local loops and co-location, on a mandated basis.217

350 Cogeco proposes the following definition:

A telecommunications facility, function, or service isessential if:

(1) it is either an interconnection service required to permitthe interchange of traffic or a network access service thatcannot be economically or technically duplicated orsubstituted and is required to provide retail telecommunications services; and,

(2) it provides the firm controlling it with the power to preventor lessen competition in a relevant downstreamtelecommunications market.218


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351 The first branch of the definition gives rise to a presumption that thefacility is essential. Interconnection is presumed to be essential withoutany inquiry. Network access services are subject to a non-duplicabilityrequirement. Cogeco defines network access services as

...all services provided by ILECs or other carriers, namelyCLECs or cable companies, by which they make parts oftheir network available and provide ancillary services toother telecommunications carriers enabling them to provide retail telecommunications services.219

352 The definition incorporates a non-duplicability test, but not anexpress "essentiality" test. Perhaps Cogeco is assuming, not illogically,that some form of network access is essential to providing retailtelecommunications services. The question is whether a competitor canduplicate it. In addressing this point, Cogeco makes it clear that it is thefunctionality that matters, not the precise service. As well, Cogeco’sanswer to the "essential for whom" question appears to be "competitors"not "a competitor":

In assessing whether the input can be economically ortechnically duplicated or whether the same functionalitycould be obtained elsewhere, the Commission shouldconsider other geographic markets where facilities-based competition exists. For example, if similar exchanges exhibit competition in the supply oflocal exchange services by facilities-basedcompetitors, the Commission should conclude that theinput can be economically or technically duplicated and that a functional alternative for the input exists. [Emphasis added.]220

353 Cogeco does not support the "weaker" interpretation of thenon-duplicability element referred to by the Bureau, because of theeffect on incentives for investing in competing facilities that thisinterpretation may have. Cogeco favours "a clearer test, with lessambivalence than proposed by the Competition Bureau", and proposes that the test be that the facility "cannot be economically or technicallyduplicated".221

354 The second branch of the test is basically the definition of anessential facility stated by the Bureau in the TAB. Cogeco adopts, withreservations, the Bureau’s requirement of showing dominance in thedownstream market, and proposes two alternative criteria for determiningwhen the second branch of its test is met:

The telecommunications carrier controlling the input is founddominant in the relevant downstream markets, meaning that thedominant firm has the power to prevent the entry by a potentialcompetitor by denying access to the essential servicerequired to offer competitive retail services in a relevantdownstream market; or,The telecommunications carrier controlling the input is found nondominant in any relevant downstream markets, but has the power to significantly preserve or enhance barriers to entry and/or[prevent entry or] expansion of competitors in anytelecommunications retail market, by denying access to theessential service. [Emphasis added]222


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355 These criteria are really a form of competitive effects test. The firstcriterion, which requires prevention of entry by a competitor, is similar toTelus’ total prevention of competition standard. However, Cogeco refersto "entry by a potential competitor". Does this mean that a networkaccess facility might be considered essential even if there is already acompeting facilities-based provider in the market? I think not. Assumingthat both of these facilities-based providers could supply network accessservices to a potential wholesale access-based competitor, neither could,acting individually, prevent entry by the competitor. For entry to beprevented, both must refuse. Thus neither would have the market powerof the sort required by Cogeco’s test. (Of course, refusal by both(whether the refusal is independent or coordinated) would prevent entry,assuming the potential competitor truly requires wholesale access.)

(7) Shaw’s definition

356 Shaw is also a cableco and a facilities-based competitor. Shawproposes a definition that is intended to be based on the existence ofmarket power in both the upstream and downstream markets. Shawbegins with three propositions:

a) If the owner of the facility faces effective competitiondownstream from firms that do not rely on it, then it has noability to prevent or lessen competition downstream.

b) If there is no or limited competition downstream, then theowner of the facility can only prevent or lessen competitiondownstream if it has market power upstream.

c) The owner of the facility will have market power upstreamif it faces no, or only limited, competition upstream, and it isnot economically or operationally feasible for competitors toduplicate the facility.223

357 Shaw derives a three-part test from these three propositions:

It follows that a wholesale service is essential if:

(1) there are no or a limited number of competitors in adownstream market that do not rely on the wholesaleservice;

(2) there are no or a limited number of competing suppliersof the wholesale service; and

(3) it is not operationally or economically feasible forcompetitors to duplicate the wholesale service.224

358 Shaw provides little explanation of this test in its evidence. However,Shaw’s responses to interrogatories are helpful. In particular, Shawprovides two important clarifications about its non-duplicability element.First, Shaw says that it is the functionality, not the facility itself, thatcounts: "duplication of a service or facility does not necessarily requirethat a competitor deploy the same technology".225 Second, Shaweffectively answers the question "essential for whom" with "competitors",not "a competitor". Shaw states that if a competitor can self-supply afacility with different technology, replacement of the wholesale facility ispractical and feasible. In other words, if one competitor can do it, so canothers.226


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359 Shaw’s formulation of the first two requirements is somewhatdifferent from the way a competition lawyer would put them. Strictlyspeaking, for instance, one does not assess the state of competition justby looking at the number of competitors in the market. The first element,however, rightly discounts the presence of competitors that rely on thefacility owner.

D. Analysis and conclusions

(1) Should the CRTC’s test be the same as the competition lawtest?

360 A preliminary question is: should the CRTC use the same test as theCompetition Bureau or Tribunal would use in dealing with an abuse ofdominance case involving denial of access to an essential facility? Or,should the CRTC develop its own test designed to deal with theexigencies of the CRTC’s mandate?

361 In the Local Competition Decision, the CRTC adopted an explicitlycompetition policy-based test. But the CRTC appears to have recoiledfrom the consequences of that test, and adopted a case-by-caseapproach.

362 In this proceeding, while CLECs such as Primus, MTS Allstream, andRogers, propose tests that to varying degrees appear to rely oncompetition law concepts, their tests are designed to ensure continuedwholesale access for competitors that rely on it, without regard towhether such reliance or even those competitors are necessary for competition in downstream markets. In short, these tests violate thefundamental principle of competition law that it is competition, notcompetitors that is to be protected.

363 The evidence shows that progress has been made towards theCRTC’s goal of fostering competition in telephony, albeit perhaps not inthe way that the CRTC foresaw. But the existing regulatory structure hasa tendency to coddle individual competitors. In order to fulfil its mandateto rely on market forces as much as possible, the CRTC should adopt atest that is consistent with the principle that competition, not competitors,is to be protected. Although competition authorities are sometimescriticized for being too interventionist, generally speaking, competitionlaw is premised on reliance on market forces. Imperfect though it may be,competition law is, in theory, designed to protect those market forcesfrom anti-competitive conduct, but otherwise to let the competitiveprocess determine who wins and who loses.

364 Consequently, I favour relying on a test derived from competition lawconcepts, particularly, those applicable to section 79. Although therefusal to deal provision is similar to the essential facilities doctrine, I donot think it provides a workable test for determining when wholesaleaccess should be mandated.

365 That being said, the CRTC is not applying section 79 and is notbound to apply any particularities of its structure or judicial interpretationthat cause difficulty in the regulatory context. For instance, section 79’sreliance on exclusionary, predatory or disciplinary purpose should not, inmy view, be grafted onto the CRTC’s essential facilities test. Similarly, theCanada Pipe Appeal’s narrow approach to business justifications wouldnot be inappropriate here.

(2) What test should be used?


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366 I propose the following test:

a) The owner of the facility is vertically integrated;

b) The owner is dominant over the product market for thefacility;

c) The functionality provided by the facility is essential forreasonably efficient competitors of the owner in adownstream market;

d) It is not practical or feasible for competitors to duplicatethe functionality provided by the facility;

e) The owner either has refused to provide access to thefacility, or the owner and a competitor have failed to reachagreement on access;

f) The facility can feasibly be provided or made available tocompetitors; and

g) Not mandating wholesale access to the facility wouldsubstantially lessen or prevent competition in a downstreammarket (or, put more positively, mandating wholesale access would substantially increase competition in the downstreammarket).

367 It should be apparent that this test has much in common with theUS test as outlined by Professor Robinson, except that I have usedCanadian competition law concepts. This test is also very similar to thetest proposed by the Competition Bureau. This test appears to havemore elements than either of those tests. However, both Professor Robinson and the Bureau packed several elements into one at variousplaces in their tests. I have separated the elements out for the sake ofclarity.

368 I will discuss each element briefly below. The following discussionassumes the analysis of section 79 conducted above.

(3) Vertically integrated

369 As a practical matter, disputes over essential facilities in the telecomindustry will involve vertically integrated facilities owners. That being said,as the Bureau recognizes in the TAB, the vertical integration need notbe structural; the facilities owner could achieve the same result throughan exclusive contract with a preferred downstream firm.227

(4) Upstream dominance

370 This element involves the same analysis as the dominance elementof the abuse of dominance provision in the Competition Act (s. 79(1)(a)). That is, the analysis begins with determining what product market thefacility is in. Because this analysis considers whether there are goodsubstitutes for the facility in question, if competitors are able toself-supply or purchase from another supplier equivalent functionality tothat provided by the facility, that product will likely be in the same productmarket as the facility in question. If the alternative facility offerssubstantial excess capacity, or can be expanded, then, as the Bureaupoints out in the TAB, the owner’s ability to exercise market power maybe reduced or non-existent, and 1/n market shares may be


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appropriate.228

371 Both direct and indirect evidence of substitutability can be used.Some parties assert that prices under the current wholesale accessrégime are too low, such that CLECs are under-incented to build facilitiesor obtain them elsewhere. The traditional hypothetical monopolist, orSSNIP, test may not be much use when asking whether another facilityis a good substitute for a facility currently subject to mandatory access.That is because the SSNIP test assumes that the price is at or near thecompetitive level. If it is not, adjustments must be made. However, weprobably do not know with certainty what adjustments to the price arenecessary (the ILECs say the price is too high; the CLECs say it’s toolow).

372 Barriers to entry must also be considered, as if there are no barriersto entry, it is not possible for the owner to exercise market power. Itseems to be generally acknowledged, however, that the telecom industryis characterized by barriers to entry.

373 "Dominant", as discussed above, is a somewhat lower thresholdthan the monopoly threshold favoured by Professor Robinson. However,in cases decided to date under section 79, the dominant firms enjoyedextremely high market shares. If the owner’s market share is below 50%,it will not be dominant.

(5) Downstream dominance?

374 I have left out the Bureau’s requirement for dominance by the ownerin the downstream market. One can imagine scenarios where the owneris not dominant downstream, but uses the facility to achieve dominance.However, as these scenarios are not very likely, I agree that it is a usefulscreen. What we care about here is competition in the downstreammarket. Consequently, once a finding is made that the owner is notdominant downstream, or the downstream market is competitive, theinquiry should generally stop there.

375 However, the assessment of the downstream market for purposes ofthis screen should not include competitors that rely on the owner of thefacility for access. Because of mandatory wholesale access, we do notknow if the facility owner would have voluntarily provided access onterms that the competitor would accept; nor we do know if the facility owner would continue to provide access if it was not compelled to.Counting wholesale access-based competitors could lead to identifyingas non-essential facilities that are in fact essential. In other words, ifthere the are only access-dependent competitors downstream, once access is no longer mandated, the owner might cut off the competitorsand achieve market power downstream.

376 In the Local Forbearance Variation Order, the government directedthe CRTC to adopt, for purposes of local forbearance, the Bureau’s testfor finding that an ILEC is not dominant. In my view, this is anappropriate test for identifying situations where the ILEC is not dominantdownstream. If the test is not met, this does not necessarily mean thatthe ILEC is dominant, however, although it probably will be.

(6) Essentiality

377 I have phrased this requirement so that it is clear that the answer to"essential for whom" is "competitors", not "a competitor", and that we aretalking about reasonably efficient competitors. This flows from the maxim


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in competition law that competition, not competitors, is to be protected.

378 I used the phrase "functionality provided by the facility" toemphasize that the analysis needs to look at the functionality, not justthe particular facility or technology.

(7) Non-duplicability

379 If it is not economical to duplicate the facility or obtain it from a thirdparty, then the facility cannot feasibly be duplicated. Apart from the costinvolved, operational, technical, or legal constraints may render a facilitynon-duplicable.

380 Once again, it is the functionality that is important, not the particularfacility. If there are alternatives to the facility that are good substitutesand are thus in the same product market, then the facility can feasibly beduplicated.

381 I do not intend by using the word "functionality" that the productmarket analysis should be confined to considerations of functionalinterchangeability. Other criteria for determining the relevant productmarket should be considered. That being said, I think that functionalinterchangeability may be one of the most important factors in thisanalysis.

382 Interestingly, the regulatory approach applied to lower layers in thenetwork architecture affect the duplicability of higher layers. Thus,mandating access to support structures and getting tough withmunicipalities that obstruct construction of facilities will make it easier forCLECs to build facilities.

383 Similarly, ILECs are to some extent in control of barriers to entry. Forinstance, even if access to support structures continues to be mandated,ILECs may be able to put roadblocks in the way of CLECs’ using thosefacilities. Assuming it to be accurate, Primus’ account of Bell Canada’sobstruction of its use of conduit in Toronto would be an example.229

Paradoxically, if ILECs want to be free of the obligation to share localloops and similar facilities, it is in their interest to facilitate access tosupport structures.

(8) Refusal to grant access

384 When considering whether to mandate access ex ante, this elementcan be presumed.

385 However, to the extent that the CRTC adopts an ex post régime, arefusal is, of course, necessary.

386 The alternative, "or the owner and a competitor have failed to reachagreement on access" might strike some as odd. Should the requirementnot be that the owner has refused to provide access on reasonableterms?

387 There are two reasons for stating the alternative requirement as Ihave. First, if the facility is not essential, then the owner does not haveto grant access or offer access on reasonable terms. If the owner wantsor needs the revenue associated with granting access to the facility,then the market will force the owner to offer access on reasonable terms.Consequently, second, there is no point getting hung up on whether theILEC or the CLEC were being reasonable in their negotiations. Beforedealing with the extremely difficult question of what terms are


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reasonable, we should determine whether the facility is essential. If it is,and access is to be mandated, reasonable terms will need to bedetermined, of course.

(9) Access is feasible

388 There should be a business justification defence for the ILEC. Itshould be broader than the business justification defence recognized bythe Federal Court of Appeal in Canada Pipe.

389 That being said, I suspect that cases where the businessjustification defence would be relevant would be rare. If the objection isthat granting access is not economic for the owner, the simple answer isthat the price paid by the competitor should be high enough to make iteconomic. If granting access would force to the owner to build facilities,and it is economic to do so (in the sense that the competitor is preparedto pay the price), then it is unlikely that the facilities were non-duplicable(unless the reason they are non-duplicable is operational or technical, forinstance, if land or buildings owned by the ILEC were needed to buildthe facility, and the ILEC was not prepared to grant access to the land orbuildings).

(10) Substantial prevention or lessening of competition

390 This element comes from the substantial prevention or lessening ofcompetition requirement in the abuse of dominance provision (s.79(1)(c)). Usually a denial of access to an essential facility will involve aprevention of competition, because it prevents entry or expansion.

391 This is a lower threshold than the total prevention of competitionstandard adopted by Professor Robinson.

(11) How many networks do we need?

392 A number of parties have either expressly or implicitly raised thequestion of how many independent networks we need for there to becompetition.

393 Some point to the finding of the TRP Report that three nationalwireless carriers does not seem to be enough to ensure competition:

The smaller number of mobile providers in Canada — andthe fact that all three national wireless service providers arealso owned by large telecommunications service providersthat also provide wireline services — may mean that there isless competition in the Canadian wireless market than in theU.S. market, which consequently has resulted in higherprices, less innovation, lower uptake and lower rates ofusage.230

394 Some parties to this proceeding have argued that an ILEC/cableduopoly will not provide sufficient competition. In her submission to theTRP, the Commissioner of Competition took a different view:

24. Assuming, for the purposes of this question, that themarket does evolve into a form of duopoly betweenIncumbent Local Exchange Carriers (ILECs) and cablecompanies, the implications for the telecommunications market could be substantial improvements over themonopoly conditions that have, for so long, dominated thissector.


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25. The Bureau considers that the potential positiveoutcomes of a cable/ILEC duopoly might include adecreased likelihood for unilateral effects (i.e., that a firmcould profitably raise prices above competitive levels) due to the degree of rivalry between the cable companies and theILECS. Aggressive price competition and innovation areother potential benefits that could be expected since mostof the costs of service provision (i.e., network costs) byeither the ILECs or the cable companies are fixed andsunk, the cost to provision VoIP would be incremental andthe services offerings would be of similar quality.231

395 The Bureau then states that two competing networks may providesufficient competition where:

i. [There are] At least two unaffiliated networks, where theentrant is capable of providing access at a lower cost toeach potential location where access to the PSTN isdemanded. The area for which forbearance applies will be the geographic region for which the two networks haverelatively similar geographic footprints, either actual orpotential locations that can be added to a network atrelatively low cost.

ii. From the perspective of consumers, both networks havesimilar features available and equivalent quality of access.

iii. Industry characteristics are such that the coordinatedexercise of market power is not likely to be a significantissue.232

396 This test is similar to, though not exactly the same as, the Bureau’stest for lack of dominance that was adopted by the government in theLocal Forbearance Variation Order. The requirement in the above testthat the entrant be able to provide access at a lower cost seems to havebeen replaced with a requirement that the entrant have similar or lowercosts than the incumbent’s variable costs in the Bureau’s localforbearance submission.

397 If Canada’s relatively low levels of wireless penetration reflect lack ofcompetition in the wireless market, as the TRP Report suggests, then itshould be noted that Canada has the highest broadband penetration ofall of the G7 countries (Canada, United States, United Kingdom, France,Italy, Germany and Japan), at 51.4%.233 Canada’s broadbandpenetration is higher by a wide margin: the other G7 countries rangefrom 30.9% (Italy) to 43.9% (Japan). The percentage of broadbandconnections provided by DSL was the second lowest in Canada, at46.1% (the US was lower at 42.2%, but its rate of broadbandpenetration is much lower than Canada’s, at 38.0%). The CRTCattributes these differences to the choice of facilities-based providers inCanada234 As I understand it, residential broadband internet is largely aduopoly between cablecos and ILECs, with some resellers. Thesenumbers suggest that a cableco/telco duopoly can result in strongfacilities-based competition.

398 In any event, although Canada’s wireless penetration rate continuesto be among the lowest of OECD member countries, average revenueper minute is also among the lowest. The CRTC attributes this to thehigh-volume minute plans that Canadian carriers have adopted from US


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carriers. The CRTC notes that this is an indication of affordability ofwireless services in Canada, and is indicative of the level of competitionin Canada.235

VI What facilities are essential?A. Characteristics of the telecommunications industry in 2007

(1) Transition to a layered network architecture based on IP

399 It is common ground that the telecommunications industry is in astate of rapid transition driven mainly by technological advances.

400 As the TRP Report notes, perhaps the most important changecurrently underway is the shift to internet protocol ("IP") to carry voice,video and data. The TRP Report points out that this developmentpermits a separation of network infrastructure from the applications andcontent layers. Consumers will be able to mix and match services fromdifferent providers.236 Thus, for instance, the emergence of access-independent VoIP has permitted consumers to buy telephoneservice (an application) from a variety of providers other than the providerof their broadband internet connection.

401 The TRP Report also describes how the shift to IP leads to aconsolidation of industries into a new, converged telecommunicationsmarketplace. The Panel predicts a four-way convergence of traditionaltelecom, entertainment and content, consumer electronics, andcomputing and software. That is, each of these industries participates inthis new telecommunications marketplace. The Panel describes how today consumers download music onto mobile devices using a numberof different service providers.237

402 While to some extent these developments are in their infancy, theyare gathering steam.238 The CRTC reports that:

Non-legacy services such as Ethernet, Virtual PrivateNetwork (VPN) IP-VPN, Internet and wireless service grewat an annual rate of approximately 15% since 2002 whereas legacy service revenues declined by 5%39annually to the point where, as displayed in Figure 3.4.1, byyear end 2006 over half of the industry's revenues weregenerated from the newer, non-legacy services.239

403 The result will be a major shift in the structure of thetelecommunications industry in Canada. According the TRP Report, astructure is emerging of a telecommunications market that has many different types of participants: infrastructure providers (such as cable,ILECs, wireless broadband), applications providers (such as TV andtelephony providers240), and content providers (such as music, TV content, and the like).

404 Dale Hatfield (Rogers’ expert) echoes the themes in the TRP Report.He says that all traditional networks, including wireline telephony, cabletelevision, and wireless telephony, are moving in the same direction,which can be summed up in five points:

First, and perhaps most fundamentally, all three types ofplatforms are evolving from the analog format to end-to-enddigital transmission and switching/routing. Indeed, thisconversion has largely been completed with the exception


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of certain "last mile" facilities. Second, all three types ofproviders are, for the most part, seeking to extend broadband digital facilities deeper into their network and,ultimately, directly to customer locations. Third, all three types of providers are evolving toward networks that employpacket switching and statistical multiplexing with increased"intelligence" at edge of the network rather than the interior. Fourth, in combination, the previous three developmentslead to networks that are capable of supporting allapplications – voice, data, image, video and rich multimediacombinations thereof. Fifth, all three types of providers areusing the Transmission Control Protocol/Internet Protocol("TCP/IP") family or suite of standards and protocols as themeans of logically organizing their respective platforms andas a way of routing the packets of information – voice, data,image and video as the case may be – between differentplatforms and over diverse types of transmission networks(e.g., cable modems or Digital Subscriber Lines – "DSL")and transmission media (e.g., fiber optic cable, coaxialcable, or twisted-pair copper cable). [Emphasis inoriginal.]241

405 Mr. Hatfield describes how the TCP/IP protocol suite is made up oflayers:242

Application Layer

Transport Layer

IP Layer

Data Link Layer Network Inter-FACE lAYERPhysical Layer

SupportStructures

Figure 1 – Representation of the Internet Protocol Suite (TCP/IP)

406 This is essentially the same as the four-layer model of networkarchitecture described by the TRP Report. The layers identified by thePanel are:

a) Content layer: this is the media – music, tv, data, voice,etc.

b) Applications layer: this is what the user interacts with toget the content.

c) Signal or transport layer: "To make the physical mediumcarry traffic, a variety of signal transmission/modulationschemes are used. This constitutes the signal or transportlayer of the network."

d) Physical layer: this is the medium that caries the signal(wire, fibre, wireless).243

407 Mr. Hatfield states that there are greater barriers, both economicand operational to duplication of the lower layers in the protocol stack.Economies of scale are greater at the bottom than at the top. Thus, he


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observes, it is not only uneconomic, but socially undesirable, to duplicatetelephone poles. But entry is much easier at the application layer andabove.244

(2) Residential competition comes from cable, not resellers

408 There seems to be widespread agreement that the "stepping stone"approach, whereby competitors are given wholesale access in hopesthat they will develop their own facilities, has not led either to widespreaddevelopment of facilities or to competitive downstream residentialmarkets.

409 The TRP Report states bluntly:

There is no evidence in Canada that the CRTC’s"stepping-stone" strategy has provided an effectivetransition to greater reliance by entrants on their ownfacilities. There is, on the other hand, reason to believethese policies have distorted the behaviour and incentivesof new entrants in Canadian telecommunicationsmarkets.245

410 Rather, as a number of the parties have pointed out in theirevidence, it is the entry of cablecos into local competition through VoIPproducts that has spurred competition. The data in the July 2007 CRTC Telecommunications Monitoring Report show how quick and dramatic thisentry has been.

411 The following table updates the table at ¶33 of the Bureau’sEvidence. The Bureau points out that cablecos entered the localresidential market in 2005 and doubled the market share attributable toCLECs in that year. Cablecos have nearly re-doubled the CLEC marketshare, from 7.47% to 14.09%, in 2006.

Local Residential Lines (thousands) and Market Shares

2004 2005 2006

Lines % Lines % Lines %

ILEC 12,463 96.68% 11,924 92.43% 11,104 85.75%

ILEC out of territory 10 0.08% 13 0.10% 21 0.16%

CLEC 418 3.24% 963 7.47% 1,825 14.09%

Total 12,891 12,900 12,950

412 The number of lines provided by competitors using owned-linesmore than doubled in just one year, from 0.8 million lines in 2005 to 1.7million lines in 2006.246 Now, competitors use their own facilities for 71%of the residential lines they provide, and for 41% of the business linesthey provide. As the Bureau notes, as recently as 2004, competitorsused unbundled local loops for 80% of their residential lines.247

413 The trends identified by the TRP Report and Mr. Hatfield suggestthat in the not too distant future, households will connect to thecommunications network through broadband internet, whether hosted ona coaxial cable, telephone wire, fibre, or perhaps wireless. Applicationssuch as telephony will be delivered over that connection. In that case,


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what’s happening in the market for broadband internet may, in the longrun, be more important than what’s happening in the market for localresidential lines. The CRTC has previously held that the market forresidential internet services is competitive.

414 In 2006, cablecos supplied 54.2% of residential broadband internetconnections, down slightly from 58.3% in 2002. Incumbent telcosaccounted for 41.5%, up slightly from 39.7% in 2002. Other TSPsaccounted for only 4.4%, up from 2% in 2002.248 While market shares are not everything, these numbers suggest that neither incumbent telcosnor cablecos have market power. They also suggest that as telephonytransitions to IP, telcos may not, in fact, have the upper hand. Indeed,the greater bandwidth offered by coaxial cable may give cablecos animportant competitive advantage over ILECs.

(3) Product and geographic markets

415 As discussed above, both the TRP Report and Mr. Hatfield’s reportdiscuss how communications networks are converging on the IPstandard and, at the same time, products are disaggregating. While weare not there, yet, the way that households connect to communicationsnetworks will be through IP over a broadband connection. Telephony willbecome an application that is delivered over a broadband connection.

416 This analysis has profound implications for how we define productand geographic markets in communications networks.

417 First, local telephone service will become a different product.Currently, if you buy local telephone service from an ILEC, you buy abundle of a connection to the telephone network and local telephoneservice itself. The ILEC will also sell you broadband internet as anadjunct to if you want it. The advent of VoIP has already disaggregatedthe network connection product from the local telephone service product for many customers. Now you can buy broadband internet from acableco, and you can choose to bundle VoIP with it, or you can buyVoIP from an access-independent provider like Primus or Vonage.

418 The same process is occurring with television, albeit much moreslowly. Still, it is becoming more common to download or streamtelevision programs and movies over the internet.

419 Of course, this process of disaggregation is far from complete. The85% of Canadian households that purchase local telephone service froman ILEC still do not differentiate between network connection and localtelephone service. As well, cablecos still sell broadband internet as anadjunct to their core business, cable television. However, if the TRPReport is correct, this will change. Network connection through broadband internet will become the basic product through whichhouseholds connect to communications products (applications) andreceive content.

420 Second, applications products like "local" telephone service andtelevision may cut loose from their physical and thus geographicmoorings. This is already happening. Primus and Vonage offeraccess-independent telephone service. You can even choose a different area code from the one you live in. As well, it is possible (though I havenot tried it) to replace local telephone service with Skype, a VoIP serviceoffered by a Finnish company.249 It would a logical development for both telcos and cablecos to begin to offer VoIP service on anaccess-independent basis as well as to their broadband customers.


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421 I want to stress that this future is not here yet. However, realignmentin the definition of product and geographic markets will follow from thechanges predicted by the TRP Report.

(4) Wireless

422 Is wireless in the same product market as landline telephony? Whenthe Bureau examined this question at the time of Rogers’ acquisition ofFido, it concluded that wireless and landline telephony are two differentmarkets.

423 A number of the ILECs point to evidence that increasing numbers ofCanadians only have a mobile phone to argue that they are now in thesame product market. The Companies point out that wireless substitutionis around 5% in Canada, and as high as 10% in some urban areas.250

424 The Tribunal’s approach to product market definition in Canada Pipemay be instructive here. Canada Pipe makes and sells cast iron drain,waste and vent ("DWV") pipes and relating hardware. The evidenceshowed that plastic DWV pipes were increasingly being substituted forcast iron, and was in fact a better product for many applications.However, for certain applications, cast iron had to be used. The fact that"cast iron still pays a distinct role" and was treated as a separate productby distributors, contractors, and even Canada Pipe, led the Tribunal todefine the market narrowly as cast iron DWV products.251

425 Clearly an increasing number of people rely on wireless only. It maybe, however, that some, or perhaps many, of those people needed orwanted wireless for the mobility it offers, despite its higher cost, and thenfound that it did not make sense to pay for a landline as well.

426 However, the evidence suggests that for many, if not most, wirelessand landline telephony remain different products. First, most wirelesscustomers also have a landline, given the relatively low percentage ofpeople who rely on wireless only.

427 Second, Canada’s relatively low wireless penetration rate suggestsmany landline consumers want the characteristics associated with alandline phone, or are not prepared to pay more to get the additionalfeatures that wireless telephony offers.

428 Third, while landline and wireless telephony both allow one to talkover the telephone and access the internet, they have somewhatdifferent characteristics. Landline telephones connect to a fixed place(although access-independent VoIP is changing this). It is possible toput several telephones on the same line without incurring extra charges.Local calls are free and long distance is cheap (assuming one subscribes to a long distance plan). Dial up internet calls are essentiallyfree as well, although broadband requires a subscription.

429 By contrast, wireless telephones connect to a person; they arehighly personal devices intended to be carried around. They offer a morefeatures than landlines (SMS, email, and music downloads, for instance),but you can’t plug extra phones onto the same line. Local calls aremetered (although many plans include unlimited evenings andweekends) and long distance is much more expensive. Data usage ismetered and expensive.

430 Another consideration is that wireless telephony is in a state of rapid


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transition. Rogers has already debuted a 3.5 G product called RogersVision in the Golden Horseshoe. Vision is based on the HSDPAstandard and offers enhanced services like video calling, and much faster data transmission, for example.

431 While a more detailed analysis is called for, I doubt that the wirelessand wireline telephony are in the same product market.

432 I would add that internet access over cellphones is almost certainlynot in the same product market as broadband internet over cable ortelephone lines. It is much more expensive and slower (although,according to the ads, EVDO can achieve true broadband speeds, and HSDPA has the potential to offer speeds of around 3-7 mbps).252

B. Ex post or ex ante regulation?

433 Presently, wholesale access is mandated ex ante.

434 The Companies have proposed moving to an ex post,complaints-based system. That is, the CRTC would not mandate access to any facilities ex ante (except interconnection and 911 services, whichthe Companies treat as an instance of social and technical regulation).The Companies rely on Dr. Taylor’s evidence to the effect that theeconomic costs and distortions associated with ex ante regulation are higher than those associated with ex post regulation.

435 However, there are also costs associated with ex post regulation. Ex post regulation could lead to hundreds, perhaps thousands of individualproceedings, if ILECs refuse to grant access to competitors to facilitiesthe competitors think they need. The costs of such a multiplicity ofproceedings would likely exceed the cost of a proceeding to determinethe essentiality of a category of facilities.

436 Another difficulty associated with ex post regulation is the time ittakes to resolve disputes could delay entry or expansion by competitors.

437 New Zealand’s experience is instructive here. New Zealandprivatized its monopoly ILEC, Telecom Corporation of New Zealand, in1990 and opened the door to competition. It did not mandate access,relying instead on oversight by the competition authority and the courts.This resulted in litigation, notably between Clear Communications Ltd.and Telecom that went all the way up to the Privy Council. Clear suedTelecom after a failure of negotiations that led to a refusal in October1991 by Telecom to supply wholesale facilities to enable Clear to supplytelephone service to, ironically, the courts. The case was finally resolvedby a decision of the Privy Council in 1994.253 Concerns that recourse to the courts and the competition authority was too slow were among thereasons cited for moving to a mandatory wholesale access régime in2001.254

438 In its Supplementary Evidence, the Bureau discusses five regulatorymodels: (i) full competitive analysis ex ante and (ii) ex post; (iii) proxy analysis ex ante; (iv) hybrid of ex ante and ex post approaches; and (v) framework for negotiation.255

439 The Bureau suggests that

The best outcome for this proceeding would be thedevelopment of accurate proxy rules that identify when certain facilities (e.g., access differentiated by capacity, and


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transport) are likely to be essential. These proxy rules wouldbase the determination of whether a facility is essential ex ante on easily observable and verifiable structuralcharacteristics.256

440 I favour a hybrid of ex ante and ex post approaches. An ex anteapproach is appropriate where it can be said with confidence that thecriteria for mandating access are met, where there is broad agreementamong all industry participants that access should be mandated, orwhere access is to be mandated for social or technical reasons.

441 Otherwise, access should not be mandated ex ante. The CRTCshould, however, establish a rapid process for resolving disputes overaccess, and make interim access orders where appropriate. (It must bekept in mind that interim access orders will affect the parties’ incentives,however. Where there is no interim order, the ILEC has an incentive todelay. Where there is one, the CLEC has an incentive to delay.)

442 The development of accurate proxy criteria would certainly behelpful. It may speed up dispute resolution. Perhaps more importantly, itwould enhance predictability, which will promote settlement of disputeswithout recourse to dispute resolution.

C. Interconnection

443 All parties appear to agree that access should be mandated forfacilities necessary for interconnection of networks, as well as emergencyservices (911). All carriers, not just CLECs, need interconnection,although the incentives are not equal. There is some disagreement overexactly which interconnection services are essential and which are not.

444 Although the point was not specifically addressed, my impressionfrom the economic evidence in this proceeding in relation to theincentives and disincentives created by mandatory access is that regulatory overreach in respect of interconnection is less problematicthan it is with wholesale access and perhaps also support structures.

445 Given that interconnection is of vital importance to all carriers, andvery much in the public interest, I would err on the side of mandatingmore, rather than fewer, interconnection services. If a mandating accessto a particular interconnection service promotes the public policy ofensuring a high level of interconnection, and does not reduce incentivesfor the development of facilities, then interconnection should probably bemandated.

D. Wholesale access

(1) Residential markets

446 In my view, the essential facilities test will not be met for most, if notall, wholesale access facilities used for residential telephone service inurban areas. About 89% of Canadian households have access to acompeting facilities-based provider, their local cableco. Like telcos,cablecos have nearly ubiquitous networks and a base of customers tomarket their VoIP product to. It is noteworthy that the presence offacilities-based competitors in cities, including wireless, is what led theCRTC to forbear from local rate regulation in most Canadian cities in July2007.

447 In rural areas that lack cable coverage, wholesale access likely will


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remain essential. Some rural areas do have terrestrial wirelessbroadband services. If those services are able to support VoIP, arepriced competitively, and do not depend on the ILECs facilities, then they may qualify as a facilities-based service provider.

448 Two-way satellite broadband internet over Telesat’s Ka band is nowavailable throughout Canada. However, this service only increasesavailability of broadband internet in Canada by one percentage pointbecause of capacity limitations.257 According to the Xplornet website,this service is compatible with VoIP. I do not know what the quality of VoIP over this service is.258 Pricing of Xplornet’s service is much moreexpensive than landline based broadband.259 A customer would notswitch from an ILEC-provided local telephone service to satellitebroadband plus VoIP in response to a SSNIP in the price for localtelephone service, or, for that matter, the price for landline basedbroadband. Xplornet’s service only makes sense for people who cannotget DSL or cable internet. For those people, adding VoIP may makesense.

(2) Business markets

449 The case is not so clear in business markets. There are sharpdisagreements between the parties and the evidence conflicts. A fewfacts stand out.

(i) Enterprise customers

450 As Dr. Taylor points out, there are two different kinds of businesscustomers: small and enterprise. Small business customers likely havesimilar characteristics to residential customers. They may need a simpleline or two plus an internet connection.

451 However, enterprise business customers have different needs andbuy communications services differently. They may have many telephonelines that they want linked through a PBX or VoIP system onsite, orthrough a co-located or managed service. They may want toll free lines.They may want special features to enable a call centre, or automatedattendants. They may have a lower tolerance service interruption than aresidential customer. They may have multiple offices and want services that facilitate calling between offices. They may want one provider whocan deliver services coast to coast. This last fact could justify defining amarket around national accounts.260

452 Dr. Taylor points out that such customers may buy communicationsservices through RFPs, receive customized attention, and enter intomulti-year deals with negotiated discounts. This is consistent with pressreleases that I have seen that suggest that major telcos like Bell, Telus,and MTS Allstream are competing to offer highly managed businesstelephone and internet services.

453 I would note that enterprise businesses do not need to be thatlarge. My law firm of 13 lawyers and about the same number of staff hascommunications requirements that tend to place it in the enterprisecategory. For example, about five years ago I conducted a processsimilar to an RFP and replaced our old PBX and multiple business lineswith a 3Com NBX VoIP system that connects to line capable of handlingover 20 calls at once. Telus is our local and long distance provider, butthe line was (and still is, to my knowledge) leased from Bell. Telus’service involved an installation cost and a three-year contract, but was


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cheaper than the services it replaced.

454 The asymmetric nature of my firm’s DSL internet access has led meto realize that business internet needs are different from residential.Relatively low upload speeds are not, I suspect, a problem for mostresidential customers. Slow upload speeds make accessing a networkover VPN quite tedious. It is also difficult to transfer very large files, aswe increasingly must do.

455 While it is dangerous to generalize from one example, I suspect thatsmall enterprises that rely heavily on communications services (such aslaw firms, accounting firms, consulting firms, public relations firms, etc)and/or rely on VPN access would have needs not dissimilar to those Ihave described.

(ii) Extent of facilities-based competition

456 The CRTC Telecom Monitoring Report shows that in 2006, ILECsaccounted for about 84% of local business lines, ILECs operating out ofterritory, about 10%, and CLECs, about 6%. Competitors’ overall sharehas increased from about 11% in 2002 to 16% in 2006. Interestingly,competitors enjoy a slightly higher market share in business markets thanin residential.

457 The prevalence of owned facilities is much lower in business marketsthan in residential: 41% vs 71%. Conversely, reliance on local loopsleased from ILECs is much higher in business markets than in residential:37% vs 19%. Unfortunately, the monitoring report does not break thesefigures out between small business and enterprise customers.

458 As the above figures suggest, the competitors in business marketsare different. Cablecos are not as present in business markets as inresidential markets, with the possible exception of EastLink andVidéotron. Most of the competition seems to be coming from ILECsoperating out of territory, and the evidence in this proceeding suggeststhat most of the owned facilities belong to ILECs operating out ofterritory.

459 I note that The Companies, in their supplementary evidence, citenumerous public statements from MTS Allstream and Rogers in theirannual reports and press releases to the effect that business marketsare competitive and that they are winning business customers. This research is impressive, but evidence that MTS Allstream and Rogers arewinning business customers is not particularly helpful without knowingwhether they are winning them with their own, or leased facilities.

460 For instance, Rogers provides business wireline telephony in 72ILEC exchange areas, including most major Canadian cities. However, allof its business wireline telephony is provided through wholesale access(leased loops or PRI). Rogers does not serve these customers using itscable network.261 As a result of its acquisition of assets of GT GroupTelecom, Rogers now has fibre into approximately 1,000 businesslocations in eastern Canada.262

461 I have not seen any evidence concerning the extent to which MTSAllstream or Telus provide services through their own facilities.

462 Distributel provides local telephony to business through itsaccess-independent VoIP product and resold business lines. It does notprovide any business lines through its own facilities.263


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463 Hydro utilities have also entered the business market, typicallyproviding high speed fibre connections, Ethernet, private line, and similarservices. Examples include Toronto Hydro Telecom’s fibre-based internetand VoIP services in Toronto; Blink Communications (Oakville Hydro) inOakville;264 Telecom Ottawa and Trytel (Hydro Ottawa), which offersthese services in Ottawa and Cornwall.

464 I am aware of two other internet service providers in Toronto thatappear, from their websites to be facilities-based, or at least partly so:Cogent265 and Beanfield.266

465 As well, anyone paying attention to manhole covers while walkingthrough Toronto’s financial district would notice that Telus, Allstream,Rogers, and Beanfield all have facilities underground, in addition to Belland Toronto Hydro. There are still Group Telecom manhole covers, but Ido not know who owns that fibre now.

(iii) Conclusion on business markets

466 Business markets continue to exhibit reliance on leased lines andother wholesale facilities. Strictly speaking, this is not probative; suchreliance may be a symptom of a system that incents reliance onwholesale facilities over development of facilities. The question iswhether competitors can duplicate facilities economically.

467 There are indications that facilities-based competition is developingeven for enterprise customers. However, there is insufficient informationabout the extent of facilities-based competition to draw firm conclusions.As well, different geographic markets may be in different stages ofdevelopment.

468 While the parties have filed detailed cost information in confidence, Ilack the expertise to estimate whether facilities can be built economically.

469 Consequently, I agree with the conclusion the Bureau came to in itsSupplementary Evidence:

53. As noted in the Bureau’s Evidence, the record ofcompetition shows that while entry by the cable companiesis likely sufficient to control the market power of ILECs withrespect to residential customers, the current competitivesituation in markets for business services appears verydifferent.

[...]

56. More generally, the Bureau cannot, at this stage in theproceeding and with the information available to it, apply itsdefinition to many specific wholesale facilities to determine,ex ante, whether access to them should be mandated.Accordingly, the Bureau can only recommend an ex postapproach for determining whether to mandate access tothose facilities. Under such an approach, which is describedabove, specific facilities would be deemed essential onlywhere potential entrants could demonstrate upon requestthat the Bureau’s test is met.

470 The ex post approach recommended by the Bureau is consistentwith the presumption against regulation that the CRTC has been


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directed to apply. CLECs should bear the burden of showing mandatory access should be continued in particular markets. Evidence that thereare no facilities-based competitors and that it is not economical to buildfacilities will be required. There will need to be a sufficiently longtransition period to allow wholesale access dependent CLECs either to build facilities or apply to the CRTC for continued access (or both!).

(iv) Do ILECs have incentives to offer wholesale access?

471 The Companies argue that even without mandatory wholesaleaccess, facilities owners have incentives to provide wholesale services tocompetitors. The Companies point to services they voluntarily offer on awholesale basis, and the fact that Bell West uses such non-mandatedwholesale services. The Companies also rely on the fact that no ILEC inCanada is able to offer services in all geographic markets.267

472 On the other hand, it appears from the Local Competition decision that wholesale access was not negotiated between ILECs and would-beentrants following the Review of Regulatory Framework decision; it hadto be mandated.

473 I would have liked to have seen more economic evidence on thispoint. It seems intuitive to me that ILECs with large territories that includemajor cities like Telus and Bell would have an incentive to grant eachother wholesale access. Each has important markets to bring to thetable. It is less apparent that Bell or Telus would have incentives to grantaccess to SaskTel or MTS Allstream.

474 One could argue that if Telus and Bell have an incentive to granteach other wholesale access, that may be enough, because havinggranted each other wholesale access, refusing it to others may count asa discriminatory refusal to deal and be more susceptible to beingcharacterized as an anti-competitive act under the Competition Act’sabuse provisions.

475 It also seems intuitive to me that where facilities-based competitionexists, all facilities owners may have incentives to grant wholesale accessto non-facilities based competitors. A facilities owner might grant suchaccess if it calculated that although the competitor would take marketshare from all participants in the downstream market, the new wholesalerevenue would exceed the revenue lost downstream. I lack the expertiseto predict whether this would be the case, however.

476 There is evidence from the wireless telephony market that suchincentives may exist, however. Several resale wireless providers currentlyoperate in Canada. Also, other firms in other industries routinely engagein behaviour analogous to wholesale access. For instance, car makersthat have excess capacity may contract to build cars for other car makersthat do not.268

E. Support structures

477 There is broad agreement that access to support structures shouldcontinue to be regulated, because of the public interest in avoidingduplication of telephone poles and trenches.

478 A major concern in this proceeding is incenting the building of newfacilities, or at least not disincenting the building of new facilities. It iswidely (though not universally) accepted that an overly generousmandated wholesale access regime will incent reliance on wholesale


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access and disincent building new facilities.

479 As well, some CLECs have emphasized the barriers to building newfacilities that relate to access to support structures. While generousmandated access to support structures may disincent duplication ofsupport structures (which may be social desirable in any event), it willremove barriers to building new facilities and perhaps reduce the cost ofbuilding new facilities.

480 I would also note that the Telecommunications Act grants powers tothe CRTC and privileges to carriers to assist in construction of facilities.Put bluntly, the CRTC can use federal paramountcy to overrule provincialand municipal authorities. To the extent that municipalities discriminate infavour of incumbents or make life difficult for CLECs, as has beenalleged in this proceeding, the CRTC should not hesitate to use itspowers.

F. Next generation facilities

481 The CRTC should not attempt to speculate about whether nextgeneration facilities will be essential or not. The Policy Direction applies a presumption in favour of market forces and against regulation.

482 I also agree with the Bureau that it is highly unlikely that newfacilities would be essential. As the Bureau points out, if the new facilitycompetes with existing products, then by definition it is not essential.269

Even if it does not, the fact that the owner of the facility built it stronglysuggests that the facility can be duplicated by rivals. Even if the facilitycannot be duplicated, forcing the firm that developed it could seriouslyundermine the incentives to innovate.270

VII How should essential facilities be priced?A. Regulate or negotiate?

483 I prefer a negotiate-first approach because it results in somethingcloser to market based pricing than regulated pricing.

484 That being said, this approach presents dangers. Facilities ownersmay have an incentive to delay by making impossibly high demands.

485 These dangers can largely be mitigated through strict timelines anda speedy arbitration system. As the Companies point out, final offerarbitration has worked in other industries, including pricing of accesstransport facilities, which may be in some ways analogous tocommunications facilities.

B. Pricing principles

486 My review of the evidence, particular the expert evidence, hasconvinced me that, while there may be approaches to pricing of essentialfacilities that are better in theory than cost plus, they are too difficult toimplement in practice.

487 The question, however, is, what costs, and what "plus". I do not feelqualified to address this in any detail as I am not an economist.Whatever price is chosen, however, it should not result in a squeeze.That is, while I do not support retail minus pricing, the wholesale shouldbe less than the retail price for services that use the wholesale service.

VIII When should future reviews be conducted?


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488 In theory, future reviews should not be necessary; as circumstanceschange, parties should bring the appropriate applications.

489 Thus, where the CRTC adopts an ex post régime, a party may applyfor mandatory access to a particular facility in a particular place. If theCRTC grants access, the owner of the facility should be entitled to applyto end mandatory access if the competitive landscape changes suchthat the facility is no longer essential.

490 The same applies to facilities where access is mandated ex ante: parties can apply to end mandatory access to a particular facility in aparticular place.

491 As the history after the Local Competition decision shows, however,there is a temptation to grant access to facilities in order to helpcompetitors. As a result, periodic reviews of the mandatory accessrégime should be conducted. I would recommend a five year interval.

IX What regulatory régime should apply to non-essentialservices?

492 Mandatory access to non-essential services should be phased out.The transition period should be long enough to allow competitors thatrely on access to build facilities or exit in an orderly fashion.

ALL OF WHICH IS RESPECTFULLY SUBMITTED

September 6, 2007

________________________________Michael Osborne

Michael Osborne

BARRISTER & SOLICITOR

Education

1998 Called to the Bar (Ontario)

1993-1996 Dalhousie Law School: LL.B., 1996

Jessup team 1996: best memorials and second place, Canadian round; competed inInternational round, Washington, D.C.

Conflict of Laws Prize (shared), 1996

Canadian Bar Association (N.S.) Scholarship, 1995-6

Hon. Alistair Fraser Scholarship, 1994-5, 1995-6


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Nova Scotia Law Foundation Scholarship, 1993-4, 1994-5, 1995-6

1990-1991 University of Toronto, Centre for Medieval Studies:M.A., 1991

1985-1988 University of Saskatchewan: B.A. Hon. inPhilosophy (magnis cum honoribus), 1988

Hannon Scholarship, 1987-8

Undergraduate Scholarship, 1986-7, 1987-8

1984-1985 University of Manitoba, Faculty of Engineering (firstyear; credits transferred to U. of S.)

Entrance Scholarship, 1984-5

Legal Practice

October, 1999 to Present

Affleck Greene Orr LLP

Practice areas: competition law, commerciallitigation, Constitutional law, administrative law

Partner since July 2006

Predecessor firm – Kelly Affleck Greene LLPbecame Affleck Greene Orr LLP in May2003.

January 1998 –September 1999

Associate, Litigation Department, Borden & Elliot,Toronto

Practice areas: commercial litigation, construction litigation, competition law

September 1996 -August 1997

Law Clerk to the late Honourable Mr. Justice JohnSopinka, Supreme Court of Canada

Summer 1995 Summer Student, Osler, Hoskin & Harcourt, Toronto

Summer 1994 &January 1993 –September 1993

Research Assistant, Competition Bureau, IndustryCanada


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Languages

Fluently bilingual in English and French

Memberships

Advocates’ Society

Canadian Bar Association

American Bar Association

Association des juristes d’expression française del’Ontario

Thomas More Lawyers’ Guild

Selected Cases

COMPETITION

Canada (Commissioner of Competition) v. CanadianWaste Services Holdings Inc.,

(2001), 11 C.P.R. (4th) 425 (Comp. Trib.)(2001), 15 C.P.R. (4th) 5 (Comp. Trib.)(2003) 24 C.P.R. (4th) 178 (F.C.A.)[2003] FCA 190

Canadian Waste Services Holdings, Inc. v. Canada(Commissioner of Competition),

(2004), 33 C.P.R. (4th) 275 (Comp. Trib) (2004), 33 C.P.R. (4th) 267 (F.C.A)

Canada (Commissioner of Competition) v. AirCanada,

(2002), 19 C.P.R. (4th) 226 (Comp. Trib.)(2003), 26 C.P.R. (4th) 476 (Comp.Trib.)

B-Filer Inc. v. The Bank of Nova Scotia, 2006Comp. Trib 42

COMMERCIAL

Henry Schein Arcona v. Mullin, [2000] O.J. No.3733, [2000] O.T.C. 740


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Wildeboer Rand Thomson Apps & Dellelce v. ArmurCapital Corp., [2000] O.J. No. 338

3Com Corp. v. Intelligent Decisions Inc.

[2004] O.J. No. 2348 (S.C.J.)[2004] O.J. No. 2279 (S.C.J.)

3Com Corp. v. Zorin International Corp.

[2004] O.J. No. 1767 (S.C.J.)[2006] O.J. No. 2184, 211 O.A.C. 222(C.A.)

Griffiths v. Canaccord Capital Corp., [2005] O.J. No.4897, 204 O.A.C. 224 (Div. Ct.)

Royal Bank of Canada v. Société Générale(Canada),

[2006] O.J. No. 5081, 219 O.A.C. 83 (C.A.)[2005] O.J. No. 4950, 13 B.L.R. (4th)130 (S.C.J.)[2004] O.J. No. 4918 (S.C.J.)

CONSTITUTIONAL

Allan v. Ontario

[2003] O.J. No. 4797 (Div. Ct.)[2005] O.J. No. 3083, 76 O.R. (3d)616 (C.A.)

Publications

"And the Money Keeps Rolling (In and Out) -Conspiracy Class Action Settlements after Chadwa v. Bayer" [2006], 22 Can. Comp. Rec., 3, 115.

"Competition Tribunal rejects change incircumstances application as not bona fide - Canadian Waste Services v. Commissioner ofCompetition" [2004], 22 Can. Comp. Rec. 1, 18.

"Indirect Purchaser Litigation in Canada", ChapterXI, ABA Section of Antitrust Law, Indirect Purchaser Litigation Handbook (2007), (American Bar Association, 2007), 275. (with contributionsfrom Ken Dekker)


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Assistant Editor, Fundamentals of Competition Law, Forthcoming, fall 2007

Notes:

1 See www.thelitigator.ca.

2 See Competition Bureau press release dated December 21, 1999,Competition Bureau Announces It Will Not Oppose Acquisition ofCanadian Airlines,http://www.competitionbureau.gc.ca/internet/index.cfm?itemID=619&lg=e

3 See s. 2(1):

"telecommunications facility" means any facility, apparatus or otherthing that is used or is capable of being used fortelecommunications or for any operation directly connected withtelecommunications, and includes a transmission facility;

"telecommunications service" means a service provided by meansof telecommunications facilities and includes the provision in wholeor in part of telecommunications facilities and any relatedequipment, whether by sale, lease or otherwise;

4 Telecommunications Act 1993, S.C. 1993, c. 38, s. 7.

5 SOR/2006-355

6 Interpretation Act, R.S.C. 1985, c. I-21, s. 11.

7 Policy Direction, s. 1(c)(ii)

8 SOR/2007-71

9 Telecom Decision CRTC 2006-15, Forbearance from the regulation of retail local exchange services, ¶242.

10 Local Forbearance Variation Order, s. 2

11 Telecom Decision CRTC 97-8, Local Competition, ¶73-74:

73. The Commission considers that either too narrow or too broada definition of an essential facility may impair the development ofcompetition. If it is too narrow, competitors may not be able toenter the market because of an inability to obtain the necessarynetwork components. If it is too broad, giving overly generous access to ILEC inputs, CLECs may not have sufficient incentivesto invest in their own facilities, and would enter and remain in themarket primarily as resellers. The Commission is of the view thatefficient and effective competition will be best achieved throughfacilities-based competitive service providers; otherwise,competition will only develop at the retail level, with the ILECsretaining monopoly control of wholesale level distribution.

74. In light of the above, the Commission concludes that ILECsshould generally not be required to make available facilities forwhich there are alternative sources of supply or which CLECs can


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reasonably supply on their own.

12 Evidence of the Commissioner of Competition, Telecom Public Notice CRTC 2005-2.

13 See p. 17.

14 See Canada (Director of Investigation and Research) v. Tele-Direct(Publications) Inc., [1997] C.C.T.D. No. 8 at ¶539: "section 79 is notintended to condemn a firm merely for having market power. Instead, it isdirected at ensuring that dominant firms compete with other firms onmerit and not through abusing their market power".

15 Canada (Commissioner of Competition) v. Canada Pipe CompanyLtd., 2006 FCA 233 ¶25-26 ("Canada Pipe Appeal")

16 Canada (Director of Investigation and Research) v. NutraSweet Co.(1990) 32 C.P.R. (3d) 1 at 28-29; [1990] C.C.T.D. No. 17 ("NutraSweet")

17 NutraSweet, at 31-33; Canada (Director of Investigation and Research) v. Laidlaw Waste Systems Ltd. (1991) 40 C.P.R. (3d) 289, [1992] C.C.T.D. No. 1 (Comp. Trib.) ("Laidlaw"); Canada (Director of Investigation and Research) v. The D&B Companies of Canada Ltd.[1995] C.C.T.D. No. 20 (Comp. Trib.) ("Nielsen"). In Nielsen, McKeown J. wrestled with the problem that s. 79(1)(a) uses the phrase "class orspecies of business", while s. 79(1)(c) uses the term "market". The use ofdifferent terms normally gives rise to an interpretive presumption ofdifferent meaning, but the Tribunal in NutraSweet had pointed out that "the logic of the section is better if the product market is preciselydefined in connection with question of control rather than being partiallydealt with under para 79(1)(a) and then revisited in para 79(1)(c)".McKeown J. concluded the phrase "class or species of business" means"product market". Parliament did not use "market" because "market" hasa geographic dimension, and Parliament used "throughout Canada orany part thereof" to express the geographic dimension of the market,and to limit it to Canada.

18 Laidlaw, 324; Canada (Commissioner of Competition) v. SuperiorPropane Inc. [2000] C.C.T.D. No. 15 (Comp. Trib.) ("Propane 1") at ¶48.

19 Laidlaw, 316.

20 Propane 1, ¶47; Tele-Direct, ¶225.

21 Canada (Director of Investigation and Research) v. Southam Inc.(1992), 43 C.P.R. (3d) 161 (Comp. Trib.) ( "Southam"); Tele-Direct, ¶225.

22 Tele-Direct, ¶76; Nielsen, 241.

23 Economists refer to this as "elasticity of demand". The "own-priceelasticity of demand" looks at what happens to the demand for theproduct under consideration in response to price increases. If thedemand remains the same, that is, is "inelastic", the product likelyconstitutes a product market. The "cross-price elasticity of demand"compares the relative demand of products A and B in response tochanges in price. If consumption of A rises when the price of B rises, andthe consumption of B rises when the price of A rises – that is, consumersswitch from A to B and vice versa – then A and B are likely in the same


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market. Own-price elasticity of demand is considered to be a morereliable indicator of market delineation Propane 1, ¶59-63, Commissioner of Competition v. Canada Pipe, 2005 Comp. Trib. 3, ¶70. See alsoCanada (Director of Investigation and Research) v. Southam Inc., [1997] S.C.R. 748 at ¶16. However, evidence of elasticity of demand must beapproached with care in abuse of dominance cases, where theallegation is that the respondent controls a market. This is because afirm that has a monopoly can be expected to raise prices to the point atwhich demand becomes elastic, that is, to the point where consumersare willing to switch to products that are not close substitutes. See thediscussion on the "cellophane fallacy", below.

24 Nielsen, 241; Tele-Direct, ¶76; Canada (Director of Investigation and Research) v. Southam Inc. [1995] 3 F.C. 557 (C.A.).

25 The Tribunal highlighted the lack evidence of switching in Tele-Direct,¶170; and the low cross-elasticities between aspartame and itssupposed competitors in Nutra-Sweet.

26 Tele-Direct, ¶111.

27 Enforcement Guidelines on the Abuse of Dominance Provisions, Competition Bureau, 2001, §3.2.1(a) ("Abuse Guidelines").

28 Tele-Direct, ¶98. The Supreme Court similarly compared automobilesand tanks: Southam, SCC at ¶72.

29 In Nielsen, the Tribunal found that scanner-based data was betterthan audit and warehouse shipment data. In Tele-Direct, an examinationof the physical characteristics of Yellow Pages helped show that theyserved a completely different purpose from other media from anadvertiser’s perspective. In Nutra-Sweet, the technical characteristics of aspartame were quite different from those of other sweeteners andhelped define the market.

30 Tele-Direct, ¶126-172.

31 This factor has not played an important role in any of the contestedabuse cases, but the cost of switching from propane to other fuels wasan important factor in determining the relevant market in Propane 1.

32 In NutraSweet, the Tribunal found that the best way to determinewhether other sweeteners constrained the price of aspartame was tocompare the price of aspartame in markets where there was competitionbetween different suppliers of aspartame with those where there was nosuch competition. NutraSweet, at 19. Similarly, Canada Pipe lowered itsprice in response to entry by other cast iron pipe suppliers, but not inresponse to plastic pipe suppliers, which suggested that iron pipe was aseparate product market. Canada Pipe, at ¶97-101.

33 Canada (Commissioner of Competition) v. Canada Pipe, 2005 Comp. Trib. 3, at ¶112.

34 NutraSweet, at 19-20.

35 Canada (Commissioner of Competition) v. Canadian Waste ServicesHoldings Inc., 2001 Comp. Trib. 3, ¶69 ("CWS").


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36 Laidlaw, at 320.

37 CWS, at ¶90-91.

38 United States v. E.I. duPont de Nemours & Co., 351 U.S. 377 (1956).

39 CWS at 92; Abuse Guidelines, 3.2.1.

40 Laidlaw, at 318-320; Nielsen, at 253 ; Tele-Direct, ¶130.

41 TAB, §2.2, p. 6

42 TAB, §2.4, p. 7

43 Competition Bureau Technical Backgrounder, Acquisition of Microcell Telecommunications Inc. by Rogers Wireless Communications Inc.,http://www.competitionbureau.gc.ca/internet/index.cfm?itemID=257&lg=e

44 The choice of this phrase raises some interpretive difficulties. Forinstance, a firm that dominates the world market for a product but has asmall market share in Canada would be beyond the reach of s. 79, evenif it leveraged its dominance over the world market to increase its marketpower in Canada: Nielsen, at 230-231. It is also open to be argued thats. 79(1)(a) precludes the Tribunal from delineating a market larger thanCanada for purposes of s. 79, even if the geographic market is in factlarger than Canada. This argument does not appear to have been madeor accepted in past cases, however.

45 Abuse Guidelines, 3.2.1(b).

46 TAB, §2.6

47 See for instance NutraSweet, at 28. Virtually every Tribunal case recites this definition.

48 Tele-Direct, at ¶226.

49 Tele-Direct, at ¶285-286. As well, in Tele-Direct, the Tribunal recognized the difficulties inherent in converting accounting profit toeconomic profit: ¶273.

50 CWS, at ¶74-83.

51 NutraSweet, at 19.

52 Canada Pipe, at ¶136.

53 Laidlaw, at 327-328.

54 Tele-Direct, at 289-297.

55 CWS, at ¶78.


57 Tele-Direct, at ¶18, 231; Laidlaw, at 325; Nielsen, at 254. However, in


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Canada Pipe, the Tribunal went on to observe that this prima facieconclusion must be supported by findings on including barriers to entry:at ¶138.

58 Laidlaw, at 317.

59 Abuse Guidelines, 3.2.1(d). In the case of joint dominance, theBureau’s threshold is 60%.

60 For example, in Laidlaw, the Tribunal discussed using: weight ofrefuse dumped, number of containers, and number of collection trucks.In the airline industry, one could look at available seat miles, revenuepassenger miles, flights, segments, seats, etc.

61 This occurred in Laidlaw.

62 TAB, §3.5

63 Tele-Direct, ¶232. See also Canada Pipe: "where barriers to entry are non-existent, even a very large market share will not support a finding ofmarket power", at ¶138.

64 Laidlaw, at 330-331.


66 Tele-Direct, ¶243, Canada Pipe, at ¶156.

67 Canada Pipe, ¶141. There is a debate about sunk costs as a barrierto entry. In Southam, the Tribunal said that sunk costs alone are notenough; there must also be economies of scale. Director of Investigation and Research v. Southam Inc. (1992), 43 C.P.R. (3d) 161 at 281-82. In Tele-Direct, the Tribunal added that sunk costs in combination with alikely response by the incumbent created a significant barrier to entry.Since incumbents can usually be expected to respond, this amounts to afinding that sunk costs are a barrier to entry when the entrant faces adominant incumbent. Tele-Direct, at ¶246-253.

68 TAB, §1.4

69 In Canada Pipe, the Tribunal referred to cost of entry as an entrybarrier, apart from sunk costs. Canada Pipe, at ¶142-143. This runscontrary to the Tribunal’s statement in Southam that sunk costs alone are not a barrier to entry.

70 NutraSweet, at 27; Southam, at 281-282.


72 For instance, Tele-Direct had access to listings, an establishedreputation, and a valuable trademark, all of which raised barriers to entry.Tele-Direct, at ¶254-267. Canada Pipe offered a full product line andhad a strong national presence. Canada Pipe, at ¶144.

73 In Laidlaw and Nielsen, exclusive contracting practices locked up the market, raising barriers to entry. Laidlaw, at 331; Nielsen, at 254-255,259-266, 277.


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74 Canada Pipe, at ¶160.

75 Canada (Director of Investigation and Research) v. Hillsdown Holdings(Canada) Ltd. (1992) 41 C.P.R. (3d) 289 (Comp. Trib.).

76 Laidlaw, at 327.


78 Canada Pipe Appeal, ¶78-79.

79 Canada Pipe Appeal, ¶70-73.

80 Nielsen, at 257; Laidlaw, at 342-343; Tele-Direct, at ¶540.

81 See for instance: Tele-Direct, at ¶602-605; NutraSweet, at 40; Nielsen, at 260, 264.

82 In Tele-Direct, subjective evidence of anti-competitive intention wasnot enough to persuade the Tribunal that "overwhelming intensity ofcompetitive response" was an anti-competitive act.

83 Canada Pipe Appeal, ¶90.

84 Canada Pipe Appeal, ¶90.

85 Canada Pipe Appeal, ¶91

86 To be fair, however, it must be noted that several of the enumeratedacts in s. 78(1) use expressions like "for the purpose of disciplining oreliminating a competitor".

87 Laidlaw, Nielsen, NutraSweet all involved exclusive contracts.

88 NutraSweet, at 42; Laidlaw, at 307.

89 NutraSweet; Nielsen.

90 Laidlaw, at 343-344, 309-314. Laidlaw’s use of this tactic in enforcingits exclusive contracts attracted the Tribunal’s outrage. The Tribunalapproved of R.H. Bork’s statement that "As a technique for predation,sham litigation is theoretically one of the most promising". R.H. Bork, The Antitrust Paradox (New York: Basic Books, Inc., 1978) at 347, as cited by Laidlaw at 344.

91 Laidlaw, at 331-339.

92 NutraSweet, at 43-44. Predatory pricing has been shown in oneabuse case: Canada (Commissioner of Competition) v. Air Canada.Although this case was brought under airline-specific provisions, theTribunal’s approach to the cost standard may inform future casesalleging predatory pricing as an anti-competitive act.

93 Tele-Direct’s refusal to deal with consultants who competed withTele-Direct’s own distribution channel escaped a finding that it wasanti-competitive only because the costs Tele-Direct would incur in dealing


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with them justified its refusal: Tele-Direct, ¶717-733.

94 NutraSweet, at 45-46.

95 Canada (Director of Investigation and Research) v. Bank of Montreal(1996), 68 C.P.R. (3d) 527 (Comp. Trib.) ("Interac"). Members of Interac had excluded many potential participants in the Interac network throughits by-laws and fees. However, as these were consent proceedings, theTribunal presumed that the anti-competitive acts identified in theapplication were anti-competitive; it did not do its own analysis. Thedecision is thus of less precedential value in identifying anti-competitiveacts than are the decisions in contested cases.

96 Tele-Direct used its control over telephone directory space to increaseits market power over telephone directory advertising services throughtied selling and discriminatory practices. However, Tele-Direct’s practiceof tied selling was dealt with under the tied selling provisions. Canada (Director of Investigation and Research) v. Xerox Canada Inc. (1990), 33C.P.R. (3d) 83 (Comp. Trib.). Xerox refused to sell parts to "independentservice organizations" to eliminate competition in the market for servicingphotocopiers. This case was brought under the refusal to dealprovisions, but it might have been possible to frame it as an abuse ofdominance case, given Xerox’s market power in high and mediumvolume segments of the photocopier market (at 96).

97 See §4.2.

98 See §4.2.1.

99 In July 2007, the Commission fined the Spanish ILEC, Telefonica SA,€151 million for a margin squeeze between its wholesale prices chargedto competitors, and retail prices charged to competitors. EU PressRelease IP/07/1011, 4 July 2007, Commission fines Telefónica over€151 million for over five years of unfair prices in the Spanish broadbandmarket. Interestingly, the Commission found that cable operators werenot able to constrain Telefonica’s market power due to their limitedcoverage, and their market share had been in decline since 2001. SeeMemo/07/274, Commission decision against Telefónica - frequentlyasked questions. In 2004, the Commission obtained commitments fromDeutsche Telekom to terminate a margin squeeze in relation to localloops used for broadband internet access. EU Press Release IP/04/281,1 Mar 2004, Competition probe leads to decrease in tariffs forbroadband access via line sharing in Germany. As well, the EU haschallenged roaming rates charged by T-Mobile and its parent DeutscheTelekom, Vodaphone, O2.

100 G. Werden, "The Law and Economics of the Essential FacilityDoctrine", 32 St. Louis U. L.J. 433 at 449-450.

101 Paragraph 78(1)(i) refers to "selling articles at a price lower than thecost of acquisition". As services are not "articles", predatory pricing ofservices would not fall under this provision. Nevertheless, predatorypricing of a service by a dominant firm would likely be found to be ananti-competitive act.

102 William Baumol is generally credited with the avoidable costsmeasure. W. Baumol, "Predation and the Logic of the Average VariableCost Test", 39 J. Law & Econ. 49 (1996).


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103 France Télécom SA c. Commission des Communautés européennes, T-340/03, 30 Jan 2007.

104 France Télécom, at ¶130.



107 Tele-Direct, ¶610



110 Canada Pipe Appeal at ¶36-39. See also NutraSweet, at 47; Nielsen, at 266.

111 Canada Pipe Appeal at ¶51-57.

112 Abuse Guidelines, §5.3.2.

113 Canada Pipe, ¶268-269. The Tribunal’s reasoning on this point is notfully developed, however. The Federal Court of Appeal did not expresslyoverturn the Tribunal’s decision on this point, nor did it consider thisaspect of the test.

114 Except in the case of dominant airlines: s. 79(3.1) - (3.3) allow theTribunal to impose "administrative monetary penalties" ("AMP") of up to$15 million on a dominant airline that it finds has engaged in a practiceof anti-competitive acts. There have been proposals to make AMPsgenerally available in abuse cases.

115 Laidlaw, at 351.

116 Southam, SCC at ¶83-89.

117 Tele-Direct, at ¶761-763.

118 Now known as the Commissioner of Competition.

119 Quoted in Tele-Direct, at ¶587.

120 Tele-Direct, ¶588-589.

121 Tele-Direct, ¶724, 726.



124 Paragraph 78(1)(k) was not part of s. 78 at the time.



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126 Ziff’s Principles of Property Law, (4th ed, Carswell, 2006) at 2.

127 Ziff’s, at 5.

128 Regulations Respecting Anti-Competitive Acts of Persons Operatinga Domestic Service, SOR/2000-324

129 Airline Guidelines, ¶60.

130 Airline Guidenlines, ¶61




134 Airline Guidelines, ¶66-67. If the dominant firm were expected tobuild facilities to supply to its competitors, it should be entitled to recoverthe whole cost plus a profit margin from the competitor. If the competitorcan afford to pay this, then the question arises: why could the competitornot build the facilities itself? The Airline Guidelines do not discuss thispoint, however.

135 TAB, §4.2.2

136 For example, a discriminatory refusal to deal, where the owner of thefacility provides access to some, but not to rivals. According to EinerElhauge, the refusal to deal cases in the US Supreme Court can beexplained by this theory. See E. Elhauge, "Defining BetterMonopolization Standards", 56 Standford LR 253 (2003). Termination ofan existing supply relationship has also been suggested. The EU DG Competition discussion paper on the application of Article 82 of theTreaty to exclusionary abuses proposes a lower threshold for casesinvolving termination of supply than refusal to start supplying. In thelatter case, the discussion paper requires that the input be"indispensable". Compare ¶218 with §9.2.2.

137 TAB, §4.2.2

138 This was essentially the approach taken by the Tribunal inTele-Direct, ¶663.

139 Abuse Guidelines, Appendix III.

140 TAB, §4.2.2

141 TAB, §4.2.

142 Robert H. Bork, The Antitust Paradox: A Policy at War with Itself(New York: Basic Books, 1978) at 372-74; Werden, "The Law andEconomics of the Essential Facility Doctrine", at 470, 472.

143 Economic Advisory Group on Competition Policy, An economic approach to Article 82, p. 43.


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144 The EAGCP Report gives as example: "Refusal to deal increases themarket power of a dominant firm only if it was unable to fully exploit itsmonopoly power over the bottleneck good beforehand. For example, thisis the case if the dominant firm has a problem committing to charging allthe downstream firms the monopoly price." (at p. 45).


146 For a list of private applications, see the List of Cases Filed by Typeon the Tribunal’s website (www.ct-tc.gc.ca).

147 Canada (Director of Investigation and Research) v. Chrysler CanadaLtd. (1989), 27 C.P.R. 1 (Comp. Trib.).

148 Canada (Director of Investigation and Research) v. Xerox CanadaInc. (1990), 33 C.P.R. (3d) 83 (Comp. Trib.).

149 B-Filer Inc. v. The Bank of Nova Scotia, 2006 Comp. Trib. 42.

150 Canada (Director of Investigation and Research) v. Chrysler CanadaLtd. (1989), 27 C.P.R. (3d) 1 (Comp. Trib.)

151 B-Filer, ¶79

152 Chrysler, at 18.

153 Chrysler, at 23; B-Filer, at ¶79.

154 B-Filer.

155 See for instance: Sears Canada Inc. v. Parfums Christian Dior Inc.and Parfums Givenchy Canada Ltd., 2007 Comp. Trib. 6 (a fraction of 1%); Sono Pro Inc. v. Sonotechnique P.J.L., 2007 Comp. Trib. 18 (10%); Broadview Pharmacy v. Pfizer Canada Inc., 2004 Comp. Trib. 23 (11%).

156 Xerox, at 116.

157 Xerox, at 116-117. Xerox argued that the use of the plural"suppliers" in s. 75(1)(b) meant that a single supplier market was notcaught by the section. This was really a variation on its argument thatthe market was the final market for photocopiers. The Tribunal rejectedthis contention, holding that the plural "suppliers" includes the singular.

158 Xerox, at 116.

159 B-Filer, ¶147.

160 B-Filer, ¶186-187.

161 B-Filer, ¶208.

162 B-Filer, ¶211.

163 B-Filer, ¶213.

164 Chrysler, at 28.


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165 Chrysler, at 24-27; B-Filer, at ¶231ff.

166 Telecom Decision CRTC 94-19.

167 Telecom Decision CRTC 94-19, §II.D

168 Telecom Decision CRTC 97-8

169 Telecom Decision CRTC 97-9, ¶149.


171 Telecom Decision CRTC 98-9, ¶19-21.

172 Telecom Order CRTC 2001-184, ¶28-29, 34-35.




176 Telecom Decision CRTC 2002-34-¶72-73.

177 Telecom Decision CRTC 2002-34, ¶139, 145, 155-160.

178 Independent Members of the Canadian Association of InternetProviders – Digital Subscriber Line Internet services by Bell Canada andBell Nexxia, Telecom Decision CRTC 2002-37, ¶26-27.

179 Telecom Decision CRTC 2005-6



182 Telecom Order CRTC 2007-20

183 Telecom Order CRTC 2007-20, ¶77-78.

184 Telecom Order CRTC 2007-20, ¶82; Telecom Decision CRTC 2005-6,¶208.

185 Competition Bureau Supplementary Evidence, ¶17.

186 G Robinson, The Role of The Essential Facilities Doctrine inCompetition and Regulatory Policy, ("Robinson Report"). ¶20.

187 Robinson Report, ¶19.



190 Telus Evidence, ¶41; Weisman Report, ¶35.


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192 Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 US 398 (2004) at 410-411.

193 Weisman Report, ¶42; Robinson Report, ¶16.

194 My understanding is that the same holds true of section 2 of theSherman Act in the US.


196 Weisman Report, ¶44.


198Robinson Report, ¶20.

199 See Robinson Report, ¶29, where Professor Robinson quotes withapproval the Bureau’s statement in the TAB that non-duplicability means, "that such an entrant would not find it feasible to enter orcompete effectively if it had to self-supply the facility."



202 Robnson Report, ¶28

203 15 USC 1, §2

204 See for example Canada (Commissioner of Competition) v. CanadianWaste Services Holdings Inc., 2001 Comp. Trib. 3, where the Tribunaluses the phrase "substantial prevention of competition".

205 Rogers Evidence, ¶74.

206 For example, in its Merger Enforcement Guidelines, the Bureau outlines certain thresholds below which it will not challenge a merger.See ¶4.11-4.12.

207 Rogers’ Evidence, ¶161.

208 Rogers’ Evidence, ¶163.

209 Rogers’ Evidence, ¶213-215.

210 MTS Allstream Evidence, ¶121-122.

211 MTS Allstream Evidence, ¶127.

212 MTS Allstream Evidence, ¶129.

213 MTS Allstream Evidence, Appendix A, ¶13. The next paragraphshows how quickly things have changed: in 2004, before the entry ofcablecos, reliance on leased loops was at 80%. In short, reliance on


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leased loops by CLECs fell by 50% in only one year.

214 MTS Allstream Evidence, ¶96-104.

215 Policy Direction, s. 1(a)

216 Primus Evidence, ¶142.

217 Cogeco Evidence, ¶15.

218 Cogeco Evidence, ¶21, 50.

219 Cogeco Evidence, ¶59.

220 Cogeco Evidence, ¶61. However, in paragraph 60, Cogeco says thata facility is essential where "it is not practical or feasible [...] for acompetitor to substitute or self-supply a network facility to enter orcompete effectively in a given retail telecommunications market...". Note– "a competitor".

221 Cogeco Responses to CRTC Interrogatories, No. 105.

222 Cogeco Evidence, ¶68. I think there are some words missing in thesecond criterion. I doubt Cogeco intended to say "preserve or enhanceexpansion". I have inserted in square brackets the words that I thinkexpress what Cogeco is trying to say.

223 Shaw Evidence, ¶21-22.

224 Shaw Evidence, ¶23.

225 Shaw Response to CRTC Interrogatories, p. 2.

226 Shaw Response to CRTC Interrogatories, p. 2.

227 TAB, §4.2.2, footnote 53.

228 TAB, §3.5, see in particular footnote 42.

229 Primus Evidence, ¶123ff.

230 TRP Report, p. 1-21.

231 Competition Bureau, Comments of the Commissioner of Competition– Telecommunications Policy Review, August 15, 2005, ¶24-25.

232 Competition Bureau, Comments of the Commissioner of Competition– Telecommunications Policy Review, August 15, 2005, ¶29.

233 CRTC, CRTC Telecommunications Monitoring Report, July 2007,§3.3, table 3.3.1. 93% of Canadian households have access tobroadband internet, and 65% of these subscribe to it (p. 77).

234 CRTC, CRTC Telecommunications Monitoring Report, July 2007,§3.3, table 3.3.1.

235 CRTC, CRTC Telecommunications Monitoring Report, July 2007, p.


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94.

236 Telecommunications Policy Review Panel, Final Report, March 2006, available at www.telecomreview.ca, at p. 1-24 - 29.

237 Telecommunications Policy Review Panel, Final Report, March 2006,available at www.telecomreview.ca, at p. 1-30 – 32.

238 For instance, on September 22, 2006, Shaw Communicationsreported that it is signing up a new Shaw Digital Phone customer every96 seconds.

239 CRTC, CRTC Telecommunications Monitoring Report, July 2007.

240 Applications providers would include cable, satellite and IP TV;ILECs, CLECs, access-independent applications providers such asVonage, Skype, and Primus, and wireless resellers such as VirginMobile.

241 Hatfield Report, ¶3.

242 Hatfield Report, ¶5.

243 TRP Report, p. 1-28. I have inverted the order in which these layersare presented in the report so that they correspond to Mr. Hatfield’spresentation.

244 Hatfield Report, ¶20-21.

245 TRP Report, p. 3-35.

246 CRTC Telecommunications Monitoring Report, July 2007, p. 45.

247 Bureau Evidence, ¶35.


249 Skype does not offer 911 service, however, and it is complicated tofigure out exactly what you need to buy to do this.

250 The Companies Evidence, ¶23.

251 Canada Pipe, ¶112.

252 At these speeds, HSDPA could compete with landline broadbandinternet if it were priced competitively.

253 Telecom Corporation of New Zealand Ltd v Clear CommunicationsLtd, [1995] 1 NZLR 385.

254 New Zealand, Ministerial Inquiry into Telecommunications, FinalReport, 2000, p. 24.

255 Bureau Supplementary Evidence, ¶50.

256 Bureau Supplementary Evidence, ¶52.


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258 I have doubts about it. Satellite internet necessarily involves highlatency. Xplornet’s website warns: "Latency refers to the time it takes forsignals to travel to and from the satellite. (Any signal you send from yourcomputer via satellite has to travel over 22,000 miles to space and backagain on both the forward and return trip in order to deliver yourinformation.) This typically creates a sub-second lag. For this reason,Xplornet's satellite service may not be ideal for any Internet activityrequiring real time data. (Examples include: Online trading and gaming.Essentially any online activity requiring real-time data transfers)".

259 Xplornet’s plans start at $54.99 for 512 Kbps. 1.0 Mbps costs$89.99.

260 The Tribunal has defined markets based on national accounts, forinstance, in Propane at ¶81.

261 Rogers(The Companies)12Apr07-1, -2.

262 Rogers (The Companies)12Apr07-19.

263 Distributel(The Companies)12Apr07-1, -2 (abridged).

264 Blink is now advertising in Toronto as well. I do not know whether itoffers services there.

265 www.cogentco.com

266 www.beanfiled.com

267 The Companies Evidence, ¶6, 75, 90; Appendix 12.

268 For example, Toyota announced in 2006 that it would be buildingCamrys at Subaru’s assembly plant in Illinois.

269 Bureau Evidence, ¶73.

270 See Elhauge, "Defining Better Monopolization Standards", at 274.

Date Modified: 2007-10-01

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