In a public version of its complaint to the Canadian Competition Commissioner (see below), Internet re-seller TekSavvy says that Bell Canada and Rogers Communications Canada have been abusing their dominant position in wholesale and retail markets for wireline Internet services in Ontario and Quebec. They do this, TekSavvy alleges, by increasing the wholesale prices charged to TekSavvy and others to use the Bell/Rogers Internet infrastructure while at the same time reducing prices for their own Internet services that compete directly against TekSavvy.
In 2016, the Canadian Radio-television and Telecommunications Commission (CRTC) ordered Bell and Rogers on an interim basis to stop increasing prices being charged to TekSavvy, which between 2016 and 2019 had been significant. In 2019, the CRTC issued a final order against Bell and Rogers and determined that, on the basis of Bell and Rogers’ own evidence, all of Bell and Rogers’ wholesale rates were unjustly inflated due to deviations from its costing rules. Bell and Rogers obtained a stay of that order pending appeal.
Selling Below Cost?
Bell and Rogers have long had low-cost brands that sold wireless services alongside their flagship brands. Bell’s low-cost brand is Virgin and Rogers’ is Fido. Around the same time as the CRTC began looking into the alleged margin squeezing in 2016, Virgin and Fido began offering wireline Internet services along side their discount wireless offerings at retail prices below the wholesale rates being charged to TekSavvy.
TekSavvy claims that this conduct has created a substantial prevention and lessening of competition contrary to Canada’s Competition Act in three ways: through higher prices, by the fact that competitors were leaving the market, and last, by preventing competitors from entering the wireless market. On this last point, TekSavvy points out that if Bell and Rogers are successful at squeezing TekSavvy out of the market, then it will not have the ability to enter and compete in the wireless market (more competition being good).
Without the intervention of the Commissioner, TekSavvy says that Bell and Rogers’ allegedly deliberate strategy to impose massively inflated costs on competitors is a means to an end of driving-up and then maintaining high retail prices for consumers. TekSavvy has asked the Commissioner to seek an order to prevent the two-sided strategy and to seek a $10 million administrative monetary penalty against each of Bell and Rogers.
Abuse of Dominant Position
According to the Competition Bureau, the size of a business, even one that dominates a particular market, is not, of itself, a cause for concern. Businesses may need to become large to achieve lower production costs or to compete against foreign and domestic competitors. However, when a dominant company exploits its market power in a way that hurts competition in the marketplace the Competition Act may come into play.
The abuse of dominant position sections of the Competition Act may apply when all of the following criteria are met:
- The dominant firm or firms have market power — that is the ability to set prices above competitive levels.
- The dominant firm or firms engage in anti‑competitive acts — business practices that are intended to reduce competition. These practices include: buying up a competitor’s customers or suppliers; using “fighting brands” (discount brands) to discipline or keep out competitors; cutting off essential supplies to rival companies; using long-term contracts to stop customers from changing suppliers; and overstepping authority granted by intellectual property rights such as trade-marks and patents.
- The anti‑competitive acts have substantially lessened competition, or are likely to do so. This can happen when anti‑competitive acts eliminate a rival or prevent such things as a rival’s entry into a market, potential competition, product innovation and lower prices.
- The Act’s abuse of dominant position sections do not penalize a company that has captured a dominant share of the market because of its better performance.
TekSavvy alleges that Bell and Rogers have committed the following “anti-competitive” acts contrary to the Competition Act:
- squeezing the margin available to TekSavvy as a competitor of Bell and Rogers for the purpose of impeding or preventing its expansion in the market;
- using fighting brands – Virgin and Fido – to discipline or eliminate TekSavvy;
- selling wireline Internet services at a price lower than the acquisition cost (or the wholesale rate) for the purpose of disciplining or eliminating TekSavvy.
In any investigation, the Commissioner may seek an ex parte court order to compel the production of records and to summon testimony under oath from Bell or Rogers. The goal is usually to achieve voluntary compliance if issues are found, failing which the Commissioner may file an application before the Competition Tribunal to remedy the situation. The Competition Tribunal is chaired by a judge and is independent of any government department. It has a number of remedies at its disposal to overcome the effects of anti‑competitive acts and restore competition. The most common remedy is an order that requires the anti‑competitive conduct to stop. The Tribunal may also impose an administrative monetary penalty on the company that was found to have abused its dominant position. This penalty can be for any amount up to $10 million for the first order and $15 million for any subsequent order against the same company.
The position of Bell, Rogers, or the Commissioner to the allegations is not known at this time. Affleck Greene McMurtry LLP does not act for any of the parties.