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Consumer Groups comments on telco “winback” activities – Reply comments

Link to CRTC proceeding

 

Philippa Lawson
Senior Counsel
(613) 562-4002 x.24
plawson@piac.ca

Ms. Diane Rheaume

Secretary-General
Canadian Radio-Television and
Telecommunications Commission
Ottawa, ON
K1A 0N2
BY FAX AND EMAIL

Dear Ms. Rheaume:

Re: Public Notice CRTC 2003-1: Review of Winback Promotions

1. The following reply comments are provided by the Consumers’ Association of Canada and l’Union des Consommateurs (“The Consumer Groups”), in response to the above-noted Public Notice. We are in receipt of comments from The Companies, TELUS, Aliant, AT&T, Call-Net, Futureway, Eastlink, Primus and Microcell.

2. Consistent with the Public Notice, these comments refer to promotions of local telephone services.
ILEC local service promotions available only to customers of competitors (“winback promotions”)

3. Having reviewed the comments of all parties, the Consumer Groups confirm their preliminary position that all ILEC “winback” promotions (i.e., those available only to customers of competitor companies) should be prohibited for the time being, regardless of whether they meet the imputation test. As noted in their preliminary comments, promotions that are targeted solely at disloyal customers are unduly discriminatory from the customer perspective, and take undue advantage of the ILECs’ incumbency to the detriment of new entrants.

4. This prohibition should be lifted once competitor market share has achieved a level consistent with a truly competitive market, such that all service providers are able to benefit relatively equally from the ability to engage in such practices.

5. The ILECs argue that ILEC winback promotions “may actually encourage customers to sample CLEC services”,[1] and that disallowing the waiver of re-connection fees, for example, would impose significant switching costs that will disincline customers from switching in the first place.[2]

6. In reply, the Consumer Groups submit that this argument has little merit. Customers who switch to competitors are unlikely to be aware of the existence (if any) of ILEC winback offers at the time that they make the switch. Moreover, such offers are typically time-limited. Hence, a consumer’s decision to switch providers is unlikely to be informed by any knowledge regarding applicable ILEC reconnection fees. The ILECs’ argument would have merit only if ILECs waived re-connection fees to all returning customers as a matter of course, and if all customers were aware of this standard policy.

Promotions available to all customers (existing and new)

7. Competitors have proposed a variety of restrictions on general ILEC promotions, including a complete ban on such promotions for at least three years (Call-Net). The Consumer Groups see no reason to restrict ILEC promotions that cover their cost and that are offered equally to all customers. In fact, this is the type of benefit that competition is supposed to deliver.

8. General promotions that do not pass the imputation test should continue to be permitted as long as they are of limited duration. The Consumer Groups confirm their preliminary position that the maximum time period for “limited duration” promotions should be six months. Thirty days, as proposed by Futureway, is unreasonably short for a service that is billed on a monthly basis, while the current effective twelve-month limit is unreasonably long.

Promotions available to all new ILEC customers

9. A number of competitors argue that general ILEC promotions available to new customers (e.g., connection fee waivers; discounts for new local service subscribers) effectively target customers of ILEC competitors, and should therefore be treated as “winback” offers.

10. The Consumer Groups share the concern that ILECs may be able to circumvent a prohibition on winback offers by making their offers available to all new customers. However, without data on the average number of new service requests originating from customers who are moving (as opposed to the number of potential winback customers), it is difficult to assess this argument.

11. The Commission is currently deliberating on an application by Call-Net to order ILECs to permit their ADSL Internet subscribers to obtain local telephony service from alternative providers. Should this application succeed, one type of promotion allegedly targeting CLEC customers (i.e., discounts on ADSL service subscriptions) would no longer be a concern in terms of its impact on the local service market.

12. As long as promotions such as connection fee waivers are available to all new customers, and as long as they pass the imputation test, the Consumer Groups submit that they should continue to be permitted. Where such promotions do not pass the imputation test, they should, at a minimum, be subject to the same limited duration rule as applicable to other below-cost promotions.
Period of Prohibition

13. Should the CRTC prohibit ILEC winback and/or other promotions, it will have to decide on a period of prohibition. The Consumer Groups see two options:

a) a fixed duration, after which time a review is held to determine whether the prohibition should be lifted, continued, or modified; or

b) pre-established criteria for the lifting or modification of the prohibition (e.g., a threshold of ILEC market share loss by specified market segment).

14. The Consumer Groups consider that either approach is acceptable in theory, as long as the time period, or criteria, are fair and reasonable. In that respect, the Consumer Groups submit that an appropriate time period for any new restrictions on ILEC promotions would be the remainder of the current price cap regime.

15. Should the latter approach be taken, the Consumer Groups reiterate their view as expressed in the recent Price Cap Review proceeding, that the test for competition currently applied in the cableTV market is inappropriate for the telephone service market. A threshold of 5% market share loss in the telephone service market would be laughable, insofar as ILECs would continue to dominate the market. Should the Commission decide to establish such a test, other than the criteria for forbearance in the telecom market already articulated, for the purpose of lifting or reconsidering restrictions on ILEC promotions, a further public process should be initiated on this specific issue.
Long Term Contracts

16. Primus raises the issue of cancellation fees and automatic renewal of ILEC long term contracts for local service, arguing that these also need to be regulated by the Commission if local competitors are to be able to break into the local market.

17. The Consumer Groups note that this issue is currently under consideration by the Commission as a follow-up to Decision CRTC 2002-34, in respect of Bell Canada and TELUS tariffs applicable to business services.

18. While this does not yet appear to be an issue in the market for residential local wireline services, the Consumer Groups note that it could become an issue, and that it is already an issue to some extent in the wireless and Internet services markets.[3]

19. The Consumer Groups submit that any rule prohibiting automatic renewal of long term contracts and requiring positive customer consent to renewal of such contracts, should apply to contracts for all telecommunications services, including residential wireline, wireless and Internet services.

20. The issue of cancellation fees should also be examined, perhaps by way of a separate proceeding, with a view to maximizing the potential for competition and market forces to operate effectively.

All of which is respectfully submitted,

original signed

Philippa Lawso
Counsel for the Consumer Groups

cc: PN 2003-1 Interested Parties

[1] The Companies, para.21.

[2] TELUS, para.11.

[3] Some wireless and Internet service providers apply large cancellation fees for early termination of long term contracts, thus creating a barrier to switching of service providers by customers.

 

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