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Proposed Acquisition by TELUS Mobility of Microcell

FAX: (819) 997-0324
Mr. Gaston Jorre
Senior Deputy Commissioner
Competition Bureau
50 Victoria St
Gatineau, QC
K1A 0C9

Dear Mr. Jorre:

RE: Proposed Acquisition by TELUS Mobility of Microcell

I am writing to you with regard to the proposed acquisition by TELUS Corporation of Microcell. The Public Interest Advocacy Centre (PIAC) views this proposed acquisition with some concern.

As you know, competition in telecommunications is intended to be a very important safeguard of consumers= interests. Indeed, the telecommunications regulator, the Canadian Radio-television and Telecommunications Commission (CRTC), has stated many times its intent to rely on competitive forces instead of direct regulation, where possible. PIAC agrees. Competition has the potential not only to keep prices to consumers in check, but also to foster innovation and attention to specific customer needs.

Competition in the local telephony market for residential customers has been very slow to develop. In 1997, the CRTC ordered a number of measures, including interconnection and the availability of co-location and unbundled loops from incumbents, followed by local number portability and a number of other measures. However, the CRTC reports that, by the end of 2002, incumbents still had an aggregate market share of 95.2%, when measured in terms of number of lines. Looking at residential market share in individual large cities, the picture is not much different. Incumbents served 93.9% of residential lines in Toronto, 98.0% in Vancouver and Victoria, 99.1% in Ottawa-Gatineau, and 100% in Victoria, Edmonton, Regina, Winnipeg, and Quebec City. Only in Halifax have competitors had a noticeable effect, and even there, the incumbent has a market share of 87.3%.1

Competitive Local Exchange Carriers (CLECs) have had difficulty penetrating the local market, using either their own facilities or bottleneck facilities leased from the incumbent telephone companies. In consequence, hopes for increased competition have largely been placed upon wireless service providers, who use the radio spectrum as an access medium, and cable operators, who use a mix of coaxial cable and fiber optic rings to reach individual homes.

While Voice Over Internet Protocol (VOIP) has received a great deal of publicity lately, it remains that, to be used for telephony, VOIP must ride over an access medium to customers= homes. Today, that access medium is supplied either by the incumbent telephone company or by the cable operator, leading to a classic duopoly.2 The ability of others to provide VOIP, as an application over high-speed Internet connections, does not change the fundamental fact that the access medium, and hence local telephony as a whole, is still largely a monopoly or duopoly. It merely shifts the locus of monopoly power from the level of the voice service to the level of the high-speed Internet connection.

Wireless service suppliers (WSPs) have the potential to increase the number of competitive alternatives for basic telephone service. Traditionally, the cost per minute of this alternative has been too high for it to constitute a substitute for traditional wire-line telephony. However, costs have been dropping and the potential for meaningful competition is here.

Indeed, Microcell has entered the traditional local telephony markets, first in Vancouver and then in Toronto, positioning its City Fido service as a substitute for traditional telephony. The monthly charge of $45 for unlimited calling, which includes three features (Call Waiting, Call Forwarding, and Conference Call), seems to be attractive to customers. Indeed, some commentators have suggested that this initiative has TELUS Arunning scared@ in Vancouver.3

PIAC also notes that Microcell is the last remaining WSP that is independent of incumbent telephone companies and cable operators. Unlike them, Microcell does not have an existing wire-line business to protect, nor an existing collection of facilities that are at risk of being stranded. Indeed, Microcell has shown itself to be the only WSP that is truly interested in competing in the traditional wire-line telephony market. For example, to date Microcell is the only WSP that has registered as a CLEC, with all the obligations and advantages that entails.4

PIAC is concerned that TELUS= proposed acquisition of Microcell is intended principally to limit competition from products such as City Fido, and not for reasons of increased efficiency or network extension.

After all, TELUS mobility services already cover 92% of the Canadian population, thanks to the acquisition of Clearnet, another WSP.5 Acquisition of Microcell would not significantly increase this coverage. As well, the technologies used by TELUS and Microcell are incompatible. TELUS uses the CDMA standard, while Microcell uses GSM. As a result, there will be few if any efficiency gains in networks and their operation if the proposed acquisition is allowed to take place.

PIAC also notes that the proposed acquisition will lessen competition in the wireless services market. While Microcell=s share of that market is only 10% nationally, it has a significant presence in specific markets. More importantly, it is willing to innovate, in contrast to the other three participants, who seem content to exploit their existing services and customers.6 If competition is to flourish in the wireless and wire-line telephony markets, participants like Microcell are crucial.

In our view, there is a significant danger that the proposed acquisition of Microcell by TELUS is about eliminating a competitor, not about expanding into new markets or benefiting from economies of scale. PIAC urges you to examine carefully the rationale for this acquisition and the impact it likely will have, both on existing and on future competition. The acquisition will eliminate a market participant that has shown itself to be willing to compete vigorously for customers. Will it leave the wireless market in the hands of an oligopoly whose members prefer not to compete too vigorously on price with each other, much less with wire-line service providers?

Yours truly,

Michael Janigan

Executive Director/

General Counsel

1 CRTC, Report to the Governor in Council, Status of Competition in Canadian Telecommunications Markets (November 2003)

2 The possibility of using electric power lines has been explored for some years, but such arrangements are currently negligible, and still face major obstacles.

3 Shane Schick, ABest in Show@, 2004/05/17, at http://www.itbusiness.ca.

4 Obligations include providing customers equal access to long distance provider of their choice

5 George Cope, President and CEO of TELUS Mobility, presentation to RBC Capital Markets Conference, Banff, Alberta, 2004/02/05

6 Microcell has a “churn rate”, or rate of customer turn-over, of 3.1%, compared to 1.4% for Bell Mobility and TELUS Mobility. In PIAC’s view, a high churn rate is indicative of vigorous rivalry, and of “doing things differently”

 

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