Remarks by John Pecman, interim Commissioner of Competition

Davies

Toronto, Ontario
February 7, 2013

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Thanks for inviting me to join you today.

Having been Interim Commissioner now for four months, I have had the time to reflect and consider how we can best deliver on our mandate, going forward. From this, have come three priorities for the Bureau.

They are:

  • benefitting Canadians, through focused enforcement and through strategic regulatory interventions;
  • applying Canada's competition laws in a transparent and predictable manner; and,
  • building trust through enhanced collaboration.

Delivering on these priorities is how we will continue to ensure that Canadian businesses and consumers prosper in a competitive marketplace.

But, we can't do this alone.

This is why collaboration with people like you, our stakeholders, is so critical.

Successful collaboration is built on mutual trust, and trust must be established through open lines of communication.

This is why my key priority for the Bureau has been and will continue to be to build trust through collaboration between the Bureau and all its stakeholders.

I believe that transparency, certainty and predictability are critical to our future success. And, that Canadian consumers and the business community deserve some certainty as to what they can expect from the Bureau.

So today, in the vein of transparency, certainty and predictability I want to talk to you about the pivotal role that competition plays in the Canadian economy. I want to discuss how the Bureau intends to incrementally increase our use of strategic regulatory interventions to benefit consumers, how we continue to use focused enforcement to deliver results for Canadian consumers, and how our approach to investigations has evolved in recent months.

This room is filled with people who benefit from increased competition — each and every one of us. We benefit as consumers, through greater choice and better products at competitive prices. Our businesses benefit through increased innovation and a lower cost base. The Canadian economy benefits through increased productivity and growth — and when that happens, we all benefit.

Some of you in this room will recall that, in 2007, the Competition Policy Review Panel, a panel of experts in the field of business, chaired by Red Wilson, issued a report to the Minister of Industry. That report, among other things, underscored the vitally important role of competition and competition policy. Strong competition does three things:

  • It provides Canadian workers the opportunity to work for more productive, innovative companies, earn higher wages and pursue rewarding careers.
  • It offers Canadian consumer, better products, lower prices, more choice and better services and finally,
  • And, for our economy, it is the strongest spur to innovation and value creation — leading to a higher standard of living for all Canadians.

Anyone involved in the Canadian business environment, or who is actively listening to the current dialogue on the Canadian economy will have no doubt heard repeatedly about the critically important role innovation plays both in economic recovery and in fostering an economy that continues to thrive.

What is not heard as loudly, however, is the fundamentally important role that competition law — and, by extension, the agency mandated to enforce it — plays in building a strong, productive, resilient economy.

The Competition Bureau has a central role in ensuring that Canadian businesses and consumers prosper in a competitive and innovative marketplace.

When competition is strong and when we do our job well, the market functions well. When the market functions well, Canadian consumers, Canadian business and the economy thrive.

In fact — in a 2009 presentation to the International Competition Network (ICN) steering group in the midst of the financial crisis, Chairman John Fingleton laid out the role of competition policy in a challenging economic period, saying that it is a key component of economic recovery because it increases productivity, aids economic recovery and informs broader policy objectives.

It is a widely accepted belief among economists that healthy competition is tied to economic health, and that it can indeed vastly improve economic growth — incenting companies to innovate, become more efficient and thereby increase productivity.

Significant empirical evidence underpins this.

For instance, and this too was referenced by Chairman Fingleton, following a study of reforms Australia made in the 1990's to enhance competition the Australian Productivity Commission found that these reforms spurred price changes that increased Australia's GDP by 2.5%, and household incomes by 7,000 dollars annually. As you can see, in the immediate term, consumers benefitted from lower prices, while the broader impact represented a significant increase in the country's economic growth and in the overall incomes of its citizens.

In Canada, we see continued attention given to the issues of productivity and competitiveness and with good reason. Recent reports by the OECD and the World Economic Forum have, flagged declining productivity and economic competitiveness as the biggest threats to Canada's continued economic growth. Concerning productivity, the OECD report highlights that despite growth in per capita incomes, productivity growth in Canada has been declining in the last decade.

In recognition of this, Industry Canada has been focusing on factors like innovation, productivity and the digital economy — all of which benefit from greater competition.

And, Budget 2012 emphasized the importance of "creating a regulatory environment that promotes competition, business investment and economic growth."

Strong competition has an integral role to play in improving lagging productivity. It is one of the single most effective ways to lower costs, and improve rates of productivity, as firms strive vigorously to out do each other.

Conversely, weak competition law and enforcement can be the death knell for an economy, particularly one that is in the process of rebuilding. Economic uncertainty, like that which countries across the globe are presently experiencing, can elicit a visceral, knee-jerk reaction that results in protectionist policies. Make no mistake: raising barriers to competition is not a panacea to an ailing economy. It is insular and ineffective thinking. Lessening competition raises prices, incents companies to reduce productivity, and fosters the emergence of monopolies.

Not one of these things leads to a strong, productive, resilient economy. What they do, in fact is harm consumers, and thwart economic growth.

The most salient example of this would be the weakening of U.S anti-trust law during the Great Depression, which was later identified as a cause of the slow pace at which the United States' marched out from under the depression.

In order for an economy to grow and thrive, it follows that it must be open to competition and ready to innovate, with a strong, independent enforcement body prepared to both enforce the laws and advocate in favour of greater competition.

In Canada, this is the Competition Bureau's role. And we feel very strongly that we have a key role to play in economic recovery and continued growth.

Strategic regulatory intervention

While our role as enforcer is our most visible one, our capacity to undertake regulatory intervention should not be understated.

Sections 125 and 126 of the Competition Act, allow the Commissioner to make representations regarding competition before federal regulatory boards, commissions or other tribunals, including before provincial regulatory boards. In the past, we have:

  • made recommendations regarding the impact of proposed policies and regulations on competition
  • provided advice to government on matters related to competition,
  • carried out, on an informal basis, sectoral market studies in certain sectors, including generic drugs and self-regulated professions.

Nor should the potential for impact of regulatory intervention on the economy be understated. Indeed, the introduction of competitive forces within a market can have as much, if not more significant impact on the economy as enforcement. These regulated sectors represent about a quarter of the Canadian economy. Reducing inefficient and ineffective regulations in these areas could lead to substantial benefits for both our economy and Canadian consumers.

That is why I believe that the time has come for us turn our attention to other mechanisms through which we can increase competition and productivity in the Canadian economy — to the benefit of all Canadians.

A few short months ago, the Competition Policy Council of the CD Howe Institute published a report which summarized that the Bureau should "actively engage in competition matters in regulated sectors of the economy, where anti‑competitive conduct may be protected by government legislation or authority."

This report is, by no means, the first of its kind. In fact, many studies and commentators have challenged what is called the Regulated Conduct Doctrine, which protects parties from being liable under the Competition Act, on the grounds that their behaviour is authorized by validly enacted federal or provincial legislation. These studies have argued that it is tantamount to legitimizing cartels or that, at the very least it impedes the Competition Bureau's ability to prevent anti‑competitive behaviour in these regulated sectors.

Many have asserted that effectively immunizing cartel-like conduct through legislation harms consumers and inhibits the kind of broader economic efficiency I just referred to, by preventing us from performing our main function — enforcing the Act.

It is clear that the time has come for the Bureau to look at other areas where we can advocate in favour of increased competition, and elicit a positive impact on our economy. As such, we are looking at incrementally increasing the Bureau's level of strategic and targeted regulatory interventions.

This is not new territory for the Bureau. In fact, this mechanism has been used to research discriminatory practices in the grocery trade, automobile insurance, loss leader selling and automotive products to name a few. Some of these cases resulted in the removal of anti‑competitive rules and regulations that restricted competition.

Nor is it entirely novel in other jurisdictions, both the United States' Federal Trade Commission and the United Kingdom's Office of Fair Trading undertake considerable advocacy work. The FTC, for instance is known to publish more than fifteen times a year on areas of interest and potential impact on consumer protection. More than twenty times a year, it makes submissions advocating a greater role for competition in policy making.

Our own experience has shown that advocating for regulatory change has been an effective tool in promoting economic efficiency and productivity and our past work in this vein demonstrates the tremendous benefit that can be realized by the Canadian economy by adopting this approach.

At this point, I'd like to remind you of my earlier reference to the impact of deregulation on the Australian economy.

The value of these strategic interventions is clear. And to that end, yesterday the Bureau filed a response to the CRTC's consultation regarding the creation of a mandatory code of conduct for mobile wireless service providers.

Unlike 25 years ago, today, the wireless industry touches nearly every Canadian consumer and business, as it provides those leading edge communication services that have become an integral part of our lives.

To give you an idea, a little over a decade ago, approximately 40% of Canadians had a mobile device — or to be more accurate — what we then called a "cell phone." In 2011, more than ¾ of all Canadians had mobile devices and, according to the Canadian Wireless Telecommunications Association, we are now on track to exceed 100% in a few short years — where many will own more than one mobile device.

In a world that is increasingly defined by connectivity, this $20 billion dollar industry is a key component of a thriving Canadian economy — providing an opportunity for business of all sizes to compete in the global marketplace.

We believe that the Competition Bureau can bring an important, unique perspective to bear on the development of this code. As we outlined in our submission, we believe that any wireless code developed must ensure that consumers are given sufficient information to make an informed choice. We also feel that it must address the mechanisms that inhibit competition that are inherent in the contracts between providers and consumers, including: contract duration, handset locking and termination fees.

This is our first recent intervention but it will most certainly not be our last.

We expect to do the same in other sectors of the economy where we believe we can have the greatest impact. And, while we will consider all options, we believe that the most promising areas are the regulatory environments that impact industries engaged in the digital economy, the retail sector and the health sector.

In assessing our approach, we will consider four strategic factors:

  • Does a forum to present exist, and is there a high level of public interest?
  • Will the Bureau be contributing in a useful way? For example, will we bring forward unique arguments, unlikely to be presented by others?
  • Will we be able to gauge the impact of our advocacy efforts?
  • Will our efforts have clear, tangible benefits for Canadians? How many and how deeply will the impact be felt?

Now, it is not to say that this approach will be without challenges. There will be those who will say that "conventional wisdom" dictates that these regulatory protections are necessary — because they protect consumers or specific industries. And let me be clear, this will be true in some circumstances.

But, as one of the most influential Canadian economist in modern history, John Kenneth Galbraith would tell us — conventional wisdom is akin to intellectual lethargy. It is a convenient explanation that stifles the introduction of new ideas, new approaches and legitimate, positive shifts in thinking. As he so aptly put it — "faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof."

Let me be clear, as we incrementally increase our regulatory interventions, we will not cede an inch of our enforcement mandate. I have a 29 year history at the Bureau as an enforcer and I have no intention of leading us away from the excellent job that we do enforcing the Competition Act.

But, I believe that we owe it to Canadians and to the economic health of our country to explore all ways to bolster competition and realize positive benefits for our economy.

It is my hope that we can move beyond "getting busy on the proof"— to getting busy on the results we can deliver for Canadians.

And we will do this in the same principled, focused manner that we approach our enforcement mandate.

Enforcement

On the subject of enforcement and investigations — I recently announced a shift in our investigative approach, relating to how we obtain evidence. Namely, that 'voluntary requests' for information in non-merger formal investigations, will now be the exception, not the rule.

This means that, going forward the Bureau's first course of action in obtaining information from the target of a formal inquiry will be, for ALL but exceptional cases, obtaining a legally binding section 11 order from the court.

Without entering into too great detail on this, voluntary requests have too often resulted in inefficient, incomplete and untimely responses. This compromises investigations and hinders the Bureau's ability to fulfill its mandate.

Using S.11 requests, very simply, is a matter of conducting our investigations in the most rigorous and efficient way possible, and in accordance with our legislation. We have a responsibility and a mandate to deliver for Canadians and we will uphold our commitment to rigorous enforcement of the Act.

Another tool for addressing competition issues, in merger transactions, is through the use of well-designed consent agreements that address our concerns.

I was very pleased, yesterday to announce that we reached an agreement with WM Québec Inc. (WMQ). This agreement addresses our concerns that the proposed acquisition would have decreased choices for waste disposal services across Western Quebec. We are confident that the agreement will preserve competition for solid non-hazardous waste disposal in this region.

Continuing on the subject of consent agreements, we recently reached an agreement with Air Canada and United Continental that addressed our concerns with their decision to enter into a joint venture on 14 high-demand routes between Canada and the U.S that would have been tantamount to merging their flight operations on routes between the two countries.

The consent order ensures that passengers will not face higher prices and decreased choice on those high-demand routes, as a result of the strategic agreement between these competitors. This means that on these 14 routes — the airlines may not coordinate prices or seats available at set prices, pool revenue or costs or share commercially sensitive information. An independent monitor, appointed by the Bureau will ensure that the parties comply with the terms.

Finally, we are awaiting the court decision on the appeal by Tervita (formerly CCS) of a May 2012 decision by the Competition Tribunal, where it ruled in favour of the Bureau and ordered CCS Corporation to divest itself of the Babkirk hazardous waste landfill site.

Recent decisions

We've recently had two decisions reached on cases and I would like to take a moment to update you on these.

The first involves allegations of bid-rigging on high-rise residential construction contracts with a value of about $8 million in Montreal between 2003 and 2005. The Court of Québec issued a decision last Friday following a preliminary inquiry that was held in November 2012.

The judge in the case held that there was insufficient evidence on each of the five relevant projects to show the existence of a "call or request for bids or tenders" as required in the bid-rigging provision in the Competition Act.

The decision is, unfortunately, not favourable to the Competition Bureau, as none of the accused, including both corporations and individuals, have been committed to stand trial.

Despite what is obviously a disappointing result — we remain steadfast that our approach in this matter was just, and it is my understanding that the Public Prosecution Service intends to seek a review of the lower court's decision.

On a more positive note, the Ontario Court of Appeal recently upheld the lower court's decision in a false and misleading advertising case related to the use of the "Yellow Page" and "Walking Fingers" design. The defendant in question had appealed the lower court's judgement and amount of the penalty – a $500,000 Administrative Monetary Penalty, plus restitution and costs.

The Court in this case supported the imposition of significant penalties, noting that the lower court judge had correctly considered the factors in the Act, and, that the penalty ought to be viewed in light of the fact that the Act now provides for penalties of up to $750,000 for individuals.

In our view, this decision of an appellate level court affirms the AMPs provisions, strengthened by the 2009 amendments, aimed at deterring violations of the Act and the harm such conduct has on Canadians.

Civil

With regard to civil matters, late last month, the Competition Bureau filed suit against two players in the residential water heater business — Direct Energy Marketing Limited (Direct Energy) and Reliance Comfort Limited Partnership (Reliance), for abuse of dominance.

After an exhaustive investigation, the Bureau concluded that these players engaged in practices that appear to be intentionally aimed at suppressing competition and restricting consumer choice.

Presently, Direct Energy or Reliance customers wishing to change providers must navigate a number of hurdles — practices that are allegedly anti‑competitive and significantly deter competition with the incumbent water heater providers.

I don't need to tell you that this type of behaviour would be detrimental to consumers — some of whom are vulnerable. Nor do I need to underscore the potential impact for businesses that both rent and sell water heaters.

In the case of Direct Energy, this conduct took place on the heels of the expiry of a 10 year consent agreement, one reached in resolution of similar anti‑competitive practices.

It seems a good time to reiterate: the expiry of a consent agreement is not a license to re-engage in anti‑competitive behaviour.

Some of you will be familiar with the application we filed with the Tribunal in 2011, challenging what we believe to be the Toronto Real Estate Board's (TREB) restrictions of its members' use of data in the Toronto Multiple Listing Service, commonly known as MLS.

Presently, these alleged practices prevent member real estate agents from offering new, innovative services for consumers through the Internet.

I think we can all agree that purchasing a home is perhaps the most significant financial transaction consumers make. This practice essentially restricts potential homebuyers and sellers from taking advantage of a greater range of service and pricing options.

The Tribunal heard this case in mid September and we are presently awaiting the Tribunal's decision.

Finally, we expect that we will have decision shortly from the Competition Tribunal on our application to strike down restrictive and anti‑competitive rules imposed by Visa and MasterCard on merchants who accept their cards.

These cases represent the real impact of the Bureau, but they do more than that — they reinforce the message that the Bureau will not hesitate to go after anti‑competitive behaviour, whenever and wherever we find it.

Conclusion

The significance of Competition Law can be intangible. Some may see our work as esoteric, and it may be unclear how what we do impacts their daily lives. I know this to be true, as throughout my career I have been explaining this to family and friends. Over and over again.

It's certainly not as readily apparent as the police force that apprehends a would-be-burglar or as concrete as the officer who finds your stolen valuables.

And "an independent law enforcement agency that ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace" certainly doesn't roll of the tongue as quickly as the RCMP's "Maintiens le droît"

Here is what I would like to leave you with.

Our work is critically important to Canadians and to our economy. It matters.

Because, when we do our job well, on a macro level, it means that competition thrives and the economy flourishes.

On a micro level, it means that the young entrepreneur, with the great idea and the desire to grow a business, isn't moving somewhere else because she can't gain entry to the market. Or, her business isn't failing because she can't compete vigorously to gain customers, because of restrictive rules imposed by a trade association or governing body, or through agreements between competitors aimed at suppressing new potential rivals.

It means that a single mother in Belleville isn't being gouged by a price-fixing cartel for the gas she needs to get to work and to pick her children up from daycare.

It means that a Senior citizen in Chicoutimi is not going to be the victim of a telemarketing scam.

When we do our job well — the economy, Canadian business, consumers, and you and I, all prosper.

Thank you.

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