Documentation

SCHEDULE "A"

THE COMPETITION TRIBUNAL IN THE MATTER OF an Application by the Director of Investigation and Research under sections 79 and 105 of the Competition Act, R.S.C. 1985 c. C-34 as ame.,..:w....----·~-AND IN THE MATTER OF cenain practices of the Publishers of Yell Directories in Canada. Between: THE DIRECTOR OF INVESTIGATION AND RESEARCH - and-AGT DIRECTORY LIMITED ANGLO CANADIAN TELEPHONE COMPANY DIRECTWEST PUBLISHERS LTD. EDMONTON TELEPHONES CORPORATION THE MANITOBA TELEPHONE SYSTEM MT&T HOLDINGS INCORPORATED TELE-DIRECT (PUBLICATIONS) INC. TELE-DIRECT (SERVICES) INC.

STATEMENT OF GROUNDS AND AGREED MATERIAL FACTS

CT-94/.(

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- 2 -TABLE OF CONTENTS I. SUMMARY OF APPLICATION ................................................ 3 II. AGREED MATERIAL FACTS .................................................. 4 A. Definitions .................................................................. 4 B. The Parties ...... , ........................................................... 8 C. Description of the Industry ............................................... 9 I .Industry Structure ....................................................... 9 2.Regulation ............................................................. 17 3. Trademarks ............................................................ 18 D. Size of the Industry and the Respondents' Control of It. .................................................... 19 III. GROUNDS FOR APPLICATION ............................................. 20 A. The Subject Business ................................................... 20 B. Substantial or Complete Control of a Class or Species of Business ......................................... 22 C. Practice of Anti-competitive Acts ...................................... 22 D. Substantial Lessening of Competition ................................ 23 IV. RELIEF SOUGHT. .............................................................. 24

- 3 -I. SUMMARY OF APPLICATION l. The Director states that the Respondents substantially or completely control, in each of their respective territories, the business of publishing Telephone Directories.

2. The Director funher submits that the Respondents have jointly engaged in a practice of anti-competitive acts within the meaning of sections 78 and 79 of the Competition Act (the "Act") stemming from the provisions of the CANYPS Agreement and the methods used in Selling National Advertising into Telephone Directories. Specifically, the Director submits that the anti-competitive acts jointly engaged in by the Respondents were the following:

(i) The Respondents agreed that only Publishers could Sell National Advertising directly into Telephone Directories;

(ii) The Respondents appointed each other as their exclusive Selling Companies for the Selling of National Advertising into Telephone Directories in each of their respective territories and therefore did not compete with such exclusive Selling Companies in those territories;

(iii) The Respondents agreed to a Head Office Rule, thus precluding National Advertisers from either placing advertisements directly with all the Respondents who actually published the advertisements or using an entity unrelated to any of the Respondents to place advertising directly in each Respondent's Telephone Directories.

3. It is the Director's submission that the Respondents possess a dominant position in their respective territories. Through the provisions of the CANYPS Agreement, the Respondents have together foreclosed the entry of independents into the business of Selling National Advertising into Telephone Directories in Canada, and prevented the entry of the Respondents into the territory of other Respondents. In so doing, the Respondents have substantially prevented or lessened competition in the Selling of National Advertising into Telephone Directories in Canada

- 4 -4. It is the Director's further submission that an Order of the Tribunal in the form of the Draft Consent Order attached hereto as Schedule "B" is required to restrain the recurrence of the Respondents' anti-competitive acts, which acts have had the effect of preventing or lessening competition substantially in the relevant market, namely in the Selling of National Advertising into Telephone Directories, and to restore competition in this market.

5. At the time of filing of this Application, the Director's investigation into other practices of the individual Respondents in this industry beyond those identified herein is continuing. The filing of this Application is intended to permit the consent resolution of the practices relating to National Advertising only. It is without prejudice to other enforcement action by the Director.

II. AGREED MATERIAL FACTS 6. The following material facts, set out in paragraphs 7 to 59 below, form the basis of this Application. The Respondents and the Applicant have agreed to these facts for the purposes of this Application and any proceeding initiated by the Director relating to this Consent Order, including an application to vary or rescind under section 106 of the Act, but this shall not be taken as an admission by the Respondents or the Applicant of any such facts for any other purposes.

A. DEFINITIONS 7. For the purposes of this Application, the terms listed below are defined as follows: (a) "Accreditation" means the system by which a Publisher recognizes an Advertising Agency or a Specialized Agency or another Publisher for the promotion and sale of advertising into the Telephone Directories of the first Publisher,

(b) "Advertising Agency" means a full service intermediary whose role in the advertising industry at large is to represent and provide other services to advertisers in their dealings with various media, including radio, television, magazines, outdoor advertising, and directory advertising;

(c) "AGT" means AGT Limited, a corporation incorporated under the laws of Alberta;

- 5 -(d) "AGT Directory" means AGT Directory Limited, a corporation incorporated under the laws of Alberta;

(e) "Anglo Canadian" means the Anglo Canadian Telephone Company, a corporation incorporated under the laws of Canada;

(t) "BC Tel" means BC TEL, a corporation incorporated under the Jaws of British Columbia;

(g) "Bell" means Bell Canada, a corporation incorporated under the laws of Canada;

(h) "CANYPS" means the Canadian Yellow Pages Service, an unincorporated association, whose role was defined by the terms of the CANYPS Agreement;

(i) "CANYPS Agreement" means the agreement dated December 19, 1991, among the Respondents and all documents incorporated by reference therein;

G) "Commission" means a fee paid to one who is authorized to act as an agent for another in trade; the fee is usually based on a percentage of the total sale;

(k) "CRTC" means the Canadian Radio-television and Telecommunications Commission;

(1) "Director" means the Director of Investigation and Research under the Act; (m) "DirectWest" means DirectWest Publishers Ltd., a corporation incorporated under the laws of Saskatchewan;

(n) "Dominion Directory" means Dominion Directory Company, an operating division of Anglo Canadian;

(o) "ED TEL" means Edmonton Telephones Corporation, a corporation incorporated under the laws of Canada;

- 6 -(p) "Head Office Rule" means the requirement incorporated by reference into the CANYPS Agreement that National Advertisers were to be allocated among the Respondents on the basis that the Respondent in whose territory the head office of a National Advertiser was located would function as the Selling Company for placement of any advertisements which that National Advertiser placed;

(q) "Island Tel" means The Island Telephone Company Limited, a corporation incorporated under the laws of Prince Edward Island;

(r) "MTS" means the Manitoba Telephone System, a Crown corporation incorporated under the laws of Manitoba;

(s) "MT&T" means the Maritime Tel & Tel Limited, a corporation incorporated under the laws of Nova Scotia;

(t) "MT&T Holdings" means the MT&T Holdings Incorporated, a corporation incorporated under the laws of Nova Scotia;

(u) "National Advertisers" means those advertisers whose advertising programs qualify as National Advertising;

(v) "National Advertising" means advertising placed in the Telephone Directories of two or more Publishers;

(w) "NB Tel" means The New Brunswick Telephone Company Limited, a corporation incorporated under the laws of New Brunswick;

(x) "Newfoundland Tel" means Newfoundland Telephone Company Limited, a corporation incorporated under the laws of Newfoundland;

(y) "Northwest Tel" means Northwestel Inc., a corporation incorporated under the laws of Canada;

(z) "NYPS" means the National Yellow Pages Service; (aa) "NYPSA" means the National Yellow Pages Service Association;

- 7 -(ab) "Publisher" means a publisher of Yellow Pages Telephone Directories in Canada; namely, the Respondents;

(ac) "Quebec Tel" means Quebec Telephone Company, a corporation incorporated under the laws of Quebec;

(ad) "Rates & Data Book" means a book published by a trade or industry association which contains a list of all telephone directories published by members of the association, together with rates for generally available advertising items, closing dates and other information essential to the sale of advertising in the telephone directories;

(ae) "Sask Tel" means Saskatchewan Telecommunications, a corporation incorporated under the laws of Saskatchewan;

(at) "Selling", "Sell", "Sale", and "Sold" refer to the selling by the Selling Company or Seller of National Advertising;

(ag) "Selling Company", or "Seller", means prior to July 1, 1993 when the Respondents changed their practices as described in paragraph 78 below, any of the Respondents and thereafter any entity, including any of the Respondents, which is in the business of placing National Advertising into the Yellow Pages Telephone Directories of all of the Publishers in which an advertiser wishes to advertise, by using the VAN system or another equivalent system acceptable to the individual receiving Publisher acting reasonably in terms of compatibility of existing systems and costs.

(ah) "Specialized Agency" means an entity, other than an Advertising Agency, which specializes in selling advertisements into Telephone Directories;

(ai) "Subscriber Data Base" means the raw information found in Telco files concerning telephone service subscribers;

(aj) "Telco" means any one of the following corporations which is responsible for providing local telephone services in one or more regions in Canada: BC Tel, AGT, ED TEL, Sask Tel, MTS, Bell, Quebec Tel, NB Tel, MT&T, Island Tel, Newfoundland Tel and Nonhwest Tel;

- 8 -(ak) "Tele-Direct" means Tele-Direct (Publications) Inc., a corporation incorporated under the laws of Canada;

(al) "Tele-Direct Services" means Tele-Direct (Services) Inc., a corporation incorporated under the laws of Canada;

(am) "Telephone Directories" means telephone directories published by or on behalf of a Telco or another supplier and includes the alphabetic listing of residential and business numbers often referred to as the "white pages", as well as a classified commercial directory which is often printed on coloured paper;

(an) "VAN system" means the Value Added Network, which is the electronic order transmission system established by the YPP A and used to submit orders to YPP A publisher members, including the Publishers, or its successor;

(ao) "Yellow Pages" means the registered trademark owned in Canada by Tele-Direct and licensed by Tele-Direct to the other Publishers;

(ap) "Yellow Pages Telephone Directories" means those Telephone Directories which are authorized by a Telco and which display the Yellow Pages trademark under license from Tele-Direct; and

(aq) "YPPA" means the Yellow Pages Publishers' Association. B • THE PARTIES 8. The Applicant is the Director. 9. In addition to extensive participation as an intervenor in the CRTC proceedings described below, the Director has conducted an extensive study of the commercial Telephone Directory industry, and has consulted widely with industry participants, and experts, both in Canada and the United States.

- 9 -10. The Respondent Anglo-Canadian carries on its Telephone Directory business through Dominion Directory, an operating division. Dominion Directory has its head office in Burnaby, British Columbia and is the Publisher for British Columbia and parts of Quebec.

11. The Respondent AGT Directory has its head office in Calgary, Alberta and is the Publisher for all of Alberta except for the City of Edmonton, and for the Saskatchewan portion of the City ofLloydminster.

12. The Respondent ED TEL has its head office in Edmonton, Alberta and is the Publisher for the City of Edmonton.

13. The Respondent DirectWest has its head office in Regina, Saskatchewan and is the Publisher for the Province of Saskatchewan, except for the City of Lloydminster.

14. The Respondent MTS has its head office in Winnipeg, Manitoba and is the Publisher for the Province of Manitoba.

15. The Respondent Tele-Direct has its head office in Montreal, Quebec and is the Publisher for most of the Provinces of Ontario and Quebec.

16. The Respondent Tele-Direct Services has its head office in Montreal, Quebec and is the Publisher for parts of Ontario and Quebec, New Brunswick, Newfoundland and Labrador, the Yukon Territory and the Northwest Territories.

17 The Respondent MT& T Holdings has its head office in Halifax, Nova Scotia and is the Publisher for Nova Scotia and Prince Edward Island.

C. DESCRIPTION OF THE INDUSTRY 1. Industry Structure 18. The structure of the Telephone Directory publishing industry in Canada evolved from the structure of the telephone industry in Canada. To understand the former one must understand the latter.

- 10 -19. For a telephone network to function efficiently, it must provide a convenient means by which subscribers can locate the access codes, or telephone numbers, of others on the system. Traditionally, this has been accomplished through paper telephone directories. Generally, each of the Publishers is mandated by its associated Telco to publish the Telephone Directories required to be distributed to subscribers within the territory of its associated Telco. The Telephone Directories are distributed by the Publishers to all subscribers to the telephone service within their associated Telco's territory, but generally not beyond. With minor exceptions which are not material to this Application, no Publisher currently publishes within the boundaries of another.

20. Local telephone service in Canada has historically developed into a number of regional monopolies. The principal Telcos are as follows:

Proyjnce Principal Local Telco British Columbia BC Tel Alberta (ex. Edmonton) AGT Edmonton EDIBL Saskatchewan Sask Tel Manitoba MTS Ontario Bell Quebec Bell Quebec Tel

Nova Scotia MT&T New Brunswick NB Tel Prince Edward Island Island Tel Newfoundland and Newfoundland Tel Labrador

Northwest Territories Northwest Tel Yukon Territory Northwest Tel 21. There are other small, independent telephone companies located primarily in Ontario, Quebec and British Columbia At the present time, these companies contract out their publishing requirements to Tele-Direct Services or Dominion Directories.

- 11 -22. The Telcos each have readily identifiable trademarks, such as "Bell", "AGT" or "MT&T", which have accumulated significant goodwill in Canada. Each Telco (other than those Telcos which are the same entities as the Publishers - see paragraph 23 below) has licensed one Publisher to use these trademarks in connection with its Telephone Directories in the province in which the Telco is the principal supplier of local telephone services. To this extent, therefore, the Publisher either is the Telco or becomes "authorized" by a Telco.

23. The "authorized" Telephone Directory Publishers in Canada are as follows: Relationship Between Principal Authorized Publisher Proyjnce Local Telco Publisher and Telco British Columbia BC Tel Anglo Canadian affiliate (Dominion Directory)

Alberta AGT AGT Directory affiliate (except Edmonton Edmonton ED TEL ED TEL Directory same entity Saskatchewan Sask Tel DirectWest non affiliate Manitoba MTS MTS same entity Ontario Bell Tele-Direct affiliate Quebec Bell Tele-Direct affiliate Quebec Tel Anglo Canadian affiliate (Dominion Directory)

Nova Scotia Mf& T MT &T Holdings affiliate New Brunswick NB Tel Tele-Direct non affiliate Services Prince Edward Island Tel MT &T Holdings affiliate Island Newfoundland Newfoundland Tele-Direct affiliate and Tel Services Labrador Northwest Northwest Tel Tele-Direct affiliate Territories Services

- 12 -Yukon Territory Northwest Tel Tele-Direct affiliate Services 24. All of the Publishers, except for ED TEL, publish a number of Yellow Pages Telephone Directories within their exclusive territories. The following chart sets out the number of Yellow Pages Telephone Directories currently published by each company: No. of Proyjnce Publisher Djrectorjes British Columbia Dominion Directory 49 Alberta AGT Directory 22 (except Edmonton) Edmonton ED TEL 1 Saskatchewan DirectWest 10 Manitoba MTS 10 Ontario Tele-Direct 45 Tele-Direct Services 3 Quebec Tele-Direct 37 Tele-Direct Services 3 Dominion Directory 11 New Brunswick Tele-Direct 9 Nova Scotia MT& T Holdings 10 Prince Edward Island MT &T Holdings 1 Newfoundland and Tele-Direct Services 4 Labrador Northwest Tele-Direct Services 1 Territories Yukon Territory Tele-Direct Services 1 25. Individual Telephone Directories are revised, reproduced and distributed annually. The "churn" rate, that is, the number of new connects, disconnects and other changes to the Telco Subscriber Data Base, is approximately 2. 7 percent per month on average.

- 13 -26. The production of Telephone Directories is an undertaking of sufficient scale and complexity that it generally requires specialized staff dedicated year round to the role.

27. Paragraph 23 above illustrates that there are at least three ways that a Telco or local telephone company can ensure that Telephone Directories are published: it can publish them itself using an internal operating group or division (e.g., ED TEL, MTS); it can use a publishing affiliate (e.g., BC Tel, AGT Directory, Bell, MT&T, Island Tel, Newfoundland Tel, Northwest Tel); or it can contract with an unaffiliated Publisher (e.g., Sask Tel, N.B. Tel, and the independent telephone companies located in British Columbia, Ontario and Quebec).

28. The use of the Yellow Pages trademarks, combined with the identification of the Publisher with the Telco, confer a significant competitive advantage on the Publisher over other publishers of Telephone Directories from the perspective of local telephone subscribers, and therefore also from the perspective of local advertisers which target those same subscribers. This advantage has proven difficult to overcome by potential and existing competitors. Thus, the structure of the Telephone Directory publishing industry to a great extent parallels the structure of the telephone industry itself, with the dominant Publishers in each region closely identified with the Telco.

29. The competitive advantage which the association with the local telephone company confers on publishers is consistent throughout North America Almost without exception, when an arm's length publisher loses its contract with the local telephone company, it is almost completely displaced by its successor.

30. Publishers associated with telephone companies pay a large part of the revenue generated from telephone directory advertising to the local telephone company with which they are associated. Throughout Canada, the U.S. and Europe, on average approximately 50 percent of total telephone directory advertising revenues go to the local telephone company. (For Telcos regulated by the CRTC, these revenues constitute deemed earnings of the telephone company for the purposes of rate setting.) This percentage does not change materially based on the relationship between the telephone company and the publisher (affiliate or arm's length); the type of relationship only affects the form that the payments may take (licence and royalty fees, dividends and so on).

31. Publishing Yellow Pages Telephone Directories has historically produced substantial profits.

- 14 -32. Because of the predominantly local focus of Telephone Directories, the Publishers do not cooperate to any appreciable extent with each other in soliciting intraterritorial advertising for Telephone Directories. At the same time, however, the Publishers have co-operated extensively through CANYPS to facilitate the Selling of National Advertising.

3 3. CANYPS is an informal association of the Publishers whose mission is to improve the utility of their Telephone Directories to subscribers and National AdvertiSers. Independent Telephone Directory publishers cannot gain admission into CANYPS. CANYPS was formed in 1961 to provide a uniform national system for the Selling of directory advertising space in the members' Telephone Directories by enabling members to Sell Telephone Directory advertising in their own territories on behalf of other members, and to provide national standards for advertising specifications. A major purpose of CANYPS which has evolved over time is to develop ways to promote Yellow Pages Telephone Directories as an advertising medium. Historically, CANYPS published a Rates & Data Book which displayed only information with respect to CANYPS members; however, it has not published a Rates & Data Book since June, 1993.

34. The CANYPS system of Selling National Advertising was a parallel of the American system originally known as NYPS, which was developed and operated in-house by AT&T. The idea for the NYPS system was conceived of by AT&T in response to a perceived need of the advertising public for a central clearing house for national advertising which would provide "one contact, one contract, one bill" service, rather than having each national advertiser deal on an individual basis with each publisher for each of its directories. National advertisers in the United States found it difficult and expensive to place advertising with over twenty major telephone companies, which together published literally thousands of different directories, each with their own closing dates and price lists. NYPS rationalized the system. It was divested in 197 5 and became an independent association called NYPSA. In 1988, NYPSA merged with the American Association of Yellow Pages Publishers to become the YPPA. The YPPA is a much broader organization than CANYPS, being comprised of more than 300 companies including publishers, independent sellers, and others who provide services to the telephone directory publishing industry in North America. The YPPA publishes a Rates & Data Book for its members. While the American market is larger and more complicated than the Canadian, the same problems for National Advertisers existed in this country. Hence, like NYPS, the CANYPS system was put in place primarily in response to a perceived need of National Advertisers.

- 15 -35. The YPPA has developed an electronic order transmission system, called the Value Added Network or VAN system, to submit orders to the YPPA publishing members. This system has been adopted by the industry in Canada and has been accepted as the standard for order transmission by the Respondents.

36. In the early 1980s, the Respondents were members of NYPSA, as one of the predecessors to YPPA was then known. NYPSA interpreted its own by-laws as meaning that members of that association had the right to operate in Canada as Selling entities. The Respondents disagreed and resigned from NYPSA. Certain of the Respondents re-joined the association (now the YPPA) in 1991 after it was understood that independent American Selling entities would not have any inherent rights to receive remuneration for advertisements placed in Canada.

37. The Telephone Directory industry can be viewed as having a "publishing side" and a "selling side".

(i) The "publishing side" includes all matters relevant to the production of a Telephone Directory, including access to a subscriber data base (including information relating to new subscribers) upon which the Telephone Directories are based, physical creation of hard copy, printing, promotion and distribution. The terms of access to Subscriber Data Bases are essentially dictated by the Telco or one of its affiliates which owns the Subscriber Data Base. In the case of Bell, terms of access are regulated in some respects by the CRTC. Physical creation of hard copy involves transcription of an advertiser's order. Most Publishers contract out printing and distribution functions to independent third parties.

(ii) The "selling side" refers to the provision of services relating to the sale of advertising in a Telephone Directory, including establishing new customers, calling on customers, and providing advice, information and other services relating to the design, cost, content, location, creation and placing of advertisements.