ARCHIVED -  Telecom Order CRTC 95-569

Telecom Order

Ottawa, 18 May 1995

Telecom Order CRTC 95-569

IN THE MATTER OF an application by Stentor Resource Centre Inc. (Stentor), on behalf of AGT Limited, BC TEL, Bell Canada, The Island Telephone Company Limited, Maritime Tel & Tel Limited and The Manitoba Telephone System, under Tariff Notice 90 dated 23 December 1994, for approval of proposed tariff revisions, and an associated contract, providing for the introduction of Switched Call Completion (SCC).

WHEREAS Stentor stated that the proposed SCC was designed to meet the needs of Alternate Providers of Long Distance Services (APLDS) who use the switched network to terminate off-net and overflow traffic;

WHEREAS Stentor stated that the proposed SCC would, among other things, reduce the economic incentive to engage in bypass and winback traffic that is currently bypassing the Canadian network;

WHEREAS SCC would be available to customers who contract for a minimum monthly usage commitment of one million minutes and would be provided under a one or three year contract;

WHEREAS SCC would be provisioned from locations in Halifax, London, Montreal, Ottawa, Quebec City, Toronto, Vancouver, Winnipeg, and Calgary, and through AGT's toll switch in Edmonton;

WHEREAS there would be a requirement for a minimum of one dedicated DS-1 facility to be connected directly from each APLDS switch to the Stentor owner company toll switch;

WHEREAS comments were received from Sprint Canada Inc. (Sprint) by letter dated 16 January 1995 and from Unitel Communications Inc. (Unitel) by letter dated 20 January 1995;

WHEREAS Stentor replied by letter dated 31 January 1995;

WHEREAS by letters dated 15 February 1995, the Commission requested further information from each of Sprint, Unitel and Stentor;

WHEREAS by letter dated 24 February 1995, the Commission provided an opportunity for further comments by Sprint and Unitel and further reply by Stentor;

WHEREAS by letters dated 15 March 1995, 16 March 1995 and 17 March 1995, respectively, Sprint, Unitel and Stentor filed the further information requested by the Commission;

WHEREAS by letter dated 31 March 1995, Stentor provided an update to the information that it filed on 17 March 1995;

WHEREAS the Commission received further comments from Sprint by letter dated 29 March 1995 and from Unitel by letter dated 31 March 1995;

WHEREAS Stentor filed a further reply by letter dated 12 April 1995;

WHEREAS Sprint submitted, among other things, that the proposed tariff raises significant pricing and policy concerns, including potential concerns about predatory pricing and should be denied;

WHEREAS Unitel argued that the proposed SCC rates are predatory and that SCC does not meet the imputation test;

WHEREAS Unitel argued that, given the target market for this service and the large price discount for southbound U.S. traffic relative to domestic Canadian traffic, it is likely that an extremely large share of SCC demand will be southbound U.S. minutes;

WHEREAS Unitel questioned the validity of the proportion of southbound U.S. traffic assumed by Stentor for purposes of the imputation test, given the very low level of SCC rates for southbound U.S. traffic;

WHEREAS Unitel noted the proceeding initiated by De-averaged Per-minute Contribution Mechanism, Telecom Public Notice CRTC 94-59, 29 December 1994 (Public Notice 94-59), and the Commission's proposal in that proceeding to implement a de-averaged per-minute contribution mechanism with two components, a peak and an off-peak charge;

WHEREAS Unitel noted the possibility that a de-averaging process could result in an increase in the contribution charge applying in the peak period relative to the current average per-minute contribution charge;

WHEREAS Unitel submitted that with an increase in imputed contribution, it will be difficult for telephone company tariff proposals targeted at the peak period long distance market to pass the imputation test;

WHEREAS Unitel was of the view that approval of the SCC tariff at this time could result in serious anti-competitive pricing problems;

WHEREAS Unitel submitted that unless consideration of this problem is now recognized and some allowance for additional peak period contribution is included in the current imputation test, a number of services may be approved with rates that could not pass the imputation test under a regime involving de-averaged contribution charges;

WHEREAS Stentor submitted that SCC meets the imputation test for all Stentor owner companies and that allegations that the proposed rates are predatory are without foundation;

WHEREAS Stentor submitted that the allegation that SCC will attract a disproportionate share of southbound 2U.S. traffic ignores the fact that U.S. suppliers offer their rates to all Canadian customers, wholesale or retail, that can deliver 180,000 minutes per month and that, since SCC is not priced at a disproportionately low level relative to other rates available in the market place for customers with high traffic volume, it is unreasonable to assume that SCC would attract a disproportionate share of the southbound traffic;

WHEREAS Stentor submitted that the allegation that SCC would attract a disproportionate share of the southbound market is without merit and should be disregarded;

WHEREAS, with respect to the issue of contribution de-averaging, Stentor submitted that although the move to a de-averaged contribution mechanism may potentially increase the contribution charges for services that generally attract peak traffic, the steady decline of per-minute contribution charges can reasonably be expected to mitigate a potential increase in contribution charges under a de-averaged contribution mechanism;

WHEREAS Stentor noted, in the case of SCC, that the contribution charges imputed under a de-averaged contribution regime would reflect increases as well as decreases to the contribution charges used in the imputation test filed with SCC;

WHEREAS Stentor stated that whether a service passes the imputation test under a de-averaged contribution mechanism depends on a number of factors such as the peak/off-peak mix, the traffic distribution pattern and the margin that was in place before the de-averaged contribution mechanism took effect;

WHEREAS Stentor provided revised imputation test information using the proposed de-averaged contribution charges;

WHEREAS Stentor submitted that SCC has sufficient margin to cover the impact due to de-averaged contribution charges and that SCC would pass the imputation test for all companies using the de-averaged contribution charges;

WHEREAS the Commission notes that, in response to an interrogatory, Stentor stated that, for the APLDS component of SCC demand, it was assumed that there would not be any demand stimulation causal to the prices offered by SCC and that, as a study simplification, the non-APLDS demand stimulation estimates were developed on the basis of the overall price reduction, across all settlements, offered by SCC;

WHEREAS given the relative prices of SCC and Advantage Preferred, the proportion of SCC traffic that is assumed to be southbound U.S. traffic and the sensitivity of the SCC imputation test results to the assumed proportion of southbound U.S. traffic, the Commission is not persuaded that the proposed SCC would pass the imputation test;

WHEREAS in order to permit the Commission to better assess the traffic distribution assumed for the purposes of toll filing imputation tests, the Commission considers that the telephone companies should provide with their imputation test filings the information detailed below;

WHEREAS the Commission notes the significance of the forecast Canada/U.S. exchange rate in determining the U.S. settlement adjustment;

WHEREAS the Commission is of the view that the Canada/U.S. exchange rate assumed should form part of the information provided on an ongoing basis with imputation test filings and that it should be based on a one-year forecast of the exchange rate, not a forecast over the whole study period;

WHEREAS, in response to an interrogatory, Stentor stated that it is in the process of establishing a methodology to reflect an estimate of the settlement adjustment with independent companies;

WHEREAS the Commission considers that the achievement of competitive equity requires that the imputation test reflect the inclusion of bottleneck and contribution charges and/or settlement amounts for traffic that originates or terminates in the territories of independent telephone companies according to the terms of independents' access tariffs and/or settlement agreements;

WHEREAS the Commission notes that the federally-regulated Stentor owner companies have, on occasion, performed their imputation tests using proposed, rather than currently approved contribution charges, necessitating requests for further information or Commission adjustments;

WHEREAS the Commission considers that the imputation test filed in support of tariff applications should be performed using those bottleneck and contribution charges that are approved as of the date of filing;

WHEREAS, concerning the issue of the potential for contribution de-averaging to result in an increase in the contribution charges applying during the peak period, relative to the current average per-minute contribution charges, the Commission notes that it requested, in an interrogatory, Stentor's views as to the appropriateness of the following two imputation test options for accommodating a potential de-averaging of contribution charges:

i) continue to include, for imputation test purposes, the 2average per-minute contribution charges contained in the current Carrier Access Tariff (CAT) for telephone company traffic prior to any potential implementation of de-averaged contribution charges but require, in the event that any potential implementation of de-averaged contribution charges results in an increase in contribution charges applying during the peak period, that toll rates approved after the release of Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994 (Decision 94-19) continue to meet the imputation test using the de-averaged contribution charges; or

ii) include, for purposes of the imputation test, the proposed de-averaged contribution charges applicable to the telephone company traffic filed pursuant to Public Notice 94-59, in order to ensure that toll rates that would not meet the imputation test, in the event that de-averaged contribution charges are implemented, are not approved prior to any such implementation.

WHEREAS Stentor indicated that it did not support either of the above options for accommodating a potential change to a de-averaged per-minute contribution mechanism;

WHEREAS Stentor was of the view that it would be premature to employ the proposed de-averaged per-minute rates, even hypothetically within the companies' imputation tests, until the outstanding issues associated with the proceeding initiated by Public Notice 94-59 have been resolved;

WHEREAS Stentor submitted that consideration of issues regarding the application of the de-averaged contribution rates and their incorporation within the imputation test methodology are matters more appropriately addressed within the context of the proceeding pursuant to Public Notice 94-59;

WHEREAS Stentor submitted, among other things, that option i) contemplated the application of de-averaged contribution charges for purposes of the imputation test on a retrospective or retroactive basis and stated that it sees little value in retroactive imputation tests;

WHEREAS Stentor was of the view that to implement reductions in toll prices only to have them potentially withdrawn as the result of information which may become available in the future is not in the interests of customers or competitors within the market;

WHEREAS Stentor submitted that there is no need for retroactive imputation tests, noting that, in Review of Regulatory Framework - Targeted Pricing, Anti-Competitive Pricing and Imputation Test for Telephone Company Toll Filings, in Telecom Decision CRTC 94-13, 13 July 1994, (Decision 94-13) the imputation test was implemented on a prospective basis only;

WHEREAS Stentor argued that, given the uncertainty regarding the schedule for implementation of the de-averaged contribution mechanism and the appropriate levels of the de-averaged rates, it would be reasonable for the Commission to enact this new regime on a prospective basis;

WHEREAS the Commission considers that it would be inappropriate to delay consideration of the appropriate imputation test approach for accommodating the potential implementation of de-averaged contribution charges given the importance of the issue of anti-competitive pricing and given that parties may wish to take account of any such particular approach prior to the issuance of a decision in the proceeding initiated by Public Notice 94-59;

WHEREAS the Commission considers that option ii) would be inappropriate given the uncertainty associated with the particulars of the implementation of a potential de-averaged mechanism, including whether and when it will occur and how its implementation may relate to other issues such as rate rebalancing, and given that use of proposed de-averaged charges may result in approval, prior to the issuance of the Commission's decision with respect to Public Notice 94-59, of reductions in rates for predominantly off-peak services that would not meet the imputation test under the current average per-minute contribution regime for the telephone companies;

WHEREAS the Commission considers that requiring that only those rates that are approved after any implementation of de-averaged contribution charges meet an imputation test that includes those charges would be inconsistent with competitive equity;

WHEREAS the Commission considers that the current situation differs from the situation at the time of the imposition of the imputation test in Decision 94-13 and its modification in Decision 94-19 in that any potential de-averaging of contribution represents merely a change in the level of one of the components of the imputation test and not a fundamental change to a long-standing policy concerning the appropriate composition of the price floor for the purposes of determining whether prices are anti-competitive; and

WHEREAS, consequently, if any future de-averaging results in an increase in contribution charges applying in the peak period, the Commission will require that toll rate reductions or new toll services approved since Decision 94-19 continue to pass the imputation test using the contribution charges that are then in effect -

IT IS HEREBY ORDERED THAT:

1. Stentor Tariff Notice 90 is denied.

2. Imputation test information filed in support of tariff applications is to be performed using:

a) those bottleneck and contribution charges that are approved as of the date of filing; and

b) the average Canada/U.S. exchange rate forecast to prevail over the next year.

3. In all future imputation test filings, the federally-regulated Stentor owner companies are to:

a) provide a justification for the forecast proportions of intra, non-intra domestic, U.S. and overseas traffic;

b) provide a justification for any changes in the proportions, referred to in a) above, from any previous imputation tests for the same service; and

c) identify and justify the Canada/U.S. exchange rate assumed.

4. Stentor is to file, within 60 days, its preferred methodology to reflect in the imputation test the inclusion of bottleneck and contribution charges and/or settlement amounts for traffic that originates or terminates in the territories of independent telephone companies according to the terms of independents' access tariffs and/or settlement agreements. The submission is to include a comparison of the per-minute amounts that would be included for each category of independent company differentiated by the methodology with the per-minute amounts included under the methodology set out in paragraph 5. below.

5. Prior to approval of the methodology referred to in paragraph 4. above and effective immediately, federally-regulated Stentor owner companies are to:

a) include in the imputation test the bottleneck and contribution charges and/or settlement amounts for traffic that originates or terminates in the territories of independent telephone companies according to the methodology set out in the response to SRCI(CRTC)15Feb95-7b) SCC, modified as appropriate to reflect origination in independent territories; and

b) provide with each imputation test filing:

i) a description of the methodology referred to in a) above as applied in the case of the particular filing in question; and

ii) the calculations employed in including the bottleneck and contribution and/or settlement amounts.

6. If any future de-averaging of contribution charges results in an increase in contribution charges applying in the peak period, the Commission will require that toll rate reductions or new toll services approved since Decision 94-19 continue to pass the imputation test using the contribution charges that are then in effect.

Allan J. Darling
Secretary General