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Telecom Decision
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Ottawa, 12 July 1984 |
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Telecom Decision CRTC 84-18 |
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Enhanced Services
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For related documents see: CRTC Telecom Public
Notices 1980-52, 24 November 1980; 1983-72, 15 November 1983; 1983-73, 15
November 1983; 1984-6, 11 January
1984; and Telecom Orders CRTC 84-57, 10 February 1984; 84-63, 10 February
1984; and Telecom Decisions CRTC 79-11, 17 May 1979; 79-16, 28 August 1979;
81-10, 25 May 1981; 81-12, 18 June 1981; 81-22, 4 November 1981; 81-24, 24
November 1981; 82-14, 23 November 1982; 83-4, 13 May 1983; and Report of the
Canadian Radio-television and Telecommunications Commission on the proposed
reorganization of Bell Canada, dated 18 April 1983. |
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Table of Contents
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I BACKGROUND |
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II DEFINITIONS OF BASIC AND
ENHANCED SERVICES |
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III RESALE, SHARING AND
INTERCONNECTION |
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IV TREATMENT OF ENHANCED SERVICES
PROVIDED BY PARTIES OTHER THAN COMMON CARRIERS |
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V NEED FOR RESTRICTIONS ON THE
PROVISION OF ENHANCED SERVICES BY COMMON CARRIERS |
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VI EVALUATION OF COMMON CARRIER
RATES |
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VII UNBUNDLING OF COMMON CARRIER
SERVICES AND TARIFFING OF COMMON CARRIER FACILITIES |
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VIII TRANSFERS OF ENHANCED
SERVICES TO SEPARATE AFFILIATES |
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IX COMMON CARRIER ACCESS TO
MONOPOLY SERVICE BILLING RECORDS AND USE OF CUSTOMER BILLING INSERTS |
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X COMMON CARRIERS' ROLE IN THE
FORWARD PLANNING PROCESS AND THEIR KNOWLEDGE OF THE CONFIGURATION OF
COMPETITORS' UNDERLYING TRANSMISSION FACILITIES AND SERVICES |
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I BACKGROUND |
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The confluence of telecommunications and
computer processing technology that has increasingly taken place over the
past several years has created the potential for a substantial new range of
services in which ordinary telecommunications services can be combined with
the provision of information storage, information processing or information
creation services. This new range of services is generally referred to as
enhanced services. |
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Issues relating to the provision of enhanced
services were first raised before the Commission in the context of an
application by Bell Canada (Bell) for a market trial of a new service to be
known as Voice Message Service (VMS). The essential feature of the proposed
new service was that it would "permit a customer to call a specified
telephone number and leave a message which would be recorded and delivered
later via the telephone network to destinations specified by the customer".
This store and forward capability differentiated VMS from other voice
services traditionally provided by Bell. |
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Bell's VMS tariff was initially approved by the
Commission but was subsequently suspended as a result of consideration of
comments received from the Telephone Answering Association of Canada.
Following receipt of further comments in response to a public notice, the
Commission granted approval to Bell to proceed with the VMS market trial in
Bell Canada - Voice Message Service Trial, Telecom Decision CRTC
81-10, 25 May 1981. |
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In this decision, the Commission took note of
the concerns raised in response to its public notice and stated its intention
to provide an opportunity for public consideration of the issues involved in
the establishment of appropriate guidelines governing the provision of
enhanced services generally. This intention was reiterated in the following
decisions and orders: CNCP Telecommunications - TELENEWS Service,
Telecom Decision CRTC 81-12, 18 June 1981; Bell Canada - Envoy 100 Service,
Telecom Decision CRTC 81-22, 4 November 1981; and CNCP Telecommunications
- Electronic Mail and Office Communications Services, Telecom Decision
CRTC 83-4, 13 May 1983; Telecom Order CRTC 84-57, dated 10 February 1984
(Telecom Order 84-57) concerning Bell's market trial of iNet 2000; and
Telecom Order CRTC 84-63, dated 10 February 1984 (Telecom Order 84-63)
concerning British Columbia Telephone Company's (B.C. Tel) market trial of
iNet 2000. In these decisions and orders, the Commission stated that it did
not intend to consider final approval of these services until it had provided
an opportunity for public consideration of the issues relating to enhanced
services generally. That intention was also reiterated in the Report of
the Canadian Radio-television and Telecommunications Commission on the
proposed reorganization of Bell Canada, dated 18 April 1983. |
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On 15 November 1983, the Commission issued CRTC
Telecom Public Notice 1983-72 (Public Notice 1983-72) in which it initiated a
proceeding to consider certain issues relating to the provision of enhanced
services by federally regulated telecommunications common carriers and other
service providers. The principal issues identified in the public notice as
requiring consideration were the definition of enhanced services, the
regulatory treatment of enhanced services provided by parties other than
common carriers, the regulatory treatment of enhanced services provided by
common carriers, and resale, sharing and interconnection for the purpose of
providing enhanced services. |
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The Commission stated in Public Notice 1983-72
that it would not, in this proceeding, consider the adoption of a structural
separation requirement relative to carrier participation in the enhanced
services market. The Commission noted, however, that it intends, at a later
time, to examine the use of a structural separation approach. |
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The following parties made submissions in
response to Public Notice 1983-72: |
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Bell; B.C. Tel; Canadian Association of Data and
Professional Service Organizations (CADAPSO); Canadian Business Equipment
Manufacturers Association (CBEMA); Canadian Daily Newspaper Publishers
Association (CDNPA); Canadian Federation of Communications Workers (CFCW);
Canadian Industrial Communications Assembly, Association of Competitive
Telecommunications Suppliers, Canadian Association of Data and Professional
Service Organizations, The Canadian Bankers' Association, Canadian Business
Equipment Manufacturers Association, Canadian Daily Newspaper Publishers
Association, The Canadian Radio Common Carriers Association, Datacrown Inc.,
and Telephone Answering Association of Canada (collectively referred to as
CICA et al); Canadian Information Providers Group (CIPG); Canadian Trans-Lux
Corporation, Ltd. (Trans-Lux); CNCP Telecommunications (CNCP); Computer
Sciences Canada, Ltd. (CSC); the Director of Investigation and Research,
Combines Investigation Act (the Director); Consumers' Association of Canada
(CAC); Datacrown Inc. (Datacrown); Government of Quebec (Quebec); Government
of Ontario (Ontario); Government of Saskatchewan (Saskatchewan); Informatech;
KVA Communications and Electronics Co. (KVA); Maritime Telegraph & Telephone
Company, Limited (MT&T); Newfoundland Telephone Company Limited (Newfoundland
Telephone); NorthwesTel Inc. (NorthwesTel); Telephone Answering Association
of Canada (TAAC); Telesat Canada (Telesat); Terra Nova Telecommunications
Inc. (Terra Nova); The Canadian Bankers' Association (CBA); The Canadian
Manufacturers' Association (CMA); The Canadian Radio Common Carriers
Association (CRCCA); The Island Telephone Company, Limited (Island Tel); The
Manitoba Telephone System (Manitoba Tel); The New Brunswick Telephone
Company, Limited (NB Tel); Voice Message Service, a Division of Vocatel
Limited (Vocatel). |
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In Public Notice 1983-72, the Commission stated
that, following receipt of submissions, it would determine whether any
further public process was required prior to rendering a decision. While CAC
argued that the current proceeding is premature and the Director stated that
a public hearing is required, most parties to the proceeding did not identify
any requirement for a further public process. Having considered the comments
received, the Commission is of the view that no further public process is
required in the context of this proceeding. |
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II DEFINITIONS OF BASIC AND ENHANCED SERVICES
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A. Introduction |
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In Public Notice 1983-72, the Commission put
forward for comment the definitions of basic and enhanced telecommunications
services adopted by the Federal Communications Commission (FCC) in its Second
Computer Inquiry, Final Decision, 77 FCC 2d 384 (1980). |
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Under these definitions, a basic
telecommunications service is one that is limited to the offering of
transmission capacity for the movement of information, while an enhanced
service is an offering utilizing the telecommunications network which is more
than a basic service. Parties were asked to comment on the FCC definitions
and any other definitions they might wish to suggest. |
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B. Positions of Parties |
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Most parties expressed opinions as to the
appropriate definitions of basic and enhanced services and, of these, most
supported the use of the FCC definitions. |
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The Director strongly supported the adoption of
the FCC definitions and argued that any attempt to expand the basic service
category to include protocol conversion and similar services would tend
merely to cloud the boundary between basic and enhanced services based on the
concept of a transmission pipeline. The Director acknowledged that there are
differences in the operating environments in Canada and the United States but
took the position that the carriers bear the burden of justifying the
adoption of any alternative definition which they believe necessary to meet
unique Canadian requirements. Finally, the Director argued that a waiver
procedure should be established to consider requests by the carriers for
exceptions to the application of the definitions on a case-by-case basis.
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CICA et al considered it essential for the
Commission to rule on the distinction between basic and enhanced services for
two reasons: first, to provide clear guidelines to non-telephone companies as
to what services may be provided "without regard to the threat of regulatory
control or carrier interference based on complaints of resale"; and secondly,
to allow the Commission to adopt different regulatory rules for basic and
enhanced services. To this end, CICA et al recommended adoption of the FCC
definitions. In support of this recommendation, CICA et al argued that
adoption of the FCC definitions will reduce regulatory uncertainty and
thereby foster the development of new services, especially by non-telephone
companies. |
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It was CICA et al's view that the FCC's
proceedings had been painstakingly thorough, with the result that a
practicable distinction between basic and enhanced services had been
developed. With regard to the definition of basic service, CICA et al
concluded that it is broad enough to ensure regulation of traditional
telephone company communications services while granting the widest possible
latitude for the provision of enhanced services. |
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CICA et al reviewed the FCC decisions subsequent
to the Final Decision in the Second Computer Inquiry, which dealt with
petitions for reconsideration of the basic/enhanced dichotomy. CICA et al
pointed out that, in the First Reconsideration Decision, 84 FCC (2d)
50 (1980), the FCC confirmed that information storage and retrieval services
should be excluded from the basic category but that protocol conversions
which are performed internally to a telephone company's network transmission
function should not be so excluded. CICA et al cited the following paragraph
from that FCC decision regarding what forms of protocol conversion would be
classified as enhanced: |
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The record on reconsideration does not support
modification of our determination that the
offering of code and protocol conversion capabilities external to the
carrier's network
transmission function is an enhanced service. Evidence is lacking to support
the proposition
that protocol conversion must be performed as part of a basic service. The
market-place to
date demonstrates that users are able to choose among an increasing number of
alternatives -
all of which are external to the basic transmission network - for performance
of all levels of
protocol conversion. |
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Finally, CICA et al concluded that the
particular value of the FCC definitions is that they are both workable and
proven in an environment not dissimilar to our own. |
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The CMA also supported the FCC definitions.
Further, it emphasized its objection to the inclusion of code and protocol
conversion in the basic service category unless such conversion is not
visible to the user and therefore not part of the service from the customer's
perspective. |
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Ontario and the carriers argued that the use of
the FCC definitions is inappropriate owing to differences in industry
structure between Canada and the United States and the fact that the
definitions are to be used for different purposes in Canada. Specifically,
they noted that an important purpose of the FCC definitions was to define,
for regulatory purposes, a category of services which American Telephone &
Telegraph (AT&T) would be permitted to offer only through a separate
affiliate whereas the issue of structural separation is not being dealt with
in this proceeding. |
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In this regard, most of the carriers argued that
the definition of basic service should include code, protocol and speed
conversion. Island Tel, MT&T, NB Tel and Newfoundland Telephone were also in
favour of adding voice and data storage and retrieval to the definition of
basic service. |
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Bell took issue with the FCC definitions on the
ground that they are based on a static view of telecommunications. It was
Bell's position that the definition of basic service should reflect the
notion that basic services form the infrastructure on which enhanced services
can be provided. Bell further argued that a flexible definition of basic
service is necessary to enable this infrastructure to evolve as the
telecommunications industry and its technology change. Thus, Bell sees the
basic service category as an evolving floor package of services. |
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Bell proposed to define a basic service as a
telecommunications service provided exclusively by, or in a manner exclusive
to, one or more regulated common carriers and provided subject to appropriate
regulatory procedures. Bell's proposed definition of an enhanced service is a
service which can be provided under conditions of open market entry and exit
by any party, and which employs as part of the service one or more basic
telecommunications services under essentially the same terms and conditions
of availability for all providers. |
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Under Bell's proposed definitions, services
involving only code and protocol conversion, in addition to transmission,
would be considered basic rather than enhanced services. |
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B.C. Tel stated that the purpose of the
definitions in Canada should be to determine the appropriate regulatory
treatment of different categories of services. Further, B.C. Tel argued that
regulation by the Commission should encourage and facilitate, rather than
impede, carrier participation in the new services market in Canada and
internationally. |
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B.C. Tel proposed a different approach to the
definitions of basic and enhanced services based on four functions:
information communications, information provision, information processing and
information storage and retrieval. Under B.C. Tel's approach, services in
which none of these functions are primary are classified as convergent
services. |
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In terms of information communications services,
B.C. Tel drew a distinction between pure and enhanced services. It defined a
Pure Information Communications Service as a service which involves the
transmission of information and does not change the meaning or content of the
information and does not involve long-term storage of information. The
definition incorporates protocol conversion since protocol conversion does
not change the meaning of the message. The definition also incorporates
short-term storage which, like the post office use of a post box, merely
facilitates communication and is not intended as a long-term storage medium
by the user. |
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B.C. Tel defined an Enhanced Information
Communications Service as a service which may contain elements other than its
primary communications component but which will not be feasible if the
communications component is removed. |
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In its reply comments, B.C. Tel indicated that,
as an alternative to its suggested approach, it supported Bell's proposed
definitions of basic and enhanced services. |
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Telesat essentially agreed with the FCC approach
but wanted the definition of enhanced services amended to reflect the notion
that basic service must be "affected in a deliberate and conscious manner to
meet the specifications of a customer or user". Further, Telesat stated that
the definition of basic service should specify that basic services must and
can only be offered by common carriers. |
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Ontario argued that any attempt to classify
services into mutually exclusive internally consistent categories ignores
technological change and is therefore not sustainable over the long-term.
Ontario recommended that, for each type of service offered, the types and
number of suppliers as well as their regulatory treatment could be decided
separately. Ontario recognized the onerous nature of this task but took the
position that the effort was warranted. Nevertheless, Ontario recognized that
a description of common carrier attributes might be necessary for the purpose
of determining access by other providers to basic common carrier facilities.
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Finally, CIPG agreed with the FCC definition of
basic service but took the position that the FCC definition of enhanced
services was too broad in that it could be interpreted to include all
activities which utilize telecommunications. CIPG, therefore, recommended
that, in order to preclude the unnecessary extension of Commission
jurisdiction, the definition of enhanced services should be limited to
offerings by a common carrier over the telecommunications network which are
more than a basic transmission service. |
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C. Conclusions |
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Having considered the positions of the parties,
the Commission has decided to adopt definitions of basic and enhanced
services that conform in substance with the definitions adopted by the FCC.
The wording of the FCC definitions has, however, been modified to provide
further clarity and to ensure that a service is not classified as enhanced
simply because it is provided by a party other than a common carrier. The
definitions adopted are as follows: |
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1. Basic Service |
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A basic service is one that is limited to the
offering of transmission capacity for the movement of information. In
offering this capacity, a communications path is provided for the analog or
digital transmission of information of various types such as voice, data and
video. Different types of basic services are offered depending on (a) the
bandwidth desired, (b) the analog and/or digital capabilities of the
transmission medium, (c) the fidelity, distortion or other conditioning
parameters of the communications channel to achieve a specified transmission
quality, and (d) the amount of transmission delay acceptable to the
subscriber. Under these criteria, subscribers are afforded transmission
capacity which suits their particular communications needs. |
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A basic service should be limited to the
offering of transmission capacity between two or more points suitable for a
subscriber's transmission needs and subject only to the technical parameters
of fidelity or distortion criteria, or other conditioning. Use internal to
the service provider's facility of companding techniques, bandwidth
compression techniques, circuit switching, message or packet switching, error
control or other techniques that facilitate economical, reliable movement of
information does not alter the nature of the basic service. Similarly,
internal speed, code and protocol conversion that is not manifested in the
outputs of the service does not alter the nature of the basic service. In the
provision of a basic service, memory or storage within the network is used
only to facilitate the transmission of the information from the origination
to its destination, and the service provider's basic transmission network is
not used as an information storage system. Thus, in a basic service, once
information is given to the communication facility, its progress towards the
destination is subject to only those delays caused by congestion within the
network or transmission priorities given by the originator. |
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In offering a basic service, therefore, a
service provider essentially offers a pure transmission capability over a
communications path that is virtually transparent in terms of its interaction
with subscriber supplied information. |
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2. Enhanced Service |
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An enhanced service is any offering over the
telecommunications network which is more than a basic service. In an enhanced
service, for example, computer processing applications are used to act on the
content, code, protocol, and other aspects of the subscriber's information.
In these services, additional, different or restructured information may be
provided the subscriber through various processing applications performed on
the transmitted information, or other actions, such as editing or formatting,
can be taken by either the vendor or the subscriber based on the content of
the information transmitted. |
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Moreover, in an enhanced service, the content of
the information need not be changed and may simply involve subscriber
interaction with stored information. Many enhanced services feature voice or
data storage and retrieval applications, such as in a "mail box" service.
This is particularly applicable in time-sharing services where the computer
facilities are structured in a manner such that the customer or vendor can
write its own customized programs and, in effect, use the time-sharing
network for a variety of electronic message service applications. Thus, the
kinds of enhanced store and forward services that can be offered are many and
varied. |
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All federally regulated telecommunications
common carriers are directed to identify, within 30 days, which of the
services they currently provide they would consider to be enhanced under the
above definitions. |
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In adopting the above definitions of basic and
enhanced services, the Commission has been guided by a number of
considerations. |
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First, the Commission notes that most parties to
this proceeding stressed the desirability of permitting competition in the
provision of enhanced services. The Commission is in agreement that
competition should be permitted in the enhanced services market. In this
context, the definition of enhanced services adopted, when coupled with the
provisions on resale, sharing and interconnection discussed in section III,
should allow the provision of a wide range of services on a competitive
basis. These services include store and forward messaging and data base
telecommunications services, as well as services such as external code and
protocol conversion and voice and data storage and retrieval. |
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With regard to these latter services, the
Commission notes that, while many parties argued that they are by nature
competitive, the carriers opposed their inclusion in the category of enhanced
services on the basis that they could thereby be precluded from providing
them on an in-house basis. The Commission notes, however, that the
classification of a service as enhanced will not in itself serve to restrict
carrier provision of the service, as discussed in section V. Furthermore, as
indicated in Public Notice 1983-72, the Commission is not considering the
issue of structural separation in this proceeding. Therefore, in deciding
upon an appropriate definition of enhanced services, the Commission has not
considered the possible imposition of a structural separation requirement as
being a purpose for which the definition should be designed, or whether the
definition adopted would in fact be suited to such a purpose. Thus, the
definition of enhanced services, when taken together with the other
recommendations adopted in this decision, while serving to permit competition
by parties other than common carriers, does not result in restricting
competition by the carriers in this market. |
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Secondly, the Commission considers that the
definition of enhanced services provides a rational basis for determining the
regulatory treatment of such services when provided by common carriers. The
rate evaluation process for enhanced services, discussed in section VI, takes
into account both the competitive nature of these services and the reliance
on basic service as the means to provide them. |
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Thirdly, the Commission considers that the FCC
definitions have proven workable in a technical environment similar to that
of the federally regulated carriers and serve to provide clear guidelines to
potential market entrants regarding which services are considered enhanced.
In adopting definitions that conform in substance with the FCC definitions,
the Commission is of the view that these same benefits will be obtained in
Canada. In the Commission's view, the definitional approaches put forward by
Bell and Ontario would, in particular, fail to provide clear guidelines and
could thereby serve to discourage investment by parties other than common
carriers in the enhanced services market. |
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III RESALE, SHARING AND INTERCONNECTION |
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A. Introduction |
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The tariffs and general regulations of the
common carriers generally prohibit the resale, sharing and interconnection of
their services except by specific agreement or where otherwise stipulated in
their tariffs. Since common carrier services generally underlie enhanced
services, these prohibitions could impair the ability of parties other than
the common carriers to provide enhanced services. |
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In Public Notice 1983-72, the Commission invited
comments on the need for, and implications of, relaxing resale, sharing and
interconnection restrictions when carrier services are used in the provision
of enhanced services. |
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B. Positions of Parties |
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All parties commenting on the issue agreed that
resale of certain services should be allowed for the provision of enhanced
services. However, there were a number of differences among the parties as to
how such a policy ought to be implemented and the services to which it should
apply. |
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The federally regulated telephone companies
(Bell, B.C. Tel, NorthwesTel and Terra Nova) all stated that, under their
present policies, the resale of basic services is permitted for the provision
of enhanced services. Bell and B.C. Tel also stated that this form of resale
does not violate existing restrictions embodied in their General Regulations.
B.C. Tel stated that it currently permits the resale of its data services but
generally restricts the resale of voice services. These companies also
indicated that the present restrictions should be retained in order to
prevent resale to provide services to which no value is added. |
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As to the question of limiting resale to the
provision of enhanced services, B.C. Tel indicated that it can distinguish
between applications where value is added and those where no value is added
to its basic services. Bell, while recognizing certain difficulties in
limiting resale to the provision of enhanced services, stated that its
existing policy is adequate to protect basic services while enabling the
competitive provision of enhanced services. |
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Other telephone companies (Island Tel, MT&T, NB
Tel and Newfoundland Telephone) commenting on the issues generally held views
similar to the federally regulated telephone companies and stated that resale
for the provision of enhanced services should be allowed, but that existing
restrictions should remain in order to prevent competitors from reselling
basic services without adding value. They further stated that the existing
rules are fair and equitable and that the appropriate regulatory mechanisms
are in place to deal with specific complaints should any party feel unjustly
treated. |
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Telesat agreed with this approach and stated
that the current pricing of telecommunications services would be undermined
if resale were allowed for any purposes other than the provision of enhanced
services. |
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CNCP also took the position that resale should
be allowed for the provision of enhanced services but, in contrast to other
carriers, stated that it would be willing to modify its regulations to this
effect. CNCP added that enhancements to basic carrier services must be
substantial and that resale where no value, or only marginal value, is added
should remain prohibited. CNCP also stated that only the resale of basic
services should be allowed and that the carrier should retain the power to
restrict resale of its enhanced services. |
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The Director and Quebec were generally in favour
of allowing resale for the provision of enhanced services. The Director was
of the opinion that resale is in the public interest since it would increase
utilization of the carriers' networks. Quebec, while supporting resale for
the provision of enhanced services, noted that there are difficulties in
limiting resale to the provision of enhanced services. |
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The other parties submitting comments on this
issue were in favour of modifying the existing carrier resale restrictions to
allow resale for the purpose of providing enhanced services. In addition,
most perceived no problems in restricting resale only to the provision of
enhanced services. |
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These parties argued that the present situation
in which resale is subject to the carriers' discretion increases the risk and
reduces the incentive for the development of enhanced services by parties
other than common carriers and that it is important to remove the present
uncertainties by placing clear resale guidelines in the carriers'
regulations. |
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CICA et al took the position that the present
discretionary powers of the carriers to allow or disallow resale could lead
to discriminatory treatment contrary to section 321 of the Railway Act
and that a heavy onus is cast on the carriers to justify any prohibition of
resale. CICA et al also stated that the present prohibitions are "imprecisely
and inconsistently worded" and that it is essential that the Commission
provide actual and potential providers of enhanced services with workable
guidelines. |
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CMA, while supporting resale of basic services
used in the provision of enhanced services, was of the opinion that, in a
competitive market, there is no need for regulatory requirements with respect
to the resale of enhanced services. CICA et al and Datacrown stated that
resale should be allowed for any enhancement to a basic service whatsoever,
while CIPG recommended that all restrictions on resale be removed. |
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While the Commission asked for comments on both
resale and sharing, all but two of the commenting parties addressed only the
issue of resale or did not distinguish between the two. |
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One of the two, CNCP, stated that, while it was
appropriate to allow resale for the purpose of providing enhanced services,
retaining restrictions on sharing would not impair the competitive ability of
parties other than common carriers in the enhanced services market. CNCP
further stated that the appropriate forum for the resolution of this issue is
the interexchange competition proceeding initiated by CRTC Telecom Public
Notice 1984-6 dated 11 January
1984, and, therefore, that a change in the existing sharing prohibitions
would not be appropriate at this time. |
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CADAPSO, on the other hand, stated that sharing
would permit many smaller users to split communication costs in order to
avail themselves of a generally attractively priced computer service. |
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Most parties did not specifically address the
question of whether changes to existing carrier interconnection and
attachment restrictions are required to allow the competitive provision of
enhanced services. CNCP, however, stated that, while CNCP
Telecommunications: Interconnection with Bell Canada, Telecom Decision
CRTC 79-11, 17 May 1979 (Decision 79-11) and CNCP Telecommunications:
Interconnection with the British Columbia Telephone Company, Telecom
Decision CRTC 81-24, 24 November 1981 (Decision 81-24) provided CNCP with
certain rights of system interconnection with Bell and B.C. Tel, the
restrictions therein would prohibit CNCP from providing enhanced services
involving the resale of such interconnected services. CNCP stated that the
specific restrictions which could preclude the offering of such service for
resale are found on page 262 of Decision 79-11, as follows: |
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the service utilizing such connection shall be
limited to the subscriber's private communications needs; and the
transmission circuit provided by CNCP which is used by the service utilizing
such connection shall be dedicated to the subscriber's private use. |
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CNCP therefore requested that the restrictions
in Decisions 79-11 and 81-24 be modified accordingly. |
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CIPG stated that all interconnection
restrictions should be removed, while CMA stated that interconnection
restrictions should be removed for the purpose of providing enhanced services
and that any restrictions should apply equally to carriers and parties other
than common carriers. |
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CBEMA focussed on the specific issue of
inter-company data switching, stating that the carriers have accorded
themselves the right to perform this service as part of their enhanced
service offerings while applying attachment restrictions to other potential
suppliers of the service. CBEMA concluded that, if restrictions on resale and
sharing for the purpose of providing enhanced services were removed, then
such restrictions as applied to inter-company data switching would no longer
be justified. |
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Bell was the sole telephone company to address
this issue and stated that no changes are required. |
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C. Conclusions |
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In order for competition to develop in the
enhanced services market, it is evident that resale of carrier services is
required. Accordingly, the Commission has concluded that such resale should,
in general, be permitted for the purpose of providing enhanced services. The
Commission, however, shares the concern of a number of parties to this
proceeding that, by making marginal enhancements to a basic service, an
enhanced service provider could thereby be enabled artificially to circumvent
carrier restrictions on resale to provide basic services. In the Commission's
view, such a possibility would persist regardless of the definition of
enhanced services adopted, and circumstances will inevitably arise in which
it is necessary to determine whether particular services that apparently fall
within the definition of enhanced services are nonetheless basic in nature.
|
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The Commission has therefore decided that, while
resale of all carrier services should be permitted for the provision of
enhanced services, it should not be permitted where the enhanced service has
as its primary function the provision of a basic service. |
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In arriving at this decision, the Commission has
been persuaded by those parties who contended that the present situation, in
which resale is allowed at the carriers' discretion, can lead to uncertainty
in the development of enhanced services and that clear guidelines are
required to identify those situations in which resale of carrier services
must be permitted. |
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Further, the Commission has not been persuaded
by the record of this proceeding that the carriers will be adversely affected
by allowing the resale of enhanced services, in addition to the resale of
basic services, or the sharing of carrier services when these services are
used to provide enhanced services, or that any other reasons exist for the
imposition of such restrictions. |
| |
In light of the foregoing, the carriers are
directed to file, within 45 days, tariff revisions permitting resale and
sharing for the purpose of providing enhanced services, except for an
enhanced service which has as its primary function the provision of a basic
service, and incorporating the definitions of enhanced and basic services
adopted by the Commission in section II. Such revisions should not alter
existing carrier regulations or practices with regard to resale and sharing
for the purpose of providing other types of services. |
| |
Should circumstances arise in which a carrier
believes that the primary function of an enhanced service, the provision of
which requires the resale or sharing of carrier services, is to provide a
basic service, the carrier may apply to the Commission to deny resale or
sharing for the purpose of providing the service. The carrier will, however,
be required to permit resale or sharing pending disposition of the
application. |
| |
With respect to interconnection and attachment
restrictions, the Commission is of the opinion that such restrictions are
inappropriate when the interconnection or attachment to carrier facilities is
requested to provide an enhanced service. However, due to the lack of
identification of specific requirements, no general revisions to the carrier
tariffs will be required at this time. The Commission will expect parties
having any such requirement to negotiate appropriate arrangements with the
carriers involved, subject to Commission review as may be necessary. |
| |
With respect to CNCP's submission concerning the
interconnection restrictions contained in Decisions 79-11 and 81-24, the
Commission agrees that the conditions of interconnection identified by CNCP
in its submission should not apply if CNCP is requesting interconnection to
provide an enhanced service. Accordingly, Bell and B.C. Tel are hereby
directed to file, within 45 days, tariff revisions to reflect this
conclusion. |
|
IV TREATMENT OF ENHANCED SERVICES PROVIDED BY
PARTIES OTHER THAN COMMON CARRIERS |
| |
A. Introduction |
| |
In Public Notice 1983-72, the Commission
requested that interested parties comment on the need for, and objectives of,
regulating enhanced services when provided by parties other than common
carriers and upon the Commission's legal powers and duties in this regard.
|
| |
B. Positions of Parties |
| |
All parties submitting comments except CFCW and
Ontario argued that there was no need to regulate enhanced services provided
by parties other than common carriers. Ontario stated that, in general, it
favoured competitive solutions in the determination of industry structure.
Further, it suggested that the issue of the regulatory treatment of
individual services should depend on the nature of the services, industry
structure and public policy considerations. CFCW's argument pertained to the
need for competition rather than regulation and, in particular, CFCW
contended that, if increased competition results in gains for business at the
expense of ordinary consumers, competition is not necessary. |
| |
Many parties argued that regulation is a second
best alternative to competition. CNCP and Telesat contended that regulation
is redundant where market forces exist, while CICA et al and the Director
argued that regulation should only be imposed where market forces are
deficient. |
| |
CMA and the Director, among others, stated that
competition best contributes to innovation, efficiency and lower prices. In
addition, CADAPSO and Telesat contended that competition benefits users by
allowing greater innovation and flexibility in response to market demands.
|
| |
CIPG argued that regulation was not required for
these services since no monopoly rights or monopoly attributes exist to
require regulation designed to prevent monopoly abuse. Moreover, CMA
contended that these services are discretionary and that no mandate exists to
require them to be provided on a universal basis. |
| |
Saskatchewan suggested that it would be naive
and possibly detrimental to suppose that new technologies could be
constructively regulated by traditional methods. Informatech also considered
regulation to be inappropriate in a domain of entrepreneurs and visionaries
and further argued that it would be ironic to extend regulation over an
activity simply because a regulated carrier also engages in that activity.
|
| |
CBA argued that most enhanced service providers
are users, not providers, of telecommunications services. CIPG contended that
no need exists to regulate computer or other services provided by parties
other than common carriers merely because such parties use services provided
by common carriers. |
| |
CICA et al argued that regulation would result
in an enormous increase in Commission workload and place a heavy burden on
the Commission and on service providers. An increase in the Commission's
workload, in the opinion of the Director, would divert scarce resources from
the essential task of regulating monopoly services. Moreover, it was
contended by CADAPSO that it would be virtually impossible to establish
regulatory standards and criteria for so many diverse companies and services.
|
| |
All common carriers agreed that enhanced
services provided by other parties should be unregulated. They also contended
that enhanced services provided by federally regulated common carriers should
be unregulated or at least subject to less detailed regulatory scrutiny so as
to maximize competition. B.C. Tel proposed that any rules applicable to it
should apply to all telecommunications competitors including CNCP, cable
operators, cellular radio providers, satellite service providers and
Subsidiary Communications Multiplex Operation (SCMO) and Vertical Blanking
Interval (VBI) providers. CAC and CFCW also argued that the Commission should
consider the role of cable in the context of this proceeding. |
| |
While virtually all parties to the proceeding
agreed that enhanced services provided by parties other than common carriers
should not be subject to regulation, only a few developed legal arguments to
support their position. CBA, CBEMA, CIPG and Vocatel all stated that the
Commission has no statutory mandate to exercise any control over parties
other than the federally regulated telephone and telegraph companies. CIPG
contended that any attempt by the Commission to assert jurisdiction over such
parties would constitute an attempt to trench on provincial jurisdiction over
property and civil rights. |
| |
The arguments of Bell, B.C. Tel, CICA et al,
NorthwesTel, Ontario, Telesat and Terra Nova revolved around the meaning of
"company" in subsection 320(1) of the Railway Act. Those parties
generally agreed that the issue of whether the Commission has jurisdiction
over a provider of services which fall within the meaning of "toll" in
subsection 2(1) of the Act must be determined on the basis of whether the
criteria used to define a company in subsection 320(1) extend to such a
provider. Only Bell, Telesat and CICA et al elaborated on which providers are
encompassed by the definition. |
| |
Bell contended that, pursuant to subsection
320(l), any service provider may be subject to Commission regulation under
the Railway Act, regardless of whether it owns the transmission
facilities used in providing the service, if the provision of such service by
the party is subject to federal jurisdiction and if the party is considered
to be operating a telephone or telegraph system or line and charging for the
use or lease of the system or line, for the transmission of a message thereon
or for a service provided through the facilities of a telephone or telegraph
system. |
| |
Telesat argued that a provider falls within
subsection 320(1) if it is a company within the legislative authority of
Parliament which has the power to construct or operate a telegraph or
telephone system or line and to charge tolls. However, Telesat emphasized
that, based on the criteria enunciated in subsection 320(1), it would appear
that an enhanced service provider which might otherwise be a company within
the meaning of section 320 could elude Commission jurisdiction by drafting
its articles of incorporation so as to exclude from its corporate powers the
power to construct or operate a telegraph or telephone system or line while
retaining the power to charge tolls. |
| |
CICA et al referred to subsection 320(12) of the
Railway Act, which states that the Act extends and applies to all
"companies" and to all telegraph and telephone systems, lines and business of
such companies within the legislative authority of Parliament, and to
subsection 320(1), which states that a "company" is an entity authorized to
construct or operate a telegraph or telephone system or line and to charge
tolls in connection therewith. Based on these provisions, CICA et al framed
the question of determining whether the Commission has jurisdiction over a
provider of enhanced services as follows: would the company furnishing the
service be considered to be operating a telegraph or telephone system?
Relying on various judicial interpretations of the words "telegraph" and
"telephone" and on the Commission's interpretation of the words "telegraph
and telephone system" in Decision 79-11, CICA et al concluded that the term
"telephone system" is generally limited to a system designed or intended for
the transmission of public voice or "public record" traffic on a utility
basis, utilizing public rights of way, that is, a system capable of providing
"plain old telephone service". |
| |
CICA et al argued that, although the language
used in subsection 320(1) to define "company" is less than clear-cut, the
Commission would be well within the spirit and intent of section 320 if it
interpreted "company" to mean a person enabled to offer "basic" telephone or
telegraph service under Parliamentary authority, whether statutory or
constitutional. |
| |
C. Conclusions |
| |
The Commission is of the opinion that, as a
matter of regulatory policy, it is neither necessary nor desirable that
enhanced services provided by parties other than common carriers be
regulated. The Commission notes that this conclusion is in accord with the
position of virtually all interested parties. The Commission found
particularly persuasive the argument put forward by parties that, the market
for enhanced services being competitive, the benefits to be derived from
competition, especially innovation, market flexibility, competitive pricing
and user choice, would be more likely to result from an environment governed,
to the maximum extent possible, by market forces rather than by regulation.
The Commission has also taken into consideration the fact that the diverse
and dynamic market for enhanced services would render the development of
generally applicable criteria for regulation virtually impossible. |
| |
With regard to the issue of the Commission's
legal authority or duty to regulate the provision of enhanced services by
parties other than the federally regulated telephone and telegraph companies,
the Commission notes that its jurisdiction is limited to "companies" as
defined in subsection 320(l) of the Railway Act. The Commission agrees
with the argument of CICA et al to the effect that the jurisdiction granted
to it by the Railway Act may properly be viewed as extending only to
those companies within federal jurisdiction that may be considered to be
operating a telephone or telegraph system. Accordingly, the Commission has
concluded that its statutory mandate does not require it to regulate a
potentially wide range of enhanced service providers who make use of
underlying basic telecommunications services for the provision of their
service offerings. |
| |
In arriving at this conclusion, the Commission
has taken note of Telesat's submission concerning the ease with which, should
a less restrictive reading be given to subsection 320(1), parties other than
common carriers providing enhanced services could elude the application of
subsection 320(1) merely by altering their corporate objects. In the
Commission's view, the practical implications that flow from Telesat's
interpretation suggest the appropriateness of a relatively narrow reading of
subsection 320(1). |
|
V NEED FOR RESTRICTIONS ON THE PROVISION OF
ENHANCED SERVICES BY COMMON CARRIERS |
| |
A. Introduction |
| |
In Public Notice 1983-72, the Commission
requested interested parties to comment on whether there exist any legal or
policy reasons why common carriers should not be permitted to offer
particular types of enhanced services. |
| |
B. Positions of Parties |
| |
Referring to enhanced services generally, rather
than any particular service, CSC, Informatech and Vocatel argued that common
carrier enhanced services should not be provided through the regulated
company. Quebec held the same position with regard to Bell. CAC contended
that carriers should not be permitted to offer these services either in-house
or through an affiliate unless they can clearly demonstrate an advantage to
consumers in so doing. These parties based their conclusions on concerns
related to potential cross-subsidization and market dominance. |
| |
Datacrown argued that entry by carriers into the
data processing market could serve to forestall competitive entry by
increasing the risk that competitors would face as a result of the
possibility of carrier cross-subsidization. CADAPSO and CICA et al stated
respectively that a 1972 Department of Communications (DOC) publication and a
1975 DOC and Department of Finance (Finance) statement recommended that
carriers offering commercial data processing services should do so through a
separate affiliate because of the dependence of data processors on carriers
for distribution facilities. CADAPSO urged the Commission to consider
enhanced communications services as similar to data processing services and
to restrict carrier involvement accordingly. |
| |
CICA et al, CBEMA and Ontario contended that
subsection 5(3) of the Bell Canada Special Act which declares that Bell, in
the exercise of its power to transmit, emit or receive signs, signals,
writing, images or sounds using telecommunication and to provide services and
facilities for such transmission, emission or reception, must act solely as a
common carrier and can neither control the content nor influence the meaning
or purpose of the message transmitted, emitted or received, prohibits Bell
from offering certain enhanced services on an in-house basis. CMA argued that
subsection 5(3) may be given that interpretation but contended that, subject
to adequate safeguards to ensure that carriage-related activities are
separated from content-related activities, carriers should not be restricted
from offering any particular type of enhanced services. |
| |
CICA et al argued further that the requirement
in subsection 5(3) that Bell act solely as a common carrier precludes Bell
from engaging in any enhanced services activity which does not have
communications as a primary function or where the communications component is
but a secondary attribute of the business purpose of the activity engaged in.
Moreover, CICA et al contended that the policy embodied in subsection 5(3) of
the Bell Canada Special Act should be applied to other common carriers. CICA
et al suggested that the 1975 DOC/Finance statement mentioned above could
provide a helpful benchmark to determine the point at which a telephone
company's enhanced service becomes incompatible with the specific
requirements of the Bell Canada Special Act or with a company's common
carrier status. |
| |
Bell indicated that, while subsection 5(3) of
the Bell Canada Special Act could be interpreted as precluding it from
offering certain enhanced services, subsection 5(3) does not restrict the
company from providing any of its existing or planned enhanced services. |
| |
B.C. Tel emphasized that the British Columbia
Telephone Company Special Act does not require it to act solely as a common
carrier and argued that neither that Act, the Railway Act nor the National
Transportation Act restricts B.C. Tel from offering any enhanced service. |
| |
CADAPSO, CBEMA, CDNPA, CICA et al and CIPG
expressed concern for the viability of the electronic publishing and data
base services industry, particularly in terms of diversity of competition and
information sources, if carriers that control access and distribution were
permitted to enter these markets. |
| |
CIPG contended that its members agreed to
participate in the iNet 2000 market trial based on assurances that carriers
would not operate electronic publishing and data base services. |
| |
Ontario noted that AT&T had been excluded from
electronic publishing due to concerns about its extensive resources and
control of essential facilities, the lack of realistic alternative
distribution systems and the potential for greater concentration of ownership
in the media. Ontario stated that this example constituted an alert to
potential problems and not a proposed restriction. CDNPA argued that, in
order to promote diversity, carriers should be prohibited from delivering
their own electronic information services over the transmission facilities
they control unless it can be demonstrated that the electronic publishing
industry would not be prejudiced by the entry of such carriers. |
| |
CDNPA and CICA et al expressed concern with
carrier-provided electronic yellow pages due to the potential for carriers to
foreclose the market for electronic advertising services, based on their
control of the white pages data base and of transmission facilities. CDNPA
submitted that the Commission should limit carrier involvement in electronic
directory services to services that would include only information essential
to the operation of the telephone network. |
| |
All carriers, except CNCP, indicated that no
policy reasons existed to prohibit carriers from offering any particular
types of enhanced services. CNCP suggested that situations where common
carriers abuse their monopoly position to the detriment of competitors could
provide grounds for excluding such carriers from offering particular
services. |
| |
Both Bell and B.C. Tel argued that the 1975
DOC/Finance statement had become inappropriate in the present environment
because of technological change and increased competition resulting from
regulatory decisions permitting interconnection and terminal attachment.
These carriers also rejected proposals which would preclude them from taking
advantage of new technologies, available to others, in order to provide
electronic directory services. B.C. Tel contended that limits on carrier
involvement in convergent information services would benefit primarily large
multi-national corporations that are not restricted from exploiting new
technology. |
| |
C. Conclusions |
| |
Based on the record of this proceeding, it is
the opinion of the Commission that Bell should not be permitted to engage in
electronic publishing involving editorial control over content or in the
creation or distribution of its own data bases. Moreover, the Commission
considers that the principle of separation of control over carriage and
content should apply to other federally regulated common carriers where their
participation in the electronic publishing and data base markets would
prejudice the diversified development of this field. |
| |
In the Commission's view, these restrictions
would not preclude the carriers from continuing to offer any of the enhanced
services they currently provide. Moreover, this approach would not prevent
carriers from establishing data bases related to their common carrier
function, such as electronic directories and data bases for billing, provided
they are related to that function. Further, such an approach would not
exclude carriers from providing enhanced services such as store and forward,
and speed, code and protocol conversion and electronic messaging in which
some non-editorial control over information may be exercised. |
| |
With regard to the proposals that carriers
should be prohibited from providing most enhanced services in-house, the
Commission considers that any such prohibition would be premature in view of
its intention to initiate a proceeding to consider the merits of the
structural separation approach at a later date. Moreover, to exclude carriers
from providing services simply because they incorporate data processing
functions would, in the Commission's view, be unduly arbitrary given the
direction of technological change and industry convergence. Enhanced services
are the result of the integration of previously separate technologies,
particularly data processing and telecommunications, and as such cannot be
said to be the exclusive domain of any particular industry. In the opinion of
the Commission, such a limitation on the carriers could unduly constrain
their ability to take advantage of technological change and innovation. |
|
VI EVALUATION OF COMMON CARRIER RATES |
| |
A. Introduction |
| |
In Public Notice 1983-72, the Commission raised
a number of questions concerning the methods that should be employed in
evaluating common carrier enhanced service rates. These questions pertained,
in general, to the level of service aggregation at which such evaluations
should be undertaken, to the test period to be employed for such evaluations
and to the frequency with which such evaluations should occur. |
| |
The Commission also asked whether common
carriers should be deemed to have acquired underlying services at tariffed
rates and whether the cost of capital used in costing enhanced services
should be higher than that established in general rate cases, to reflect
differences in risk between enhanced and basic services. |
| |
B. Positions of Parties |
| |
With regard to the general approach that the
Commission should adopt for evaluating enhanced service rates, the position
of the telephone companies and of Telesat was that the enhanced services
market is a competitive one and that there exists no requirement for
Commission rate regulation. Market forces, it was argued, provide for
effective regulation in a competitive market and rate regulation serves to
limit unnecessarily the ability of firms to respond flexibly and speedily to
market demand. Further it was argued that, in the event that parties other
than common carriers were not to be regulated, fair competition would require
that only minimal regulation of carrier enhanced service offerings be
undertaken. The principal purpose for which regulation might be required, it
was argued, would be to prevent cross-subsidization from monopoly service
revenues. In the view of the telephone companies and Telesat, this objective
could be satisfied without recourse to rate regulation of individual enhanced
services. Specifically, they asserted that aggregated cost/revenue
information could be employed to ensure the absence of cross-subsidization. |
| |
In this regard, Bell proposed to provide annual
cost study data for an historical test year to demonstrate that neither the
Competitive Network Services category nor the Competitive Terminal Services
category, both of which may contain enhanced services, are being
cross-subsidized. Bell further proposed to provide similar information for a
forward test year during general rate proceedings. Bell argued that, given
the competitive nature of the enhanced services market, the provision of such
information would, if the Commission is legally bound to regulate particular
enhanced service rates, enable the Commission to deem such rates to be just
and reasonable at the time of filing, and until further notice, and allow
them to come into effect immediately upon filing. |
| |
B.C. Tel reiterated the position it took in
Inquiry into Telecommunications Carriers' Costing and Accounting Procedures:
Phase III - Costing of Existing Services (Phase III of the Cost Inquiry) as
to the types of costing information that could assist the Commission in
detecting cross-subsidization. B.C. Tel stated that, pending completion of
the Commission's announced structural separation proceeding and Phase III of
the Cost Inquiry, it would propose to demonstrate by way of periodic studies
that its enhanced services are, in the aggregate, fully compensatory over
their life cycle. For new services, B.C. Tel supported the use of the Phase
II costing methodology specified in Inquiry into Telecommunications Carriers'
Costing and Accounting Procedures - Phase II: Information Requirements for
New Service Tariff Filings, Telecom Decision CRTC 79-16, 28 August 1979 (the
Phase II Decision). Further, B.C. Tel stated its strong support of Bell's
proposal concerning an expedited tariff approval process. |
| |
NorthwesTel and Terra Nova suggested the use of
multi-year life cycle studies to demonstrate that individual enhanced
services are recovering their costs and stated that enhanced services should
not be tariffed. |
| |
Island Tel, MT&T, NB Tel and Newfoundland
Telephone supported the use of a burden test to establish that, in the
aggregate, there is no cross-subsidy from regulated to unregulated services. |
| |
Telesat also supported the use of a burden test
approach to establish that competitive services, in the aggregate and over
time, are not being cross-subsidized. Further, Telesat argued that any
profits or losses arising from the provision of competitive services should
be passed through to shareholders. |
| |
CNCP maintained that, until Phase III of the
Cost Inquiry is completed, regulation of the rates for enhanced services is
necessary, particularly with respect to telephone company offerings. CNCP
reiterated its position that individual enhanced services should be required
to meet an average variable cost test and that competitive services in the
aggregate should be required to meet a total cost test. |
| |
The position of governmental bodies submitting
comments varied widely. Saskatchewan emphasized the competitive nature of
enhanced services and suggested that regulation would tend to inhibit service
development. If regulation of common carriers is deemed necessary, it should,
Saskatchewan argued, be de minimis. The Director and Quebec, by contrast,
argued that rate regulation of carrier enhanced service offerings is
necessary and should be based on the cost of service offerings. In Ontario's
view, no single uniform regulatory approach should be applicable to all
individual enhanced services or classes thereof. Ontario suggested that the
need for rate regulation, and the level at which rates should be examined,
may vary among services. |
| |
A number of other parties took the position
that, to avoid cross-subsidization, stringent regulation of carrier enhanced
service tariffs is required. CADAPSO and CICA et al both argued that
Commission scrutiny of carrier tariffs should be undertaken for individual
service components. Moreover, CICA et al argued that this would require that
cost justification be provided for all individual service components. CICA et
al further argued that prospective cost data should be employed on an annual
basis for rate setting purposes and that annual checks should be made of the
accuracy of forecast data employed. Vocatel argued that detailed cost and
rate regulation of carrier enhanced services is necessary and Trans-Lux
emphasized the need for separate tariffing and justification of terminal and
other components of an enhanced service offering. |
| |
CBEMA and CMA took the position that carrier
enhanced service tariffs should not be regulated but that accounting and
other safeguards, such as restrictions on the shared use of personnel, should
be employed to prevent cross-subsidization. Both parties acknowledged the
role of Phase III of the Cost Inquiry in developing adequate safeguards, and
CBEMA argued that, in the interim, the Commission should continue to require
carriers to submit enhanced service tariffs. |
| |
Finally, it should be noted that the above
comments were predicated on the assumption that the Commission would not be
considering the use of a structural separation approach for enhanced services
in this proceeding. While those carriers commenting on this issue did not
support the use of such an approach, a number of other parties, including
CADAPSO, CBEMA, CICA et al, CIPG, CMA, CSC, the Director, Informatech, Quebec
and Vocatel supported it. In many cases, they also argued that it was only in
the absence of such an approach that regulation of carrier enhanced service
rates is necessary. |
| |
CICA et al also argued that carriers could avoid
rate regulation by electing to offer enhanced services through a separate
affiliate and, therefore, that the imposition of such regulation should not
be considered to be competitively inequitable. |
| |
Most parties also commented on the question of
whether, for costing or rate evaluation purposes, the common carriers should
be deemed to have acquired underlying services used in the provision of
enhanced services at tariffed rates. Aside from CAC and some of the common
carriers, there was general agreement that such a requirement is necessary to
avoid granting the common carriers an undue preference vis-à-vis their
competitors. CICA et al also argued that such a policy would minimize
disruption should a structural separation policy be implemented with regard
to enhanced services and CNCP argued that such a policy would assist in
limiting cross-subsidization. |
| |
Among the common carriers, CNCP and Telesat both
supported a requirement for the use of underlying service rates for the
purpose of evaluating enhanced service rates. B.C. Tel, however, opposed the
imposition of such a requirement on the basis that only actual costs should
be considered in evaluating whether or not enhanced service rates are
compensatory. CAC, while not taking a position on this issue, shared B.C.
Tel's concerns. |
| |
Bell argued that, in evaluating the rates for
its enhanced services, it would be appropriate to use the tariffed rates for
underlying services where Bell is the sole provider of such services.
However, Bell argued, where the underlying service is available from other
federally regulated common carriers or from other parties, it would be
appropriate to use either actual costs or the tariffed rates charged by
others, depending upon the circumstances involved. In its reply comments,
CNCP stated its support for Bell's proposed modifications, while B.C. Tel
stated that, if tariffed rates were to be used for rate evaluation purposes,
then Bell's modification should be adopted. The Director opposed Bell's
proposal to the extent that it could lead to a carrier being deemed to have
acquired underlying services at less than their actual cost in some
circumstances. |
| |
With regard to the cost of capital to be used in
evaluating enhanced services, all parties commenting on the issue, other than
Ontario and Telesat, agreed that, in theory, the cost of capital applicable
to enhanced services could differ from that applicable to basic services due
to the differential risk associated with each service. B.C. Tel, CADAPSO,
CBEMA, CICA et al, NorthwesTel, Quebec and Terra Nova argued that the cost of
capital for enhanced services would generally be higher than that applicable
to monopoly services. Bell and CIPG did not indicate their views as to
whether the differential would be positive or negative. CBEMA, NorthwesTel
and Terra Nova stated that, in addition to risk considerations, the cost of
capital used in evaluating enhanced services should reflect the cost of new,
not embedded, debt. |
| |
Telesat argued that requiring it to employ a
differential cost of capital in evaluating enhanced services would violate
the notion of a single pool of funds from which the company can draw capital
and would place it at a competitive disadvantage relative to competitors who
are not so burdened. This contrasted with the position of such parties as
CICA et al who maintained that to ignore the higher cost of capital
associated with enhanced services would be to give the common carriers an
undue competitive preference. |
| |
The position of Ontario was that this issue
should be decided in the context of Phase III of the Cost Inquiry and not in
this proceeding. |
| |
Finally, Quebec noted that it might not be
practicable to calculate an appropriate cost of capital differential for
enhanced services and Bell argued that it would not in fact be feasible so to
do. Bell thus rejected the use of a cost of capital differential on the
grounds that it is theoretically correct but impractical to implement. Bell
argued that this would not raise any problems of competitive advantage
because risk considerations could nonetheless be assessed in evaluating
service services. |
| |
C. Conclusions |
| |
In the Commission's view, it is appropriate to
distinguish between two issues in relation to the regulation of the rates of
enhanced services provided by the federally regulated carriers. The first
issue relates to the type of cost information that may be required to assist
the Commission to ensure that monopoly services provided by the federally
regulated carriers do not cross-subsidize the provision of their competitive
enhanced services. The Commission believes that its conclusions on this issue
should be made within the broader context of its decision on Phase III of the
Cost Inquiry. In this regard, the Commission notes that Phase III of the Cost
Inquiry addresses the type of cost information that should be provided to the
Commission for existing services generally. |
| |
The second issue relates to the regulatory
safeguards that are required to ensure that the federally regulated carriers
do not, by virtue of their provision of underlying basic services, engage in
unfair competition to the detriment of other providers of enhanced services.
In this regard, the Commission considers that it is of paramount importance
that the carriers, by virtue of being providers of basic services, should not
be able to obtain access to these services at rates below those available to
their competitors. Consequently, the Commission agrees with the view
expressed by most parties to the proceeding that the carriers should be
deemed to have acquired underlying basic services at tariffed rates. |
| |
In incorporating this requirement in the rate
evaluation process, the Commission recognizes that the tariffed rates for
underlying services may differ from actual costs. While the requirement will
serve to promote fair competition it will, therefore, not respond to the
issue of cross-subsidy which, as noted above, is being dealt with more
generally in Phase III of the Cost Inquiry. Further, because tariffed rates
for underlying services may differ from actual costs, rate evaluation studies
incorporating this requirement are not considered by the Commission to be
costing studies. The Commission considers, however, that, as set out below,
the Phase II Decision costing methodology can be modified to incorporate the
requirement that carriers be deemed to have acquired underlying basic
services at tariffed rates. Further, the Phase II Decision costing
methodology addresses a number of other concerns relating to fair
competition. |
| |
As to the level of aggregation at which rate
evaluation studies for enhanced services should be undertaken, the Commission
has decided that it would be appropriate to employ an aggregate rate
evaluation test for all services. The Commission is of the view that, in the
competitive enhanced services market, market forces will generally serve to
ensure that enhanced services offered by regulated common carriers are
appropriately priced in relation to one another and that only an aggregate
test is therefore required. However, no evidence was presented, in this
proceeding, as to the technical feasibility of employing an aggregate rate
evaluation test for enhanced services. |
| |
Accordingly, the Commission has concluded that
federally regulated common carriers offering enhanced services will at this
time continue to be required to file rate evaluation studies for each such
service at the time that the service is proposed to be introduced and
whenever the carrier proposes to change the rates for the service. The rate
evaluation studies are to employ the costing methodology prescribed in the
Phase II Decision except that the carriers are to be deemed to have acquired
underlying basic services at their tariffed rates. Tracking information is to
be maintained for each service and, for existing services, the cost of
existing investments are to be included in the studies at their net book
value. The studies are also to include an internal rate of return calculation
to assist in the evaluation of a service with respect to risk considerations.
Where tariff filings are made in accordance with the above requirements, the
Commission anticipates that it will be able to dispose of them expeditiously. |
| |
Further, the Commission directs those federally
regulated common carriers offering, or planning to offer, enhanced services
to submit, within 120 days, proposals to replace the individual service
studies, for both new and existing services, referred to above, with an
aggregate study for all enhanced services to be filed with the Commission on
an annual basis. The proposals should be limited to an assessment of the
technical feasibility of preparing rate evaluation studies, incorporating the
same features as required above for individual service studies, and
maintaining tracking information, on an aggregated basis. |
| |
If no obstacles of a technical nature are
identified, by the carriers or the Commission, the Commission will require
the carriers to file such aggregate studies on an annual basis. At such time,
the Commission will cease requiring the filing of individual rate evaluation
studies when new enhanced services are introduced or the rates for existing
enhanced services are modified. |
| |
With regard to Bell's concern that a requirement
deeming the carriers to have acquired underlying basic services at tariffed
rates could in some instances place the carriers in an unfair competitive
position, there was no evidence presented to suggest that such circumstances
would arise in practice or with any regularity. Accordingly, the Commission
has determined that it will consider modifications to this requirement only
on a case-by-case basis. Further, the Commission will be willing to entertain
requests for waivers of other of the above rate evaluation requirements, on a
case-by-case basis, if it can be demonstrated that their application is
unnecessary or unwarranted in the circumstances. |
| |
Finally, the Commission notes that, despite
fairly broad theoretical support for the use of a cost of capital risk
differential in evaluating enhanced services, there was substantial dispute
concerning the practicability of adopting such an approach. Further, the
Commission notes that the general issue of employing different cost of
capital measures for different services is currently being considered in the
context of Phase III of the Cost Inquiry. The Commission has therefore
decided that, at this time, the cost of capital used for enhanced services
rate evaluation studies should be the same as that used in Phase II Decision
costing studies. This matter will be reviewed following Phase III of the Cost
Inquiry. |
|
VII UNBUNDLING OF COMMON CARRIER SERVICES AND
TARIFFING OF COMMON CARRIER FACILITIES |
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A. Introduction |
| |
In Public Notice 1983-72, the Commission asked
whether it should require the unbundling of rates for basic or enhanced
services provided by federally regulated common carriers and whether all
facilities used by a common carrier to provide enhanced services should be
tariffed under its General Tariff. |
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B. Positions of Parties |
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A number of parties to the proceeding, including
CBEMA, CICA et al, CIPG, Ontario and Telesat, voiced strong support for a
requirement that the rates for carrier-provided basic services should be
unbundled into separate rates for each service element. Telesat argued that
such a requirement would facilitate the access of enhanced service providers
to desired service elements, while CBEMA and CICA et al saw a danger that the
carriers could bundle services to provide themselves with an undue
competitive advantage. In general, however, these parties did not specify
particular instances in which further unbundling is required. |
| |
Bell and B.C. Tel took the position that the
demands of competitors for further unbundling of basic services should be
considered if and when they arise, while NorthwesTel and Terra Nova stated
that rates for underlying basic services should be unbundled into access and
transmission components in order to permit competitors access to the
particular facilities required. CNCP argued that, while many of its basic
service rates are currently unbundled, any regulatory requirement in this
regard could reduce CNCP's marketing flexibility. |
| |
With regard to a requirement for the unbundling
of enhanced service rates, all carriers commenting on this issue argued that,
in the competitive enhanced services environment, any such requirement would
deny the carriers needed marketing flexibility and place them at a serious
competitive disadvantage relative to their competitors. Telesat added that
the unbundling of enhanced service rates could serve to reveal competitive
information and CBEMA joined the carriers in arguing that unbundling was not
necessary, provided that adequate safeguards existed relative to carrier
participation in the market. |
| |
CICA et al, CIPG, the Director and Quebec argued
in favor of a requirement for the unbundling of enhanced service rates.
Further, the Director stated that unbundling into access, transmission and
storage components would facilitate verification of the fairness of rates.
CICA et al argued that unbundling would serve to limit cross-subsidization
and that, where feasible, there should be an unbundling of basic and enhanced
components of a service. CIPG argued that unbundling enhanced service rates
would permit comparison of those rates with the rates charged to carrier
competitors offering similar services, while Ontario's position was that, in
some circumstances, unbundling enhanced service rates might serve to provide
customers with increased flexibility. Finally, it was the position of
Trans-Lux that carriers should not be permitted to bundle the terminal
component of an enhanced service together with its other components. |
| |
With regard to a requirement for the tariffing
of all facilities used by carriers to provide enhanced services, CBEMA, CICA
et al, CIPG and Vocatel argued that such a requirement is necessary if the
carriers are not to be granted an undue competitive advantage. For the most
part these parties did not, however, identify specific instances in which
such tariffing is required and Ontario argued that to tariff all carrier
facilities would be unwieldy and that specific requirements should be dealt
with as they arise. |
| |
Those carriers commenting on the issue saw no
need to institute a requirement for the tariffing of the facilities used by
carriers to provide enhanced services. They argued that such a requirement
was unnecessary, would be unwieldy to implement and that only underlying
basic services should be tariffed. Bell did, however, state that it would, to
the extent practicable, consider the creation of new tariffed services where
a specific demand was identified. |
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C. Conclusions |
| |
Based on the record of this proceeding, the
Commission considers that the unbundling of carrier basic service rates and
the tariffing of facilities used by carriers to provide enhanced services may
in some instances be necessary in order to avoid conferring an undue
competitive advantage on the carriers relative to their competitors. Further,
the Commission agrees with NorthwesTel and Terra Nova that access and
transmission components of a basic service should, in general, be unbundled.
The Commission considers, however, that it would be impractical to require
the carriers to attempt to anticipate all possible requirements that enhanced
service competitors might have with respect to the unbundling of basic
services. Where specific requirements for the tariffing of facilities or the
unbundling of basic service rates are identified by enhanced service
providers, the Commission anticipates that the carriers will attempt to
satisfy such requirements. Should the carriers not do so, the Commission will
take the necessary action to ensure that the carriers are not granting
themselves any undue competitive advantage. |
| |
With regard to the imposition of a requirement
for the unbundling of enhanced service rates, the Commission considers that
such a requirement is, in general, unnecessary and that carriers should be
given the flexibility to package enhanced services in the manner they
consider most appropriate. |
| |
The Commission agrees with Trans-Lux, however,
that, at this time, carriers should not be permitted to bundle charges for
terminal equipment together with other components of an enhanced service.
Further, should the Commission determine that the primary function of a
particular carrier provided enhanced service is to provide a basic service,
the Commission would be disposed to require that the enhanced features of
that service be unbundled from the basic service. |
|
VIII TRANSFERS OF ENHANCED SERVICES TO SEPARATE
AFFILIATES |
| |
A. Introduction |
| |
In Public Notice 1983-72, the Commission sought
comments on whether any restrictions should be placed on the ability of
carriers to transfer enhanced services, provided on an in-house basis, to a
separate affiliate once they have been successfully established in the
market. |
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B. Positions of Parties |
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The telephone companies took the position that
there should be no restrictions on the transfer of enhanced services to
separate affiliates. It was Bell's position that this is a business decision
for which the carriers require flexibility. B.C. Tel indicated that, if
enhanced services bear all their associated incremental costs through
appropriate cost separation procedures, monopoly subscribers would not be
prejudiced if these services were transferred to a separate affiliate. |
| |
CNCP drew a distinction between carriers like
itself and those with the potential to cross-subsidize enhanced services. For
the latter group of carriers, which CNCP termed dominant carriers, CNCP
argued that restrictions on transfers to separate affiliates were required
pending the decision in Phase III of the Cost Inquiry. It was CNCP's position
that, until mechanisms are in place to "wall off" competitive services
provided by dominant carriers, transfers must be prohibited to ensure that
there is no subsidization of the risks and costs associated with the
implementation and development of enhanced services. |
| |
Ontario and Quebec both supported imposing
restrictions on the transfer of enhanced services by a carrier to a separate
affiliate. Ontario gave two reasons for its position: first, that a service
could be offered by the regulated company during the introductory high-risk
and high-cost phase and transferred to an unregulated affiliate if and when
it becomes profitable; secondly, that there might be a selective removal from
regulation of services with a high profit potential. |
| |
Similar concerns were expressed by other parties
commenting on this issue. Both CICA et al and CIPG expressed concern about
the selective removal of only profitable services to a separate affiliate,
with the unprofitable ones remaining in the regulated company. CIPG argued
that, if the parent carrier bears the development costs of enhanced services,
carrier revenues should reflect both the successes and the failures. |
| |
CBEMA, CICA et al and CIPG preferred that all
enhanced services be transferred to or developed within separate affiliates.
In terms of transfer prices, CICA et al recognized the difficulty of
evaluating an appropriate transfer price for an enhanced service and argued
that any capital gain should accrue to the monopoly subscribers who bore the
investment risk, rather than to company shareholders. CBEMA indicated that
transfers should take place at fair market value taking into account all the
development costs of the operation in question as well as the use of shared
facilities and personnel. Similarly, CMA stated that, if enhanced services
provided on an in-house basis are to be transferred to a separate affiliate,
the transfer price should reflect the full cost of the development of the
operations being transferred. |
| |
The other two parties commenting on this issue,
CBEMA and CMA, favoured requiring the transfer of all existing enhanced
services to an affiliate at fair market value, taking into account all the
development costs of the operation in question as well as the use of shared
facilities and personnel. |
| |
C. Conclusions |
| |
Based on the record of this proceeding, the
Commission has decided not to impose, at this time, any restrictions on
transfers to a separate affiliate of enhanced services provided by the
carriers on an in-house basis. Nevertheless, the Commission would be
concerned about the selective removal to a separate affiliate of only those
enhanced services which had been successfully established in the market. |
| |
The Commission considers that, by scrutinizing
the transfer price for the assets used in providing such services transferred
to a separate affiliate, it should be able to ensure that the risks and costs
associated with the development of such services are not subsidized from
monopoly service revenues. In this regard, the Commission intends to evaluate
the asset transfer price of any enhanced service at the time of transfer to
ensure that all developmental costs are recovered and to determine whether
any part of the capital gain or loss should accrue to, or be absorbed by,
subscribers of other services. |
|
IX COMMON CARRIER ACCESS TO MONOPOLY SERVICE
BILLING RECORDS AND USE OF CUSTOMER BILLING INSERTS |
| |
A. Introduction |
| |
In Public Notice 1983-72, the Commission sought
comments on whether any unfair competitive advantage might accrue to common
carriers by virtue of access to monopoly service billing records, the use of
customer billing inserts or by other similar means. |
| |
B. Positions of Parties |
| |
Bell, B.C. Tel and Terra Nova stated that the
carriers should be able to insert advertising and promotional material in
non-competitive service bills if this proves to be an effective means of
advertising and they argued that this would not constitute an unfair
advantage. B.C. Tel argued that the use of customer billing inserts would
simply take advantage of the economic efficiencies associated with the
provision of enhanced services on an in-house basis. B.C. Tel stated that
concerns about cross-subsidization could be addressed through an appropriate
costing mechanism and Bell specifically proposed that additional costs
associated with such billing inserts should be assigned to competitive
services on a causal basis. |
| |
Regarding access to monopoly service billing
records, B.C. Tel indicated that it will use such information only for the
provision of monopoly services. Bell took the position that access to
monopoly service billing records does not necessarily constitute an unfair
advantage and stated that its policy is not to use information gained in the
provision of monopoly services to its own unfair advantage. According to Bell
and Terra Nova, other sources of competitive information are equally
available to competitors and may be more effective information sources than
monopoly billing records. Bell cited subscription to an electronic mail
service to gain access to the service provider's directory of customers as an
example. Bell, B.C. Tel and CNCP argued that there is adequate recourse to
the Commission in the event that monopoly billing information is abused and
that safeguards such as those proposed by CICA et al are unnecessary and
counterproductive at this time. |
| |
The Director took the position that the
advantages associated with the use of monopoly facilities such as billing
systems could be neutralized through proper cost allocations. Further, the
Director argued that marketing information regarding subscriber communication
requirements should either be made available to all competitors on equal
terms or not be used by the carriers. |
| |
Quebec argued that both access to monopoly
service billing records and the use of billing inserts constitute unfair
competitive advantages and should be prohibited. Ontario, on the other hand,
took the position that these practices might give the carriers an advantage
but that other service providers with billing records, such as a computer
manufacturer, would have similar advantages relative to providers without
such access. |
| |
CICA et al and Vocatel argued that carrier
access to monopoly billing records or use of monopoly billing inserts
provides a significant competitive advantage to carriers. CICA et al
expressed particular concern that Bell's stated policy with regard to the use
of monopoly billing information would be susceptible to interpretation by
Bell personnel in a fashion that would allow Bell to derive an advantage. |
| |
CICA et al proposed the use of a number of
safeguards. These included attestations that no improper use is being made of
monopoly-derived information, internal separation of personnel and records
between monopoly and competitive services, a prohibition on the use of
billing inserts unless the use of the billing system is made available to all
parties at a tariffed rate and restrictions on joint advertising of monopoly
and competitive services. |
| |
C. Conclusions |
| |
With regard to the use of customer billing
inserts, the Commission has not been persuaded that any advantage the
carriers may receive is an undue one and notes that other enhanced service
providers may enjoy analagous advantages. Further, the Commission considers
that it would be impractical to require the carriers to offer billing insert
services under tariff. Accordingly, the Commission has decided not to
restrict, at this time, the use of customer billing inserts for the purpose
of promoting enhanced services. The Commission considers, however, that any
costs relating to the use of billing inserts should be assigned to the
services being promoted. |
| |
With regard to carrier access to monopoly
service billing records, the Commission is of the view that the use of these
records for the purpose of providing enhanced services would constitute an
unfair competitive advantage and that carriers should not, in the provision
of enhanced services, be permitted access to these records. However, rather
than institute a burdensome system of safeguards to prevent access to these
records, the Commission has decided, at this time, that the carriers should
be entrusted to ensure that such access is not permitted. Accordingly, the
Commission requires the federally regulated common carriers to submit, within
60 days, details of the steps taken by them to implement this requirement. |
|
X COMMON CARRIERS' ROLE IN THE FORWARD PLANNING
PROCESS AND THEIR KNOWLEDGE OF THE CONFIGURATION OF COMPETITORS' UNDERLYING
TRANSMISSION FACILITIES AND SERVICES |
| |
A. Introduction |
| |
In Public Notice 1983-72, the Commission sought
comments on whether any unfair competitive advantage might accrue to common
carriers by virtue of their role in the forward planning process for basic
telecommunications facilities or their knowledge of the configuration of
underlying transmission facilities and services leased from them by their
enhanced service competitors. |
| |
B. Positions of Parties |
| |
The Director recommended that carriers be
subject to reasonable disclosure requirements in respect of their knowledge
of network planning. Ontario recognized that the carriers' role in the
planning process would be advantageous to the carriers but argued that,
because the carriers are competing with each other, it would be difficult to
implement disclosure requirements to competitors with respect to changes in
underlying facilities. |
| |
While NorthwesTel and Terra Nova acknowledged
that they might obtain a minor advantage in this respect, all carriers argued
that network information becomes available to competitors through
participation in construction program reviews and general rate proceedings.
Further, some carriers argued that competitors frequently have more
information about carrier technology and plans than the carrier has regarding
competitors. |
| |
Bell indicated that the network is developed to
meet the needs of the entire marketplace, while B.C. Tel indicated that it
intends to continue to include major users in the network planning process.
B.C. Tel also indicated that it will not share sensitive monopoly information
with its competitive segments. Finally, B.C. Tel took the position that, if
network disclosure rules are adopted, they should apply equally to carriers
and parties other than common carriers. |
| |
CNCP agreed with the other carriers that
competitors receive information about new technologies prior to their
incorporation in the network. In addition, CNCP indicated that it took total
marketplace requirements into account in the network planning process. CNCP
argued that knowledge of the configuration of competitors' underlying
transmission facilities does not constitute an unfair advantage because the
important competitive information is the nature of the enhancement the
competitor seeks to offer. However, CNCP was of the view that knowledge by
the carrier of competitors' customer lists did constitute an advantage. |
| |
CICA et al and CIPG expressed concern that the
carriers receive an unfair competitive advantage through their advance
knowledge of the configuration of present and planned underlying transmission
facilities and services, their ability to design and implement basic services
that will be beneficial primarily for their enhanced services and their
knowledge of competitors' network configurations and customer lists. CICA et
al argued that knowledge of competitors' network configurations gives the
telephone company information about competitors' present and proposed
business plans which would be invaluable to it in designing its own
offerings. CIPG argued that the carriers are able to detect from traffic
statistics the locations of major customers of all potential competitors for
a proposed enhanced service. |
| |
CICA et al recommended that the Commission
impose an obligation for carriers to disclose all network-related information
relevant to enhanced services offerings on a non-discriminatory basis and
that the carriers should be subject to non-disclosure rules regarding
knowledge of competitors' network configurations. |
| |
C. Conclusions |
| |
With regard to the possible need for
restrictions on the role of the carriers in the forward planning process, the
Commission notes that network planning information becomes available to
competitors through participation in construction program reviews and general
rate proceedings. Further, the Commission notes that Bell, B.C. Tel and CNCP
have indicated that they take total marketplace requirements into account in
the network planning process. In light of these observations, the Commission
has decided not to restrict the carriers' role in the forward planning
process and not to impose on the carriers disclosure requirements regarding
network planning information. |
| |
The Commission is of the view, however, that the
carriers' knowledge of the configuration of underlying transmission
facilities and services leased from them by their enhanced service
competitors and, hence, knowledge about competitors' businesses and customer
lists, would confer an unfair competitive advantage on the carriers if used
by them in their role as enhanced service providers. Accordingly, the
Commission has concluded that the carriers, in their role as enhanced service
providers, should not be permitted to use information acquired through
leasing underlying facilities and services to their enhanced service
competitors. As in the case of access to monopoly service billing records,
the Commission has decided that, at this time, the carriers should be
entrusted to ensure compliance with this requirement and requires the
federally regulated common carriers to submit, within 60 days, details of the
steps taken by them to implement this requirement. |
| |
Fernand Bélisle
Secretary General |