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Telecom Decision
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Ottawa, 27 July 1984
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Telecom Decision CRTC 84-19
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Bell Canada and British Columbia Telephone Company - Applications to Review Telecom Decision CRTC 83-10
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For related documents see: CNCP Tariff Notices 102, 143, 143A, 143B, 605; CRTC Telecom Public Notices 1982-17, 24 March 1982; 1983-3, 7 January 1983; 1983-55, 7 September 1983; Telecom Order CRTC 83-520, 7 September 1983; and Telecom Decisions CRTC 79-1, 2 February 1979; 82-9, 29 September 1982; 83-10, 26 July 1983.
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Background
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In CNCP Telecommunications - Special Tariffs Covering the Provision of Interconnected Private Line Voice Services, Telecom Decision CRTC 82-9, 29 September 1982 (Decision 82-9), the Commission denied an application by CNCP Telecommunications (CNCP), under Tariff Notice 102, for approval of special tariffs regarding the provision of interconnected private line voice services to five customers on the basis of fixed-price, fixed-term contracts, as well as a corresponding application by Bell Canada (Bell) under Tariff Notice 605. The Commission reiterated its view that, as a general rule, transmission services should not be offered pursuant to fixed-price, fixed-term contracts and indicated that, in the case of CNCP's application, there were no special circumstances warranting an exception to the general rule.
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In Decision 82-9, the Commission also found that the record of the proceeding had cast doubt on the proposition that the rates for CNCP's interconnected private line voice services should be set at the same level as Bell's. The Commission noted the absence of appropriate cost information and indicated that, where services of competing carriers differ in a material respect in determining whether rates are just and reasonable, failure to take into account the different value to users of those services would put a carrier offering a lower value service at a competitive disadvantage.
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Accordingly, the Commission stated that it would be prepared to consider an application from CNCP for interim approval of a General Tariff filing for interconnected voice facilities, at rates lower than Bell's, that appropriately reflect the difference in value of the services offered by the competing carriers. The Commission noted, however, that any approval of rates for competitive services on the basis of value of service criteria would only be given on an interim basis, and would be reviewed when appropriate cost based methods are developed.
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CNCP subsequently applied, under Tariff Notice 143, for interim approval of General Tariff revisions providing for a 15% discount for interconnected private line voice services. The Commission invited and received comments from interested parties, including Bell and British Columbia Telephone Company (B.C. Tel). CNCP filed a reply.
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In CNCP Telecommunications - Rates for the Provision of Interconnected Private Line Voice Services, Telecom Decision CRTC 83-10, 26 July 1983 (Decision 83-10), the Commission dealt with CNCP's application.
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In Decision 83-10, the Commission indicated that, in the absence of appropriate cost information, the Commission and other telecommunications regulatory bodies have had to rely extensively on value of service criteria for rate-setting. The Commission stated that, where services of competing carriers differ "in a material respect", in determining whether rates are just and reasonable, failure to take into account the different value of such services would put a carrier offering a lower value of service at a competitive disadvantage and could result in competitors enjoying an undue or unreasonable preference or advantage. The Commission also stated that in applying the test of "material difference", it would only take into account differences between services which result from factors largely or entirely outside a company's control, since to take into account differences within a company's control would confer an undue advantage upon such a company as well as tending to diminish competitive incentives.
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The Commission found that CNCP's interconnected private line voice services differ in a material respect from those offered by Bell and B.C. Tel and are not offered under substantially similar circumstances and conditions within the meaning of subsection 321(1) of the Railway Act. The Commission took into account two factors beyond CNCP's control: CNCP's inability to provide a full range of voice services, including Message Toll Service (MTS) and Wide Area Telephone Service (WATS) type services; and the limited geographic coverage of CNCP's interconnected private line voice services in that CNCP has generally not been able to obtain interconnection with the public switched telephone network except in areas served by federally regulated carriers.
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After considering what rate differentials would appropriately reflect the material difference between the value of CNCP's services and those of Bell and B.C. Tel, in Decision 83-10 the Commission stated that, having considered the evidence in the proceeding and exercising its best judgment in establishing just and reasonable rates,
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it would be prepared to approve an application by CNCP, on an interim basis, for General
Tariff provisions providing discounts of 10% and 5% for interconnected IXVG (Interexchange
Voice Grade) and Bulk Facilities services, respectively. Any such rates will be reviewed when
an appropriate costing methodology has been developed.
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In response to Decision 83-10, CNCP filed Tariff Notices 143A and 143B. dated 2 August and 22 August 1983, respectively, requesting approval of rates discounted by 10% and 5% for interconnected Inter-exchange Voice Grade and Bulk Facilities, respectively, from those of Bell and B.C. Tel.
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By letters dated 8 August and 12 August 1983, respectively, Bell and B.C. Tel applied, pursuant to section 63 of the National Transportation Act, requesting that the Commission review and rescind Decision 83-10 (the applications for review, the review applications).
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By letters dated 2 August and 4 August 1983, respectively, Bell and B.C. Tel had requested that the Commission stay proceedings on Tariff Notice 143A, pending the applications for review. By letters dated 5 August and 10 August 1983, respectively, the Commission advised Bell and B.C. Tel that it was suspending the proceedings until further notice. By Telecom Order CRTC 83-520, dated 7 September 1983, (Order 83-520), the Commission lifted the suspension of proceedings and gave interim approval to Tariff Notices 143A and 143B.
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On the same day, by CRTC Telecom Public Notice 1983-55, dated 7 September 1983, the Commission invited comments from interested parties with regard to the applications for review. On 14 October 1983 the Commission wrote B.C. Tel, denying that company's request of 13 September 1983, for section 63 review of Order 83-520 and for suspension of the approved Tariff Notices pending disposition of the review applications. Comments on the applications for review were received from: Canadian Industrial Communications Assembly, Canadian Press and Broadcast News Limited (CICA et al) CNCP; and the Government of Ontario, Ministry of Transportation and Communications (Ontario). Bell and B.C. Tel filed replies.
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Positions of Parties
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In its application for review, Bell argued that Decision 83-10 contains errors in law and in fact and establishes a new principle, and that there is substantial doubt as to the correctness of the decision. Specifically, Bell characterized Decision 83-10 as "an attempt by the Commission to equalize the competitive marketing positions of CNCP and Bell in the interconnected, inter-exchange private line voice services field by means of rate differentials", rather than an application of the principle of value of service, and suggested that such attempted equalization is not a matter within the jurisdiction of the Commission.
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According to Bell, interconnected, inter-exchange private line voice services offered by Bell and CNCP are virtually identical services offered under substantially similar circumstances and conditions within the meaning of subsection 321(1) of the Railway Act. Bell submitted that "there is no difference in the value of services received by any customer of CNCP for interconnected, interexchange private line voice services arising out of the fact that Bell may also offer MTS and WATS services", and that any inconvenience to customers in dealing with two suppliers instead of one is a matter of marketing advantage or disadvantage rather than of the value of the service the customer receives.
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Bell stated that "the great bulk of all interconnected, inter-exchange private line voice services in Canada originate and terminate in the operating territories of federally regulated carriers." The company suggested that the Commission failed to take this factor into account, and that this constitutes an error of fact raising substantial doubt as to the correctness of Decision 83-10. Bell argued that the fact that CNCP is not able to offer interconnected inter-exchange private line voice services other than in the operating territories of federally regulated carriers in no way affects the value of such CNCP services.
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Bell suggested that Decision 83-10 renders reasonable price competition between Bell and other carriers impossible and establishes a new principle, namely, that a carrier should be able to offer competitive services at discounted rates if the Commission considers that customers view that carrier as not being able to provide all competitive services to them on as convenient a basis as Bell can. Bell also submitted that Decision 83-10 establishes an undue and unreasonable preference and advantage in favour of CNCP.
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In its application for review, B.C. Tel adopted the submissions made by Bell. In addition, B.C. Tel suggested that Decision 82-9, which led to Decision 83-10, introduced a rating principle unrelated to the cost of providing service and inconsistent with the established rating principle involving maximization of contribution in the case of competitive services. A rate differential between CNCP and B.C. Tel services would, in B.C. Tel's view, limit its ability to maximize contribution from competitive services. The company suggested that in Decision 83-10 the Commission did not clearly state the basis for concluding that 10% and 5% are the appropriate rate differentials. B.C. Tel argued that to the extent that CNCP's inability to offer a full range of voice services creates any difference between its services and those of B.C. Tel, the difference is nothing more than a perception in the minds of some customers.
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In their comments, both CICA et al and CNCP suggested that the applications for review do not raise any new points of substance and consist essentially of repetitions of arguments already considered and rejected by the Commission in Decision 83-10. They argued that information regarding the proportion of Bell and B.C. Tel interconnected inter-exchange private line voice channels originating and terminating in the operating territories of those companies adds nothing of substance to the value of service issue, noting that Bell and B.C. Tel had not brought such information forward during the proceeding which led to Decision 83-10. According to them, the important point was that CNCP has generally not been able to obtain interconnection outside the operating territories of the federally regulated carriers and so only Bell and B.C. Tel are able to offer outside circuits to customers. In this regard, CNCP considered that its service was seen as having a lower value for any customer whose present or future requirements are for channels between Bell or B.C. Tel operating territories and an outside point or points.
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According to CNCP, interconnected private line voice services should not be considered solely in a technical or operational sense and in isolation from MTS and WATS services.
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CNCP argued that one of the inherent values in Bell's and B.C. Tel's private line services is that a customer can switch between them and MTS or WATS service, depending on growth or shrinkage in traffic requirements, all offered by the same carrier. In the opinion of CNCP, its private line service is not offered under substantially similar circumstances and conditions in that it cannot provide a parallel range of related service offerings. Both CNCP and CICA et al considered "one-stop shopping" to be significant in assessing value of service. In this regard, CNCP quoted a Telecom Canada publication with regard to the benefits of a single customer-supplier interface.
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CNCP and CICA et al took issue with Bell's characterization of Decision 83-10 as an attempt to equalize competitive marketing positions. They pointed out that, in the decision, the Commission specifically stated that it was not motivated to equalize competitive positions by means of rate differentials. In their view, the Commission's determination that there should be rate differentials was clearly based on the value of service differential which the Commission found to exist between CNCP services and those of Bell and B.C. Tel.
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As for B.C. Tel's remarks regarding the Commission's finding that rate differentials of 10% and 5% reflect the difference in value of service, CICA et al suggested that the Commission had ample evidence before it to assess the value of service differential. CICA et al also noted that in the proceeding leading to Decision 83-10, Bell and B.C. Tel had chosen not to address the appropriate differential in a substantive way, arguing instead that no differential should be established.
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Ontario reiterated the comments it had submitted in the proceeding that led to Decision 83-10. At that time, Ontario had stated its support for increased competition in the telecommunications industry as a means of improving service and reducing costs, and had suggested that a major reason for CNCP's lack of success in penetrating the interconnected voice private line services market is the fact that customers are unlikely to move to a new supplier in the absence of a rate differential. Ontario had also expressed support for a rate differential, provided it was based solely on geographical limitations of the CNCP services. In its view only objective differences can be used in establishing rate differentials.
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In its reply, Bell stated that it is only the service provided that is the subject matter of tariff rates and that as CNCP and Bell interconnected inter-exchange private line voice services are essentially the same in terms of service characteristics and function, the value of service received by their customers is also the same. Bell suggested that the material differences between competitive services found by the Commission in Decision 83-10 really are based on factors external to the services in question, such as the fact that CNCP is unable to offer certain other services. Accordingly, Bell submitted that to characterize the CNCP and Bell services in question as differing in a material respect is to misconstrue the concept of value of service. In Bell's view, the words "substantially similar circumstances and conditions" in subsection 321(1) of the Railway Act refer only to circumstances and conditions related to the carriage of traffic by the services in question. According to Bell, Decision 83-10 establishes a new principle founded on the basis of establishing rates to equalize the competitive marketing positions of competing carriers, rather than on the basis of value of service.
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In its reply, B.C. Tel suggested that in approving a price differential, the Commission introduced "engineered competition", which suppresses genuine competition. Market share allocation was the result even if not the purpose of Decision 83-10, and B.C. Tel advised that revenue erosion had already been experienced as a result.
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Conclusions
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The criteria used by the Commission in determining whether to review a decision pursuant to section 63 of the National Transportation Act require that the applicant demonstrate, on a prima facie basis, the existence of one or more of the following:
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1. an error in law or fact;
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2. a fundamental change in circumstances or facts since the decision;
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3. a failure to consider a basic principle which had been raised in the original proceeding;
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4. a new principle which has arisen as a result of the decision.
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In addition, it was noted that notwithstanding the lack of prima facie evidence that any of the above criteria have been met, the Commission has a residual discretion under s.63 to determine that there is substantial doubt as to the correctness of its original decision and that reappraisal is accordingly warranted. This is not so much a fifth criteria, however, as it is a statement of the residual discretion which exists under s.63.
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After reviewing the record of this proceeding and having considered all of the arguments of the parties, the Commission has concluded that the existence of one or more of the criteria referred to above has not been demonstrated and that there is not a substantial doubt as to the correctness of Decision 83-10. Accordingly, the Commission denies the applications for review. However, as indicated in Decision 83-10, when appropriate cost information becomes available, the Commission intends to review the discount levels to which it gave interim approval in Order 83-520. At that time the Commission expects to be in a position to determine whether to give final approval to those discounts, or whether other tolls should be substituted for them.
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In arriving at its decision, the Commission wishes to comment on the argument that the concept of value of service as employed in Decision 83-10 does not differ in result from regulating market share. It is true that the application of value of service criteria could result in an impact on rate levels, and therefore affect market share. However, it can be argued that, in carrying out its mandate under the Railway Act, in relation to determining just and reasonable rates for competitive services, the Commission cannot avoid allegations that it is, in effect, setting market share. Indeed, to approve identical rates for competing services could, as stated in Decision 83-10, have the effect of guaranteeing market share to the carrier offering a higher value service and providing it with an undue or unreasonable preference or advantage in the marketplace.
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The Commission wishes to comment on the characterization of Decision 83-10 as an attempt to equalize competitive marketing positions by means of rate differentials. In that Decision, the Commission specifically disclaimed any such motivation, stating explicitly that its conclusion with regard to rate differentials was based on its finding of a material difference in value between competing services. Value of service criteria have long been employed by the Commission and by other telecommunications regulatory bodies in determining whether rates are just and reasonable, particularly in the absence of appropriate cost information. In Decision 83-10, the finding of a material difference in value was based on two factors largely or entirely outside CNCP's control, namely, its inability to offer MTS and WATS type services and the fact that CNCP has generally not been able to obtain interconnection outside the operating territories of the federally regulated telephone companies. The Commission has not been persuaded by the applicants in this proceeding that it is necessary or appropriate to consider and compare the services in question in isolation, without any regard to the context in which they are offered.
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Secretary General
Fernand Bélisle
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