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Ottawa, 12 February 1987
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Telecom Decision CRTC 87-1
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RESALE TO PROVIDE PRIMARY EXCHANGE VOICE SERVICES
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I BACKGROUND
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In Interexchange Competition and Related Issues, Telecom Decision CRTC 85-19, 29 August 1985 (Decision 85-19), the Commission concluded that it would be in the public interest to remove existing restrictions on resale and sharing to provide all intra-exchange services except resale to provide primary exchange voice services. The Commission stated that, before permitting resale to provide primary exchange voice services, further discussion was required of certain issues which would arise in the event that restrictions on such resale were eliminated. These issues included:
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i) the impact on the telephone companies' obligation to serve;
ii) the right of tenants in shared tenant real estate developments to have direct access to the
telephone company;
iii) the responsibility to provide emergency or back-up service;
iv) the level of rates charged by competitors for basic voice service; and
v) access to and standards for pay telephones.
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Accordingly, the Commission directed Bell Canada (Bell), British Columbia Telephone Company (B.C. Tel), NorthwesTel Inc. (NorthwesTel) and Terra Nova Telecommunications Inc. (Terra Nova) (collectively, the telephone companies) to file comments on these issues by 26 November 1985. The Commission indicated that it would issue a public notice specifying further procedures for consideration of these issues following receipt of the telephone companies' submissions.
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On 23 January 1986, the Commission issued CRTC Telecom Public Notice 1986-8 (Public Notice 1986-8), wherein it invited comments on the telephone companies' 26 November 1985 submissions and on the impact of permitting resale to provide primary exchange voice services on several aspects of telecommunications service provision that were set out in the public notice. In Public Notice 1986-8, the Commission also stated that it intended to dispose of an application filed by the Association of Competitive Telecommunications Suppliers (ACTS) and the Canadian Business Telecommunications Alliance (CBTA) on 26 September 1985, at the same time that it rendered its decision on the proceeding on resale to provide primary exchange voice services. The ACTS/CBTA application requested an order requiring Bell to permit the attachment and use of coin operated telephones that are customer-provided.
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In response to Public Notice 1986-8, the following parties filed comments by 28 March 1986: CBTA, ACTS, Canadian Association of Data and Professional Service Organizations, The Canadian Bankers' Association and Canadian Business Equipment Manufacturers' Association (collectively, CBTA et al); Canadian Independent Telephone Association (CITA); CNCP Telecommunications (CNCP); Consumers' Association of Canada (CAC); The Council of Maritime Premiers (CMP); Director of Investigation and Research, Combines Investigation Act (the Director); Federated Anti-Poverty Groups of British Columbia, the British Columbia Old Age Pensioners Organization, Kennedy House Senior Recreation Centre, Lower Mainland Alliance of Information and Referral Services, Save Our Shores, Society Promoting Environmental Conservation, British Columbia Provincial Council of Women, United Elders' Association of British Columbia and West End Seniors' Network (collectively, FAPG et al); KVA Communications and Electronics (KVA); Long Distance Access Corporation (LDAC); National Anti-Poverty Organization (NAPO); le Syndicat des travailleurs et travailleuses en communication et en électricité du Canada (STCC); Télémédia Enterprises Inc. (Télémédia); and Thompson Leasing Limited (TLL). Reply comments were filed by 25 April 1986.
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II INTRODUCTION
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Primary exchange voice services include services such as business and residential Individual Line and Party-Line Services, PBX Trunk Service, Centrex Service, Public Telephone Service (Pay Telephone Service), and Enhanced Exchange Wide Dial PBX Service. Resale to provide primary exchange voice services involves the subsequent sale or lease on a commercial basis of telecommunications services leased from the telephone company in order to provide users with voice services similar to those listed above. A reseller's serving area need not be restricted to continuous property so long as all underlying transmission facilities or services utilized by the reseller are leased from the telephone company. Since resale is a commercial undertaking, it follows that resellers may only lease business services in order to provide primary exchange voice services.
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The attachment of customer-provided pay telephones to the facilities of the telephone companies to provide Pay Telephone Service raises a number of issues that diverge from those involved in resale to provide other primary exchange voice services. Accordingly, the Commission has dealt with this specific type of resale separately in this decision.
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Finally, the Commission notes that, while Foreign Exchange (FX) Service is classified as a primary exchange voice service by at least one telephone company, the Commission considers that, because FX Service is provided over an interexchange facility, it should be treated as an interexchange service for regulatory purposes and subject to restrictions and conditions pertaining to resale and sharing to provide interexchange services which are set out in Tariff Revisions Related to Resale and Sharing, Telecom Decision CRTC 87-2, 12 February 1987 (Decision 87-2).
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III RESALE TO PROVIDE PRIMARY EXCHANGE VOICE SERVICES OTHER THAN PAY
TELEPHONE SERVICE
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A. General
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1) Positions of Parties
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Parties that supported resale to provide primary exchange voice services included CBTA et al, CNCP, the Director, KVA, LDAC, Télémédia and TLL. Amongst the general benefits cited by these parties were: the development of shared tenant service (STS) buildings, a more efficient use of the telephone companies' local network facilities, and increased access to more sophisticated technologies and to more cost efficient primary exchange voice services, the availability of which are at the present time mostly confined to large users.
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In general the telephone companies, with the support of CITA, CMP and STCC, opposed resale to provide primary exchange voice services. In large measure, their objections were due to concerns that such competition would contribute to an erosion of telephone company revenues and result in upward pressure on local rates.
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CAC stated that it would not support resale to provide primary exchange voice services if it resulted in increases in local rates but noted that quantitative information was not available to test assumptions of revenue erosion. Similarly, FAPG et al and NAPO were opposed to such resale and also cited an absence of quantitative information.
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Both Bell and B.C. Tel contended that a primary incentive for reselling primary exchange voice services would be to take advantage of price differentials between specific local services with the effect of eroding local revenues: for example Centrex Service, which is priced lower than Individual Business Line (IBL) Service by some telephone companies, could be resold to provide IBL Service. B.C. Tel also argued that resale of Centrex would render its Centrex bill minimum meaningless. Further, it stated that, if it did not know how resold Centrex services were being used, control over Centrex switch provisioning would be difficult and could increase costs. B.C. Tel argued that resale of Centrex in smaller quantities would put it at a competitive disadvantage compared to resellers, who could sell to customers below the bill minimum.
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Both Bell and B.C. Tel argued that resale of primary exchange voice services by STS providers would produce a further area of revenue erosion. They suggested that, with the same amount of traffic being carried over fewer trunks, the result would be reduced revenues, overprovisioning and stranded investment in local network facilities. Bell indicated that STS resale would not be restricted to new buildings; it noted a report predicting that, in the United States, retrofitted buildings will account for the greatest number of STS locations by 1994.
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While Bell agreed that resale in new buildings would reduce the number of access lines required to provision such locations, it contended that associated cost savings would likely occur even without resale, due to technological improvements such as multiplexing and concentration techniques that are beginning to be applied in the local network.
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CBTA et al, CNCP, the Director and Télémédia all contended that concerns about revenue erosion, including those regarding STS locations, were overstated. CBTA et al stated that, since opponents of resale, including the telephone companies, did not produce any evidence or even suggestions of significant revenue erosion, resale should be permitted without delay.
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CBTA et al and the Director both argued that STS activity would be more likely to occur in new locations due to the cost of retrofitting existing buildings. Any curtailment of revenues, therefore, would be more likely to be associated with projected rather than existing revenues. CNCP contended that STS activity is not widespread in the United States and that its impact on local telephone company revenues has been minimal. CBTA et al suggested that the primary incentive for many STS providers is not the telecommunications business as an end in itself but rather as a means of attracting tenants to a particular building.
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The telephone companies and some other parties also contended that the risk of MTS/WATS revenue erosion would increase if resale were permitted. B.C. Tel argued that, with a reseller's switch positioned between the company's facilities and a group of individual end users, it would be impossible to detemine how the services behind the switch were being used: resale of local exchange services would create further opportunity to link multiple users to interexchange facilities to provide access to MTS equivalents.
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Télémédia contended that arguments suggesting that resellers or their customers would contravene express legal prohibitions in order to gain access to MTS equivalents were unwarranted and inappropriate. The Director stated that the Commission had not found this to be a significant problem in the past and that he expected the same to be true in this case.
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CBTA et al opposed the resale of Centrex service on the grounds that Centrex is unfairly priced and its resale could affect PBX suppliers adversely. CBTA et al contended that the Commission should hold a separate proceeding to examine Centrex. The Director viewed resale of Centrex as an enhancement of its attractiveness as a substitute for both PBX installations and STS. The Director contended that Centrex resale would inhibit the telephone companies' ability to use the service to compete unfairly in the multiline terminal equipment market.
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2) Conclusions
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Based on the record of this proceeding, the Commission has concluded that resale to provide primary exchange voice services, other than Pay Telephone Service, would be in the public interest. The Commission considers that such resale will engender certain benefits for some users without imposing significant disadvantages on others. These benefits include: increased choice of service providers, increased access by smaller users to more sophisticated technologies and to telephone company services already available to larger users, and the potential for increased efficiency in the provisioning of local network facilities.
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The Commission considers that, based on the record of this proceeding, there is little room for uneconomic entry into this market by resellers, with the result that no significant contribution erosion is to be expected. In the opinion of the Commission, the prohibitions against resale and sharing of non-MTS services to provide MTS/WATS will ensure that resellers are limited to the economic opportunities presented by differences in primary exchange voice service rates, trunking efficiencies and innovation in the use of new technologies. Moreover, in considering whether to enter the local resale market, a potential reseller will be required to balance these economic opportunities against capital costs of entering the market and ongoing costs associated with providing services such as repair and maintenance and billing and collection.
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With regard to arguments that resellers or their customers might circumvent restrictions on resale and sharing of interexchange services, the Commission agrees with Télémédia that such concerns are unwarranted. The Commission finds nothing in the record of this proceeding to indicate that users would violate such restrictions.
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With regard to the arguments of CBTA et al on the impact of Centrex resale on the PBX market and of B.C. Tel on Centrex customer bill minimums, the Commission notes that it considered similar arguments prior to permitting sharing of Centrex in CRTC Telecom Public Notice 1986-42, dated 3 July 1986 (Public Notice 1986-42). The Commission considers that the record of this proceeding does not justify the application of a bill minimum for each customer of a Centrex reseller. As far as the rates and conditions for Centrex Service are concerned, the Commission notes that, since Centrex Service is required to be offered pursuant to approved tariffs, it can ensure that such rates and conditions remain appropriate in a resale environment.
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B. Rates
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1) Positions of Parties
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In order to prevent revenue erosion, Bell proposed two specific conditions: resellers should not be permitted to resell a lower rated service to provide a higher rated service and services leased to resellers should be at rates which, at a minimum, reflect costs. B.C. Tel agreed particularly with the latter condition. To effect this, it proposed use of a separate local rate structure for all forms of resale that would reflect both access costs and usage of B.C. Tel's network. NorthwesTel and Terra Nova took the position that no resale should be permitted until all public proceedings associated with rate rebalancing had been concluded.
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CNCP stated that it supports cost-based rates for underlying primary exchange services sold to resellers. It argued that, nonetheless, no rate restructuring need precede the lifting of restrictions because resale of primary exchange voice services would take place in higher rate groups where business rates are fully compensatory.
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B.C. Tel did not agree that its business rates are compensatory, particularly in high usage applications of its business services as would arise with resale by STS providers.
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The Director submitted that access lines leased to STS providers should be priced at the same level as PBX trunks provided to business users, since small business users would be using access lines in exactly the same way as a large PBX user with identical requirements. The Director contended that a premium tariff for STS providers would be discriminatory under section 321(2) of the Railway Act. The Director submitted that if the business trunk rate is no longer considered compensatory, then the telephone companies should seek tariff revisions applicable to all PBX customers.
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2) Conclusions
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The Commission is of the view that underlying telephone company services should be provided to resellers at general tariff rates. The Commission considers that it would be inappropriate to single out resellers from among business subscribers for special rate treatment.
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C. Access to Telephone Company Services
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1) Positions of Parties
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Parties who commented on this issue agreed, in principle, that tenants in STS locations should have the choice of obtaining service from either the reseller or the telephone company. Bell contended that resale to provide primary exchange voice services should be accompanied by terms and conditions, in the company's tariff, which would ensure that the company's obligation to serve can be met. B.C. Tel stated that it would be the obligation of the reseller to allow the company access to furnish a direct connection to the customer by whatever means were appropriate and cost effective to the company. It added that its obligation to serve could not be met until access was provided. Bell, NorthwesTel and Terra Nova contended that additional expenses incurred in providing access should be borne by the customer.
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CBTA et al stated that conditions pertaining to a telephone company's right to gain access and rights-of-way in a landlord's property, while not unreasonable, may be neither necessary nor practical. CBTA et al contended that it would not be in a landlord's interest as a lessor of office space to deny a tenant access to telephone company service. Moreover, it would be inefficient if more than one party had control over the use of conduit and risers in a building.
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2) Conclusions
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In the opinion of the Commission, a primary benefit of resale to provide primary exchange voice services is the increased choice of service offerings for the end user. However, in order to ensure that choice is available and that service providers do not engage in resale activity to create unduly restrictive conditions in resale service areas, direct access to telephone company services by tenants in STS areas must be guaranteed. The Commission notes that no party took a position contrary to this view.
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While the Commission agrees with CBTA et al that ultimate control of conduit and risers must rest with a landlord in STS locations, it also considers that, as a condition of supplying service to resellers, the telephone companies must be afforded direct access, under reasonable terms and conditions, to tenants in STS locations who choose to receive telephone company service rather than, or in addition to, a reseller's service. Accordingly, the Commission considers that the general tariffs of the telephone companies should include such a condition.
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Finally, the Commission notes that there is no evidence in this proceeding to suggest that the expenses incurred by a telephone company to connect the customers in STS locations, who do not wish to use reseller services, will differ substantially from expenses incurred to provision other groups of customers. However, to the extent that there may be additional expenses for providing access to a customer at an STS location, the Commission does not accept, at this time, arguments of the telephone companies that such additional expenses should be borne by that customer. In this regard, the Commission notes that the costs of providing the same service to subscribers in various locations in the same exchange may vary considerably, yet those subscribers are charged the same rate for that service.
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D. Responsibility for Service Functions
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1) Positions of Parties
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The telephone companies stated that, if resale were permitted, they would be prepared to continue to meet their obligations to provide service. They added, however, that while they would be prepared to provide emergency or back-up service to their subscribers, including resellers for facilities leased by resellers, this obligation did not extend to customers of resellers. Further, the telephone companies stated that, if a reseller were to leave the market, there could be delays in reestablishing service for the reseller's former customers. Bell and B.C. Tel said that, with regard to resellers' customers, the responsibility to provide emergency or back-up service and the risks associated with continuity of service would be essentially the same as those for customers of terminal equipment suppliers. No party disputed the telephone companies' positions concerning these matters.
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Bell noted that, in a resale environment, its customer would be the reseller and that the reseller would be responsible for all amounts billed for service by the company and for the maintenance and repair of the reseller's facilities or equipment. In addition, Bell asserted that, as with any other Bell customer, the company would reserve the right to discontinue service for non-payment or for the failure of resellers, upon reasonable notice, to adhere to the terms and conditions of the service provided. B.C. Tel stated that it would require similar conditions and noted that uniformity and continuity of quality and grade of service to individuals who obtain services from resellers would no longer be an obligation of the company. No party contended that these positions were unreasonable.
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2) Conclusions
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The reseller is the customer of the telephone company. The telephone company is obliged, therefore, to provide all underlying facilities and services (e.g. PBX trunks, directory extra listings) to the reseller under the same terms and conditions as to other customers. This applies to emergency or back-up service as well. The reseller is responsible to the telephone company for all amounts incurred for the services provided to the reseller by the telephone company. Moreover, the reseller, not the telephone company, is responsible for the quality of service provided to the reseller's customers and for the level of rates charged to such customers.
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E. Provisioning
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1) Positions of Parties
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Bell noted that, to ensure efficient placement and use of exchange access facilities and to avoid duplication of such facilities, the company might require specific identification of the areas to be served by resellers and forecasts of the type and number of access facilities required to serve these areas. B.C. Tel stated that it would be essential that STS providers work closely with the company to avoid overprovisioning.
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The Director suggested that, as a condition of allowing resale, the Commission require resellers to provide the telephone companies with written descriptions and layout maps defining the resale service areas and plans for new developments. CBTA et al contended that the existence of STS providers would not pose planning problems since the carriers would continue to co-ordinate network planning activities with new building developers just as they do now. CBTA et al submitted further that STS providers, aided by telecommunications consultants, would be in a better position to provide detailed projections to the telephone companies. Finally, CBTA et al noted that it would not be in the interest of resellers to deprive the public of high quality service and, of necessity, they would work closely with the telephone companies.
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2) Conclusions
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The Commission considers that it is in the mutual interest of resellers and telephone companies to identify access facility requirements at as early a stage as possible. Therefore, the Commission does not consider that it is necessary, at this time, to set out rules governing the types of information that resellers must provide to the telephone companies for facilities planning.
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IV RESALE OF MTS TO PROVIDE MTS
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In Public Notice 1986-42 dealing with various tariff revisions related to resale and sharing, the Commission stated that it agreed with parties to that proceeding that no MTS revenue erosion would result from the resale of MTS to provide MTS. Further, the Commission noted that the sharing of MTS to provide MTS was permitted in Decision 85-19. Noting the relationship between the issues of resale of MTS to provide MTS and resale to provide primary exchange voice services, however, the Commission concluded that it would deal with the issue of resale of MTS to provide MTS in this proceeding.
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Since it would be difficult for resellers of primary exchange voice services to prevent their customers from using MTS, and since no revenue erosion would result from such use, the Commission has decided to remove the restrictions on the resale of MTS to provide MTS. The Commission notes that, as a customer of a telephone company, a reseller would be responsible for all MTS charges incurred by the reseller's customers and billed to it.
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V RESALE TO PROVIDE PAY TELEPHONE SERVICE
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A. ACTS/CBTA Application
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In their application of 26 September 1985, ACTS/CBTA submitted that Bell's tariff provisions and policies restricting the attachment of customer-provided pay telephones are contrary to the Railway Act and should be struck down. ACTS/CBTA contended that liberalized attachment of customer-provided pay telephones would produce a number of benefits including: increased availability as small businesses, often for reasons of customer service or profit, install pay telephones in locations which currently have no service; a decrease in rates for local calls in some locations; additional revenues to Bell for MTS calls from, and access lines required for, customer-provided pay telephones; a reduction in Bell's costs associated with installation, maintenance, coin collection and operator and directory assistance; increased innovation stimulated by competition; and improved service from providers wishing to protect, and profit from, their investment.
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ACTS/CBTA listed conditions governing the attachment of customer-provided pay telephones which it said the Commission would want to impose. These conditions included: compliance with CS-03 standards, once developed, and FCC Part 68 rules in the interim; 911 or other emergency services access at no charge; ceilings on rates charged by competitive providers equal to the rates charged by Bell; and a visible and clear statement of operating instructions at each location.
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B. Bell's Answer
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In response to the ACTS/CBTA application, Bell filed its answer with the Commission on 25 November 1985 wherein it denied that its tariffs and policies are contrary to the Railway Act and submitted that the attachment of customer-provided pay telephones should only be permitted if the Commission were to find that such attachment would be in the public interest.
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Bell, noting that in 1984 20% of its pay telephones generated 50% of its Pay Telephone Service revenues, submitted that the revenue generating potential of pay telephone locations can vary widely. Bell submitted further that competitors would be more likely to focus on the more lucrative locations. The company contended that, as a consequence, any cost savings associated with the replacement of its pay telephones would not offset lost revenues. Bell stated that, in a competitive pay telephone environment, it should be permitted to respond to price competition by adjusting its rates. Bell questioned arguments that there would be increased revenues from access line charges and long distance service arising from competitive pay telephones, arguing that it is unclear whether such revenues could offset lost pay telephone revenues.
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With regard to the ACTS/CBTA contention concerning increased availability of pay telephones, the company argued that, because it might be forced to remove some existing pay telephones and because some customer-provided pay telephones would be in locations having limited hours of access, it is unclear whether availability would increase. Bell also stated that the number of pay telephones in its serving territory had increased by 27 percent since 1980.
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With regard to reductions in operator assistance costs, Bell noted that only 10 percent of present pay telephone toll calls are sent cash paid. Moreover, it disputed allegations that competitors would take greater care than the company does to ensure that directories were available, thus reducing directory assistance costs.
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In reference to comments on the effects of competition on innovation and service quality, Bell noted a number of new services and enhancements that it had introduced. In addition, the company stated that, while a competitor could ensure less vandalism and abuse on supervised premises than the company could at an outdoor location, the replacement of the company's outdoor locations by sets on supervised premises could reduce the number of locations that are accessible 24 hours a day.
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Bell rejected as unnecessary the FCC Part 68 standards, proposed by ACTS/CBTA as interim conditions for attachment, and contended that the other proposed conditions were the minimum conditions that should be imposed. Bell proposed that, if competition were permitted, competitors be required to charge the same rate as the company. It also proposed requirements for equipping pay telephones as follows: coinless access to emergency and operator services; access to long distance service; hearing aid compatibility; accessibility by the physically disabled; ability to accept multiple coin denominations; and the listing of addresses or numbers on the telephones for reporting of customer problems. Bell noted that, in some jurisdictions in the United States, the provision of customer-provided pay telephones is restricted to the supervised premises of single residential or business establishments.
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The company proposed that, for competitive providers of pay telephones, a new access line service be established with rates to reflect the costs of providing the service in order to ensure that the general body of subscribers would not be subsidizing the business ventures of such providers.
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C. ACTS/CBTA Reply
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ACTS/CBTA filed a reply to Bell's answer on 6 December 1985. ACTS/CBTA contended that small businesses would likely install pay telephones where there is presently no service, thus increasing availability. ACTS/CBTA contended that, in many cases, such sets would be attached as extensions on existing lines. ACTS/CBTA argued that Bell would likely remain the sole provider of pay telephones in lucrative public locations, thus reducing any risk of revenue erosion.
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In reply to Bell's argument that, given that less than 10% of MTS calls are paid by coin, operator intervention costs would not be reduced, ACTS/CBTA argued that the other 90% of MTS calls require operator intervention which could be reduced with liberalized attachment: for example, pay telephones which are equipped to accept credit cards would not require any operator assistance. Finally, ACTS/CBTA argued that special access charges should not be required since most sets would be attached to business lines, which are assumed to be compensatory.
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D. Positions of Other Parties
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B.C. Tel, CITA, CMP, FAPG et al, NorthwesTel, Terra Nova and STCC opposed competition in the provision of pay telephone service.
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B.C. Tel, NorthwesTel and Terra Nova were concerned principally with revenue erosion arising from competitors restricting themselves to more lucrative locations, which, in their view, would have a negative impact on public convenience and service. NorthwesTel and Terra Nova argued that many pay telephones are installed at less lucrative public locations such as schools, swimming pools, senior citizen homes and arenas and do not recover their costs. Terra Nova noted its commitment to providing access to the physically disabled and the hearing impaired. B.C. Tel viewed the provision of pay telephones as an obligation in recognition of the needs of those who do not have regular service, of the travelling public and of those who require emergency communications. B.C. Tel also supported Bell's view with regard to rates for access lines provided to competitive providers.
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The Director argued that competition would result in increased availability at new locations while the telephone companies would likely continue to serve more lucrative public locations. He also argued that competition would generate additional revenues for access lines and long distance calls. He suggested that competitors would install technologically advanced pay telephones which would result in reduced costs in such areas as operator assistance.
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The Director proposed that a number of minimum safeguards should be placed on competitively provided pay telephones as conditions for attachment. These would include certification procedures, coinless access to the telephone company operator and to emergency services, access by the physically impaired and transmission enhancement for the hearing impaired. In addition, he proposed that maximum rates charged by competitive providers be limited to rates approved for the telephone companies and that pay telephone providers be responsible for repair and maintenance.
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In regard to access by the hearing impaired, CBTA et al, in its comments filed in response to Public Notice 1986-8, noted that CSA standard CAN3-T515-M85 establishes an approach for handsets for the hard of hearing that enjoys widespread support.
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The Director and LDAC suggested that it could be appropriate to impose some service obligations on competitors. An obligation proposed by LDAC was that competitors should cover a fair share of the risk associated with meeting emergency service requirements. The Director proposed that providers serving multiple locations should serve both low and high volume locations.
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While B.C. Tel proposed a number of conditions for attachment similar to those proposed by Bell and the Director, it doubted that these requirements could be maintained without some form of public interest regulation applied equally to all providers in this market. B.C. Tel contended, moreover, that it would be unlikely that other parties would share the responsibility to provide service to uneconomic locations, as long as the telephone companies were obliged to continue to provide service at current standards.
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E. Conclusions
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The Commission considers that, while competition in the provision of Pay Telephone Service could yield a number of benefits, there should be clear indication that such benefits outweigh potential disadvantages. At the present time, the Commission considers that, on balance, competition in this market should not be permitted for the reasons set out below.
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With regard to the issue of revenue erosion, the Commission agrees with the concern of a number of parties that competitors would focus primarily on the most lucrative pay telephone locations. The result could be reductions in telephone company Pay Telephone Service revenues that would exceed any associated cost savings. Any significant reduction in net revenues would in turn create upward pressure on the rates for this or other services or pressure to reduce costs by reducing the level of Pay Telephone Service provided.
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In this regard, it should be noted that the Commission has in the past encouraged the telephone companies to provide Pay Telephone Service in locations where costs often exceed revenues. While the Commission could prevent a reduction in the level of service by placing an obligation on the telephone companies to maintain such service, this could put them at a significant competitive disadvantage in the pay telephone market. The Commission considers that it would not be feasible to alleviate this disadvantage by imposing an obligation to serve on all pay telephone providers.
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The Commission considers Pay Telephone Service to be a valuable complement to basic service and has therefore encouraged the telephone companies to ensure its widespread availability and accessibility at affordable rates. Competition, however, could result in pressure on telephone companies to lower rates in response to competitive entry, thereby reducing their ability to finance service in unprofitable locations. In order to permit the telephone companies to continue to provide service in unprofitable locations without being placed at a competitive disadvantage, the Commission could require that all providers charge the same rate for local calls. However, this would involve greater regulatory intervention and reduce the benefits usually associated with price competition.
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Pay Telephone Service is provided by the telephone companies subject to certain standards that facilitate access. Included among these are coinless access to emergency services, access by the hearing impaired and physically disabled, clear operating instructions including instructions for handling complaints, and the ability of pay telephone sets to return coins.
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In order to ensure that access by the public to Pay Telephone Service does not deteriorate, the Commission considers that similar standards of service would have to be imposed on competitors. This would be particularly important since competition could result in competitors rather than telephone companies being exclusive providers at particular locations.
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In the opinion of the Commission, the need to impose standards or conditions of service on both telephone companies and competitors could result in a number of disadvantages. First, continued and increased regulatory involvement could reduce the benefits associated with competition. Second, monitoring and enforcement of compliance with conditions on competitors would necessarily be in large measure the responsibility of the telephone companies. This would be costly and could result in disputes between telephone companies and competitors requiring resolution at the regulatory level rather than in the marketplace. Third, monitoring of compliance would be difficult to carry out, and as a result, the currently high and relatively uniform quality of Pay Telephone Service could suffer.
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In light of the above, the Commission denies the ACTS/CBTA application.
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V IMPLEMENTATION
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The restrictions on resale to provide primary exchange voice services and on resale of MTS to provide MTS, as established in this decision, have been incorporated into the tariff revisions required to be filed pursuant to Decision 87-2.
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Fernand Bélisle
Secretary General
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