ARCHIVED -  Telecom Decision CRTC 87-12

Telecom Decision

Ottawa, 22 September 1987

Telecom Decision CRTC 87-12

CNCP TELECOMMUNICATIONS - APPLICATION FOR EXEMPTION FROM CERTAIN REGULATORY REQUIREMENTS

Table of Contents
I Introduction
II CNCP's Position
III Positions of Other Parties
IV Conclusions
A. Scope of Commission Authority
B. Different Regulatory Treatment
C. Phase III Costing Requirements
D. CNCP's Market Position
E. Detariffing

I INTRODUCTION

On 10 September 1986, CNCP Telecommunications (CNCP) applied to the Commission for orders exempting CNCP from: (a) the requirement to file tariffs for its offerings, subject to the procedures described in the application; and (b) the requirements of Inquiry into Telecommunications Carriers' Costing and Accounting Procedures: Phase III - Costing of Existing Services, Telecom Decision CRTC 85-10, 25 June 1985 (Decision 85-10).

In its application, CNCP stated that it would undertake to provide at least 10 days written notice to the Commission, and to those parties who would register with CNCP for that purpose, of proposed changes affecting any CNCP offering, other than terminal equipment or intraprovincial services provided in competition with non-federally regulated carriers. It also stated that, under its proposal, the Commission would continue to possess authority to require CNCP to submit further support for a toll and, in appropriate cases, to disallow a toll on either an interim or a permanent basis.

On 24 October 1986, in CRTC Telecom Public Notice 1986-64, the Commission set out the procedure it would follow, including an interrogatory process and an oral public hearing, for the consideration of CNCP's application. In response to requests from CNCP and having considered comments from other parties, the Commission concluded, in a letter dated 16 April 1987, that an oral public hearing was not necessary to dispose of the application. Provision was made, however, for an expanded written process.

Bell Canada (Bell) and British Columbia Telephone Company (B.C. Tel) proposed that the Commission should, in this proceeding, determine the regulatory regime not only for CNCP but also for all federally regulated carriers. Moreover, the Director of Investigation and Research, Competition Act (the Director) suggested that the proceeding should deal with the issue of regulatory forbearance for all federally regulated carriers.

In response to these proposals the Commission noted in its letter of 16 April 1987 that, had the proceeding initially had the scope proposed by Bell, B.C. Tel and the Director, other parties might have chosen to participate, or to have participated differently. Therefore, the Commission noted that the proper scope of the proceeding was to dispose of CNCP's application, and that it did not extend to determining the appropriate regulatory regime for other federally regulated telecommunications carriers or competitive services generally.

The following parties made submissions to the Commission relating to CNCP's application: Bell; B.C. Tel; Canadian Business Telecommunications Alliance, Canadian Bankers Association, and Association of Competitive Telecommunications Suppliers (collectively, CBTA et al); City of Edmonton; Consumers' Association of Canada (CAC); Council of Maritime Premiers (CMP); the Director; Federated Anti-Poverty Groups of B.C., the B.C. Old Age Pensioners' Organization, The Senior Citizens' Association, and The Council of Senior Citizens' Organizations (collectively, FAPG et al); Government of Ontario (Ontario); Québec-Téléphone; Telecommunications Workers' Union (TWU); and Telesat Canada (Telesat).

CNCP filed final argument on 25 June 1987. Interveners filed final argument by 3 July 1987 and CNCP filed reply argument on 10 July 1987.

II CNCP'S POSITION

In support of its application, CNCP maintained that there is no longer a need for its prices to be regulated in the traditional manner. CNCP submit ted that it has a small share of the total telecommunications market with no monopoly power in any sub-market.

It stated that, in addition to the other federally regulated companies, its competitors include unregulated companies such as B.C. Rail, resellers and terminal equipment suppliers, and provincially regulated telephone companies which, for the most part, are effectively unregulated in respect of their competitive service offerings.

CNCP submitted that market forces now dictate the level of its prices, thereby ensuring that those prices are no higher than what is just and reasonable. In addition, CNCP argued that, since it offers no monopoly services and since its services lack the capacity to generate any cross-subsidies, no public interest is served by requiring CNCP to meet the Phase III costing requirements specified in Decision 85-10.

With respect to its request for an exemption from tariff filing requirements, CNCP submitted that, pursuant to section 320(3) of the Railway Act, the Commission has authority to dispense, in whole or in part, with the requirement to file tariffs of tolls. CNCP pointed out that, in previous decisions, the Commission has held that section 320(3) confers upon it the power to dispense with the requirement to file tariffs.

CNCP argued that adoption of its proposal is essential if it is to compete effectively with its regulated and unregulated competitors. It argued further that adoption of its proposal would significantly reduce the unnecessary regulatory burden on the Commission and CNCP.

III POSITIONS OF OTHER PARTIES

While not proposing that regulation be equal in all respects as between itself and CNCP, Bell submitted that granting CNCP's proposal in respect of network services offered by CNCP in competition with those of Bell would be unfair to Bell unless Bell were accorded similar treatment. Accordingly, Bell adopted the position that, if the Commission concludes that the regulatory requirements for Bell's competitive network services should not be relaxed or streamlined at this time, then the existing regulatory requirements for those CNCP services that compete with Bell's should also be preserved until the issue of an appropriate regulatory regime for competitive network services generally can be addressed.

Bell disputed CNCP's arguments regarding Bell's "market power" and the potential for Bell to cross-subsidize its competitive service offerings from monopoly service revenues. Bell submitted that CNCP's arguments in support of an unequal regulatory regime amount to an attempt to seek competitive advantages through the regulatory process. In Bell's view, regulation of the competitive network services of Bell and CNCP in the manner sought by CNCP would amount to using the mechanism of rate regulation in a manner, and to achieve a purpose, which is neither expressly nor implicitly authorized by the legislation which the Commission administers.

Bell noted that its competitive network services provide substantial revenues, and that rates for these services have historically been constrained by rate relationships with MTS/WATS. As a result, in Bell's view, rates for certain competitive network services are artificially high. In light of these rate relationships, Bell submitted that CNCP's proposed 10 day advance notice, after which service introductions or changes would automatically come into effect unless specifically disallowed by the Commission, is too short a period to allow the Commission and interested parties to assess potential impacts. Bell also submitted that all terms and conditions of a proposed service should be provided in any notification process.

In addition, in Bell's view, if existing regulatory requirements for CNCP are to be relaxed, the Commission should introduce rules and time limits within which Phase II revenue/cost studies would generally be required to be filed if requested by the Commission in a particular case. To ensure against cross-subsidization by CNCP's owner-partners, Bell submitted that the Commission should consider instituting a mechanism whereby CNCP would file regular reports of significant intercorporate transactions. In Bell's submission, CNCP should also be required to continue to file annual financial statements for the public record.

In its submission to the Commission, B.C. Tel asserted that CNCP's arguments with respect to market power and the potential for cross-subsidization are seriously flawed. B.C. Tel submitted that to grant streamlined regulation to CNCP alone would confer an artificial and unfair advantage on CNCP and would be contrary to the public interest. B.C. Tel submitted that the reduced price initiatives that CNCP would be able to undertake under the terms of its proposal would potentially lead to a reduction in the contribution derived from both competitive network services and MTS/WATS. The impact of such contribution losses would ultimately be borne by local service subscribers.

In B.C. Tel's view, consideration of CNCP's application should be deferred until the Commission considers the appropriateness of reduced regulation of competitive services for the other federally regulated carriers. B.C. Tel argued that, if the Commission should decide at this time to change the regulatory process as it applies to CNCP, the revised regulatory process must ensure that there is both sufficient information and time to permit the Commission and interested parties to assess the reasonableness of CNCP's proposed rates and terms and conditions of service before they go into effect. In B.C. Tel's view, CNCP's proposed 10 day period of advance notice would not be adequate.

CBTA et al generally supported CNCP's application, including CNCP's request to be exempted from Phase III costing requirements. However, with respect to Telex and Telenet and network services (other than Electronic Office Services and WP mail) that compete directly with services of the federally regulated carriers, CBTA et al submitted that the present tariff filing process continues to be appropriate.

CAC stated that, with the exception of Public Message Service (PMS), market forces can be relied on to ensure that rates for CNCP's services are just and reasonable. CAC expressed the view that PMS is a monopoly service and should continue to be regulated. It also submitted that because there is a limited potential for cross subsidization between PMS and CNCP's other services, CNCP should not be exempted from Phase III costing requirements.

According to the Director, while the regulatory treatment of competing carriers must be equitable, it need not be equal, since circumstances may vary. However, CNCP's application should be seen as a forerunner to future applications which can be considered on their own merits, using principles which the Commission should enunciate in the current proceeding.

The Director submitted that CNCP does not have market power or dominance, provides no monopoly service, has its price levels dictated by market forces, and has only a limited ability to effectively engage in anti-competitive behaviour. Accordingly, the Director asserted that there is no longer a need to price regulate CNCP in the traditional manner and that there should, in general, be as complete "forbearance" as possible with respect to the regulation of CNCP. Moreover, the Director was of the view that CNCP should not be required to submit any notice of proposed price changes either to any interested party or to the Commission.

The Director expressed the view that section 320(3) of the Railway Act relates to the consequences of a default by a carrier in the filing of tariffs, rather than conferring upon the Commission a general power to dispense with the requirement to file tariffs of tolls. However, according to the Director, section 320(2) does not require advance Commission approval of proposed rates. In the Director's view, there is no need for advance approval of CNCP's rates, and the Commission should indicate that any CNCP tariff filings will be filed "for statutory, information and monitoring purposes only", rather than for any regulatory approval purpose. The Director also suggested that, through its past decisions, the Commission "has made academic any legal, jurisdictional or policy arguments opposing the granting of regulatory forbearance".

With respect to Phase III costing requirements, the Director agreed with CNCP's position that, where there is no monopoly and no dominance, there is no need for specific costing rules to be put in place. However, the Director suggested that the Commission may find it appropriate to direct CNCP to conduct internal costing in a manner consistent with the Phase III requirements.

Both FAPG et al and TWU took the position that the Commission does not have the jurisdiction to approve CNCP's application for exemption from the requirement to file tariffs and, accordingly, should deny that portion of the application. In support of this position, TWU argued that pursuant to section 320(3) of the Railway Act the Commission may, on a case-by-case basis, relieve a regulated company from the consequences of a specific default in the statutory obligation to file tariffs before charging tolls, but not from the obligation itself. Moreover, in the view of FAPG et al and TWU, section 320(2) of the Railway Act requires that there be prior Commission approval of tolls. They also suggested that in the previous Commission decisions relied upon by CNCP, the Commission did not provide clear statutory justification for its conclusion that tariffs need not be filed.

TWU also submitted that CNCP has not demonstrated that its application for exemption from the obligation to file tariffs is in the public interest.

Ontario stated that, as a general principle, it would be in favour of reduced regulation where circumstances warrant such action. It added that a strong case can be made to reduce or eliminate the regulation of a particular product or service if the market for it is competitive and if there is no opportunity to subsidize that service or product with revenues from one provided on a monopoly basis. Ontario noted, however, that federal and provincial government officials are studying aspects of competition in the telecommunications industry, and that the implementation of Phase III costing requirements is now entering its final phase.

Finally, Ontario noted that CNCP has not suggested that it would suffer serious financial harm if its application were denied at this time. Ontario concluded, therefore, that it would be appropriate to wait until further information is available before making any significant changes to the current regulatory regime for CNCP.

The City of Edmonton submitted that CNCP's application should be deferred until the issues of competition, notably the issue of cross-subsidization of local services, have been properly developed into an overall policy. According to the City of Edmonton, most of the provincially regulated carriers do not compete with CNCP. In the view of the City of Edmonton, however, CNCP is seeking to obtain a competitive advantage over those of its competitors who are required to file tariffs.

CMP submitted that, in arriving at its decision, the Commission should consider CNCP's "respectable" share of the portion of the telecommunications market in which it competes. CMP suggested that the regulatory burden should be reduced as much as possible for all carriers affected, that the marketplace should have maximum freedom to operate and that cost allocation rules should be applied equally to all carriers.

Québec-Téléphone stated that, with the exception of terminal equipment, price changes for its services require prior approval of La Régie des services publics du Québec through a process that makes public the approved rates. Québec-Téléphone indicated that it would object to a Commission decision that would allow a too rapid approval process for CNCP services that compete with the services of federally regulated carriers and would allow the elimination of any approval process for services offered in competition with carriers not under federal jurisdiction.

Telesat submitted that the terms and conditions for providing competitive services must be equitable for all suppliers and that a service provider should not be constrained in the competitive service market simply because it is subject to regulation. Telesat further submitted that the encouragement of fair competition will ultimately improve the national telecommunications system and ensure the development of innovative services and products for the benefit of business and residential customers. For these reasons, Telesat supported in principle the CNCP application.

IV CONCLUSIONS

A. Scope of Commission Authority

The Commission has considered the submissions made with regard to the scope of its authority pursuant to section 320(3) of the Railway Act.

In several past proceedings, the Commission has determined that it has the authority to dispense with the filing of tariffs. The Commission has made this determination with respect to the provision by specified carriers of, for example, cellular radio, multiline and data terminal equipment and earth station services. Having carefully considered the submissions of parties to this proceeding, the Commission sees no reason to change its previous determinations that federally regulated carriers may be permitted, pursuant to section 320(3) of the Railway Act, to charge tolls for which tariffs have not been filed.

The Commission notes that a determination that tariffs need not be filed does not affect the applicability of other provisions of the National Transportation Act and the Railway Act. For example, section 321(1) of the Railway Act requires that all tolls be just and reasonable, and that - under substantially similar circumstances and conditions with respect to traffic of the same description carried over the same route - they are to be charged equally to all persons at the same rate. Similarly, a decision that tariffs need not be filed does not affect the applicability of section 321(2), which prohibits unjust discrimination and undue or unreasonable preference or advantage with respect to tolls, services or facilities.

The Commission also notes that a decision to detariff does not affect the Commission's power, exercisable at any time, to require information to be provided, to suspend a toll, or to require a toll to be changed. Where necessary, the Commission can also review any determination not to require tariffs to be filed.

B. Different Regulatory Treatment

The Commission notes the concerns of interveners, in particular of Bell and B.C. Tel, regarding potential unfairness if CNCP were to be subject to different regulatory requirements than other federally regulated carriers. However, the Commission notes that Bell and B.C. Tel operate under substantially different circumstances than CNCP, and considers that different regulatory regimes for carriers in different circumstances are not necessarily inappropriate.

Having considered all relevant factors, including fairness to other parties, the Commission is satisfied that it has an adequate record in this proceeding to establish a revised regulatory regime for CNCP. Accordingly, the Commission concludes that it should not delay its disposition of CNCP's application.

C. Phase III Costing Requirements

The Commission notes CAC's position that the Phase III costing requirements specified in Decision 85-10 should continue to be applied to CNCP in order to prevent potential cross-subsidies from PMS. However, the revenues from PMS are in the order of only $15 million a year. Furthermore, in CNCP Telecommunications - General Increase in Rates, Telecom Decision CRTC 85-28, 20 December 1985, the Commission concluded that it was unlikely that competitive services were being cross-subsidized by PMS subscribers. The Commission also notes that available evidence suggests that the costs of providing PMS exceed its revenues, and that a variety of direct or indirect substitutes exist for PMS.

In light of the above factors, and given CNCP's modest rate of return in recent years and the availability of competitive alternatives to CNCP services, the Commission considers that CNCP does not have the ability to engage in any material cross-subsidization among its various service offerings. Therefore, the Commission has decided that CNCP should be exempted from the requirements of Decision 85-10.

D. CNCP's Market Position

A major consideration in this proceeding is whether market forces can be relied on as a means of ensuring that CNCP's rates for its various services are just and reasonable, to an extent sufficient to render the tariff filing and approval process an unnecessary safeguard.

With respect to Telex terminal equipment services, the Commission notes that, although CNCP may presently have a large share of the market for Telex terminal equipment, this share has been declining and the market is currently served by multiple suppliers.

With respect to network services, the Commission notes that CNCP competes with the telephone company members of Telecom Canada, other telephone companies, Telesat, B.C. Rail and resellers. The Commission notes that competitive alternatives exist for all CNCP network services. Further, CNCP's share of the telecommunications market has been declining over a ten year period.

The Commission concludes, therefore, that CNCP faces competition in all areas of its business sufficient to make it unlikely that it can raise prices to any significant degree without losing business, and, as noted in section C above, it cannot materially cross-subsidize any of its services with revenues from others.

E. Detariffing

In light of the above, the Commission concludes that, with the exception of PMS and interconnected voice services, the rates, terms and conditions associated with specific CNCP services may generally be removed from its tariffs.

In the case of PMS, having noted the long-standing public concerns relating to the service and having considered the record of this proceeding, the Commission has decided that PMS should continue to be subject to the existing tariff approval process.

CNCP's interconnected voice services will also continue to be subject to the existing tariff approval process because of the necessity of ensuring that appropriate rate relationships are maintained with directly competing services provided by the telephone companies and with MTS/WATS.

With regard to CNCP's proposal to provide 10 day advance notice of rate on other changes in relation to certain services, the Commission has carefully reviewed the arguments put forward by interveners concerning the adequacy and utility of the proposed notice. The Commission has decided that such advance notice will not be required for detariffed services since, in the Commission's view, it would be unnecessary. On the other hand, the Commission is of the view that, for PMS and interconnected voice services, advance notice of changes would not be an adequate substitute for the existing tariff approval process.

In this proceeding, CNCP has proposed that the Commission amend Telecom Order CRTC 86-514, dated 12 August 1986 (Order 86-514) in such a way that, if its application were granted, CNCP's Terms of Service would also apply generally to detariffed services. The Commission considers that, generally speaking, to the extent that market forces are sufficient to permit detariffing of the specific rates, terms and conditions applicable to certain services, market forces can also be relied on with regard to the general terms and conditions associated with those services. The Commission concludes, therefore, that it would not be appropriate to amend Order 86-514 as requested by CNCP.

The Commission reminds CNCP that the detariffing authorized by this decision pursuant to section 320(3) of the Railway Act leaves other requirements of that Act in place. For example, as noted in section A above, sections 321(1) and (2) will continue to apply. In addition, new services or changes to existing services, where brought about by an agreement required to be filed and approved pursuant to the Railway Act, are not to be implemented until such approval is obtained.

Moreover, by virtue of section 322 of the Railway Act, limitations of liability in respect of traffic will continue to require Commission approval if they are to have any effect. Therefore, to the extent that provisions limiting CNCP liability would otherwise be removed from its tariffs through implementation of the detariffing authorized by this decision, CNCP should include such limitations in a section of its General Tariff applicable to detariffed services.

In addition, the Commission notes that, except as provided for in this decision, all existing Commission decisions regarding CNCP services, including those related to attachment of terminal equipment and resale and sharing of services, will continue to apply. Accordingly, to the extent that tariff provisions reflecting such decisions would otherwise be removed from CNCP's tariffs through implementation of the detariffing authorized by this decision, such provisions are to be included in a section of CNCP's General Tariff applicable to detariffed services.

Finally, the Commission notes that, in response to interrogatory CNCP(CRTC)10Dec86-213, CNCP indicated its intention to follow existing pricing policies including those pertaining to maintaining rate relationships with other services. If, with respect to the pricing of detariffed services, CNCP intends to deviate from existing rate relationships to any material extent, prior Commission approval is to be obtained through application with supporting justification.

In order to implement the detariffing authorized by this decision, CNCP should file proposed tariff revisions to remove the existing tariff pages covering all of its services except interconnected voice services and PMS, and, as noted above, to add provisions regarding existing Commission decisions and limitations of liability. Should it so desire, as a first step, CNCP may file proposed tariff revisions to simply delete the rates for these services.

Fernand Bélisle
Secretary General