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Ottawa, 30 September 1988
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Telecom Decision CRTC 88-16
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BELL CANADA - ALEX MARKET TRIAL
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I BACKGROUND
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On 13 April 1988, the Commission received an application from Bell Canada (Bell), under Tariff Notice 2727, for approval of tariff revisions providing for a market trial of a new enhanced videotex service called ALEX. ALEX is described as a network-based gateway service which, through a Bell-provided videotex terminal or suitably equipped personal computer, allows customers to access various electronic information and transaction services, including an electronic telephone directory service that Bell itself proposes to offer. Bell is proposing a two year market trial of ALEX, with up to twenty thousand subscribers, in the Montréal area. In its application, Bell submitted cost and revenue information concerning the market trial.
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In CRTC Telecom Public Notice 1988-22, dated 30 May 1988, the Commission invited interested persons to comment on the application. The following submitted comments: Association of Competitive Telecommunications Suppliers (ACTS), Canadian Business Telecommunications Alliance (CBTA), Canadian Daily Newspaper Publishers Association (CDNPA), Centre d'Excellence en Télécommunications Intégrées (CETI), CNCP Telecommunications (CNCP), Consumers' Association of Canada (CAC), federal Department of Communications, Ministry of Culture and Communications of the Government of Ontario (Ontario), Perly's Maps Ltd. (Perly), Snowflake Communications Limited (Snowflake), Société de gestion du réseau informatique des commissions scolaires (GRICS), Southam Incorporated (Southam) and Dr. Kevin G. Wilson.
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II POSITIONS OF INTERVENERS
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While many of the interveners expressed general support for the application, others submitted that the application should be denied, or approved only subject to various conditions. Those supporting the application noted the potential benefits that the service could bring to various segments of society by providing new means to disseminate information. It was also pointed out that the service could provide significant opportunities for small business entrepreneurs by providing a telecommunications infrastructure through which they could develop and offer services with a minimum of capital investment. Several interveners submitted that relatively low rates and a simple rate structure are necessary for the success of such a service. In support of this position, they pointed out that these features were responsible for the success of France's similar service, Minitel.
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Of central concern to many interveners was the nature and scope of the proposed market trial. They submitted that Bell is taking advantage of its monopoly position to enter the videotex market unfairly. These interveners noted that the proposed terminal rate is non-compensatory and that the market trial revenues would recover only a small percentage of the total trial expenses. Accordingly, it was argued that Bell would be subsidizing the market trial to gain market entry and to drive out potential competitors, and that the proposed market trial is therefore anti-competitive. For these reasons, several interveners submitted that the application should be denied.
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CBTA argued that the Commission should require that ALEX be offered only through a separate subsidiary. Alternatively, CBTA submitted that, if Bell itself is allowed to offer ALEX, the company should be required to keep accounts showing all costs and revenues associated with the market trial. For regulatory purposes, the Commission should then deem revenue from ALEX to equal the cost of the service plus an appropriate rate of return.
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CETI argued that Bell is introducing ALEX under the guise of a market trial in order to gain entry into the market by charging non-compensatory rates. Accordingly, CETI is of the view that the market trial should be denied and that the service should be approved only if offered on a commercial basis and supported by a study made pursuant to Phase II of the Cost Inquiry.
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In addition, CETI objected to Bell's proposal to distribute ALEX terminals through its Téléboutiques, while refusing competitors access to these outlets. CETI also raised issues relating to Bell's use of its own billing envelopes for promotional purposes, to the company's delay in providing automatic number identification (ANI) and to its opening of a new NXX code for the market trial without developing tariffed rates for offering distinct NXX codes to other gateway service providers.
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ACTS expressed concern with respect to the size and scope of the trial and submitted that ALEX should be allowed to proceed only upon the filing of a Phase II study and only with compensatory rates.
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Several parties expressed concern with respect to the provision by Bell of electronic telephone directory services. These interveners submitted that the Bell Canada Act and Enhanced Services, Telecom Decision CRTC 84-18, 12 July 1984 (Decision 84-18), all contain similar restrictions requiring Bell to act solely as a common carrier and prohibiting Bell from influencing the meaning or purpose of the messages transmitted. They submitted that, while the provision of white pages information is clearly related to Bell's common carrier function, the provision of Yellow Pages information is not.
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III BELL'S REPLY
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In reply to the submission that its proposed rates are non-compensatory, Bell argued that tests to determine whether rates are compensatory are not normally conducted for a market trial. Bell also noted that it had demonstrated that the market trial revenues recover the tariffed rates for all underlying basic services, as directed in Decision 84-18.
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In reply to the submission that its terminal rate is non-compensatory and thus anti-competitive, Bell submitted that a pre-condition to the existence of an adequate market for competitive terminal supply is the establishment of a viable videotex mass market. Bell submitted further that an affordable terminal rate is the only way to ensure such a mass market.
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Bell submitted that it would be inappropriate to require that ALEX be offered through a separate subsidiary and that such a requirement could directly affect the ultimate viability of the trial. Bell also submitted that the Commission had stated in Decision 84-18 that to require the carriers to offer enhanced services only through a separate subsidiary could unduly constrain their ability to take advantage of technological change and innovation.
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In reply to CBTA's submission that the Commission should impute revenues from the trial for regulatory purposes, Bell submitted that such an approach would be extremely complex, impractical, and unwarranted given the procedures established by Phase III of the Cost Inquiry. Bell also pointed out that the proposal would amount to an extraordinary treatment of a market trial and would be inconsistent with the treatment of any individual service offered by Bell.
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With respect to the provision of electronic directory services, Bell explained that, in the proposed market trial, it would be the provider of the White Pages and of the basic classified listings in the Yellow Pages. Bell stated that its subsidiary, Tele-Direct (Publications) Inc. (Tele-Direct), as a service provider, may offer Yellow Pages advertising. Bell noted that Tele-Direct would be subject to the same charges and contractual provisions as any other information provider. Bell submitted that the Decision 84-18 prohibition on electronic publishing does not restrict it to providing only White Pages, and that to interpret Decision 84-18 in such a way would be unnecessarily restrictive.
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In reply to CETI's submission regarding the use of Téléboutiques to distribute ALEX terminals, Bell argued that it would be unreasonable for competitors to expect to obtain access to these facilities and that Bell is entitled to market its products and services through the distribution channels it considers appropriate. In reply to other points raised by CETI, Bell stated that, in response to identified demand and upon assessment of feasibility and economic viability, it had made ANI and dedicated NXX codes available to service providers at tariffed rates appropriate to their specific applications. Bell noted that it would have considered a request from CETI for these features, but CETI had chosen to launch its commercial service in a different manner. With respect to CETI's complaint concerning Bell's use of billing envelopes, the company referred to Decision 84-18, where the Commission stated that it was not persuaded that any undue benefits accrued to the carriers from their use of billing inserts.
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IV CONCLUSIONS
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The Commission agrees with the view of many of the interveners that videotex services such as ALEX are useful and have the potential to benefit many segments of society. The Commission also agrees with Bell and several interveners that, in order to be successful, such videotex services must attract a very large customer base and that low entry and transaction rates are required in order to attract such a base. Accordingly, while it is possible that a service such as ALEX may experience a long period of unprofitability before a sufficient customer base is established, the Commission considers that it is in the public interest for Bell to be provided an opportunity to undertake to offer the service.
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In light of the above, the Commission is satisfied that a market trial for ALEX of the size and nature proposed by Bell is warranted. However, the Commission finds that the size and nature of that trial necessitate special precautions in order to ensure that rates for Bell's other services are not affected and that the company does not accord itself an undue advantage over competitors through the use of cross-subsidies from other services.
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The Commission notes that requiring ALEX to be offered through a separate subsidiary, as suggested by various interveners, would ensure that rates for other services are not affected, notwithstanding the sizeable costs of the proposed market trial and the small percentage of those costs that will be recovered during the trial. However, in the Commission's view, appropriate cost tracking, forecasting and rate adjustment mechanisms can be developed to achieve the same result. Accordingly, the Commission does not consider it necessary to preclude Bell from conducting the ALEX market trial directly.
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In this regard, the approach that the Commission considers appropriate requires the identification and forecasting of all the costs and revenues associated with the proposed ALEX market trial. The Commission is of the view that useful estimates of ALEX costs can be developed in order to express the forecast impact of the market trial in revenue requirement terms. For this purpose, the Commission considers it appropriate to use tariffed rates, where applicable, as proxies for those costs.
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The Commission's approach would require the company to submit annually the forecast revenue requirement impact of the trial for the following calendar year. In addition, the company would be required to file, on a quarterly basis, tracking information on the ALEX service and a forecast of the revenue requirement impact for the remainder of the calendar year.
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The Commission notes that Tele-Direct is likely incurring costs associated with the development of ALEX. These costs directly influence Bell's revenue requirements. Thus, any ALEX market trial costs incurred by Tele-Direct and all related revenues accruing to Tele-Direct would have to be included in the revenue/cost information to be submitted by Bell.
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The forecasting of the impact of the ALEX market trial expressed in revenue requirement terms would permit an assessment of whether adjustments to rates for other services were necessary. The Commission's approach in making any such adjustments would vary depending upon the context. Based on the regulatory framework currently applicable to Bell, the Commission envisages regulatory responses such as the following:
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(1) if losses from the ALEX market trial were forecast to reduce Bell's rate of return below the bottom end of the approved range for the test year, the Commission could disallow any proposed rate increases intended to bring the company's rate of return within the approved range;
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(2) if the rate of return was forecast to exceed the approved upper limit, excluding any market trial losses, the Commission could reduce other rates in order to bring Bell's rate of return, excluding those losses, within the approved range;
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(3) for a test year in which revenue requirements were being established, losses associated with the market trial could be passed on to shareholders by means of the rate-setting process; and
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(4) for a year in which no revenue requirement was being established, the Commission could
order rate reductions in an amount equal to the losses forecast for the ALEX market trial. Consistent with the above, before it would be prepared to approve a market trial of the ALEX Service on an in-house basis, the Commission requires that mechanisms be in place that will enable it to ensure that rates for other services will not be affected. Accordingly, should Bell wish to proceed with the ALEX market trial on this basis, it is directed to file a comprehensive methodology that:
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(1) provides for the tracking of all costs associated with the proposed trial, including development costs;
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(2) provides for the identification and forecasting of all costs associated with the market trial and their expression in revenue requirement terms;
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(3) provides for the identification and forecasting of all revenues associated with the market trial; and
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(4) addresses the appropriate regulatory responses that could be taken, based on the revenue and cost information that would be filed, to ensure that rates for other services are not affected by the ALEX market trial.
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The company may propose alternatives to the regulatory responses envisaged by the Commission, filing reasons in each case why they are more appropriate. The company is directed to advise the Commission by 17 October 1988 whether it intends to proceed with the market trial and, if so, of the date by which it will file the above methodology.
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A further issue arises with respect to the provision by Bell of electronic directory services. A basic electronic directory service would provide the electronic equivalent of the present White Pages directory, namely, an alphabetical listing of business and residential subscribers, together with address and telephone number. A Yellow Pages directory provides a listing of businesses, sorted by type of business, and includes advertising as well as the basic listings.
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By virtue of section 8 of the Bell Canada Act, Bell is required, in the provision of services or facilities, to act solely as a telecommunications common carrier and shall not control the contents or influence the meaning or purpose of the transmitted information.
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With specific regard to the provision of enhanced services, the Commission concluded in Decision 84-18, at page 35, that:
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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 ... [electronic] data bases.
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Also, at page 36, the Commission addressed the specific issue of the provision of electronic directories by the carriers, concluding as follows:
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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.
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Based on the foregoing, the Commission considers it appropriate that Bell offer an electronic version of the White Pages directory, since to do so would be consistent with and in relation to its common carrier function. However, the Commission considers that the provision of an electronic Yellow Pages directory by Bell may violate the provisions of the Bell Canada Act and would be inconsistent with Decision 84-18. Accordingly, the Commission has concluded that Bell shall not offer electronic Yellow Pages directories.
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The Commission notes that the telephone directory data base is presently available only to Bell's subsidiary, Tele-Direct, and that the provisioning of directory services by other parties may be facilitated by the development of a General Tariff offering. In the Commission's view, the record of this proceeding is not sufficient to permit a determination with respect to issues related to such an offering. Similarly, the Commission notes that the contractual and other arrangements under which Tele-Direct provides directory services to Bell subscribers have not been fully explored. Accordingly, should the market trial proceed, the Commission will establish a public process to deal with these issues.
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In the Commission's view, Bell has adequately addressed the issues raised concerning ANI, the company's use of its billing envelopes for promotional purposes, and the opening of a new NXX code for the market trial. In addition, the Commission considers Bell's distribution of ALEX terminals through its Téléboutiques appropriate in the context of the market trial.
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A final point raised by one intervener concerns the conditions proposed by Bell in the service provider's contract. The Commission notes that Article 3, paragraph 6, of the proposed contract states, in part:
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The service provider shall not advertise or market alternative access vehicles on the ALEX service.
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The Commission considers that this contract clause is in violation of the prohibition on control of content specified in the Bell Canada Act and must, therefore, be deleted from the contract.
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Fernand Bélisle
Secretary General
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