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Ottawa, 7 October 1988
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Telecom Decision CRTC 88-17
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CNCP TELECOMMUNICATIONS - MACH III SERVICE AND RELATED MATTERS
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I INTRODUCTION
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On 15 July 1987, the Commission received an application, filed under Tariff Notice 426, from CNCP Telecommunications (CNCP) for the approval of tariff revisions providing for the introduction of MACH III Service. MACH III is a high-speed, digital transmission service operating at 64 kbps or at 1.544 mbps and designed for interexchange voice, data and image applications. CNCP also filed a customer service contract that would govern the provision of MACH III Service.
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On 6 August 1987, the Commission issued CRTC Telecom Public Notice 1987-43, inviting public comment on CNCP's application. In response to that public notice, Bell Canada (Bell) submitted that the proposed MACH III rates would provide a significant discount in relation to Bell's Megaroute, Megastream and Teleroute 200 Services and CNCP's Econovoice Service. Bell submitted that approval of the proposed rates would provide CNCP with an undue or unreasonable preference or advantage.
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In reply to Bell's comments, CNCP argued that price comparisons between MACH III and comparable services should be made on an end-to-end basis and that Bell's price comparisons, in considering only interexchange facilities, were misleading. CNCP submitted that it was at a disadvantage relative to Bell because of its lack of local distribution facilities. CNCP stated that, for each request for local digital facilities, it must prepare a special quote based on the cost and availability of those facilities.
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On 27 November 1987, the Commission issued Telecom Order CRTC 87-738 (Order 87-738). In that order, the Commission stated its view that rates for Mach III Service should be based on the rates for comparable existing services, namely, CNCP's Econovoice and Bell's Megastream and Megaroute. The Commission also stated its view that, for the reasons expressed 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 value of MACH III Service, when interconnected to the public switched telephone network, is less than the value of Megaroute and Megastream Services. In light of these determinations, the Commission approved the MACH III Service, but ordered CNCP to issue revised tariff pages setting out rates for MACH III Service that were no lower than the lesser of (1) the rate associated with the comparable Econovoice Service, excluding the local transmission component, or (2) 5% less than the rate associated with the comparable Megastream or Megaroute Service, excluding the local transmission component. The Commission ordered CNCP to provide supporting information showing, for representative volumes, distances and contract periods, the rates for Mach III together with the rates for comparable Econovoice and Megastream or Megaroute Services. The Commission directed CNCP to indicate all assumptions used in calculating the rates and to identify the level of discounts allowed for MACH III contract periods that were longer than those provided by Econovoice Service.
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On 7 January 1988, CNCP issued revised tariff pages for its MACH III Service and filed the supporting information required by the Commission. CNCP stated that, in its revised rate structure, MACH III DS-O Service with traditional access had been "benchmarked" to Econovoice for eight or fewer DS-O channels, and, beyond that, to Megastream. CNCP submitted that the revised rates complied with Order 87-738 and requested that the proposed rates take effect on 27 January 1988.
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On 22 January 1988, Bell filed comments concerning the revised tariff pages issued by CNCP. Bell submitted that the rates did not comply with Order 87-738 and, in addition, departed radically from the traditional relationship to Megastream rates.
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Bell submitted that, contrary to Order 87-738, CNCP had included a portion of the local transmission component with the interexchange component of MACH III Service. The company submitted that, as a result, the revisions proposed by CNCP resulted in rates that were up to 34% lower than equivalent Megastream interexchange rates and more than 60% lower than Econovoice.
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Bell stated that CNCP's revised MACH III rate structure only appeared to conform with Order 87-738. In reality, stated Bell, the configurations chosen by CNCP for its rate comparisons would have limited market application, since the charges associated with traditional access to high volume DS-O channel service would, in most cases, be bypassed in favour of the standard (DS-1) access. Bell submitted that, while the proposed MACH III rates with traditional access would be reasonably close to comparable Megastream or Econovoice rates on an end-to-end basis, the end-to-end rates for MACH III standard access configurations would be significantly below those for both the Megastream (24%) and Econovoice (27%) equivalents.
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Bell submitted that, in order to conform to the intent of Order 87-738, the interexchange components of MACH III rates should be set at 5% below those of Megastream and Megaroute, since these were the major services competing with MACH III.
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By a letter dated 25 January 1988, the Commission directed CNCP to respond to Bell's comments within twenty days. The Commission also stayed the implementation of Order 87-738, whereby the Commission had approved MACH III Service.
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In its reply, filed 12 February 1988, CNCP reiterated several of the arguments that it had submitted in its 7 January 1988 filing. In response to Bell's argument that CNCP would always quote lower cost standard access, rather than traditional access, to high volume DS-O channel service configurations, CNCP stated that a significant part of its market depended on traditional access. In support of its position, CNCP stated that its own capability to offer standard access was limited and that Bell refused to provide it with local digital facilities. CNCP submitted that it must price standard access on a case-by-case basis and that its charges would likely be higher than Bell's.
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By letter dated 21 April 1988, the Commission advised CNCP of its finding that, if standard access to high volume DS-O channel service configurations were used, the end-to-end charges for MACH III Service would be unacceptably low in relation to Econovoice and similarly equipped Megastream Services. On this basis, the Commission denied CNCP's MACH III rates. The Commission noted that CNCP's arguments in support of its MACH III rating approach arose from CNCP's concerns about being unable to provide standard access facilities to customers for its MACH III DS-O channel services at competitive rates. The Commission informed CNCP that, by letter dated 14 April 1988, it had requested Bell to file amendments to Tariff CRTC 7476 that would allow the provision to CNCP of local digital facilities, thus permitting CNCP to provide its customers with digital access at competitive rates. The Commission noted that such an amendment would modify the underpinnings of Order 87-738 by providing CNCP with greater certainty as to the costs of these facilities. CNCP was therefore requested to recalculate its rate relationships for MACH III Service so as to include the local transmission component. CNCP was directed to refile rates for MACH III Service that, on an end-to-end basis, would be no lower than the lesser of (1) the rate associated with the comparable Econovoice Service, or (2) 5% less than the rate associated with the comparable Megastream or Megaroute Service. CNCP was also directed to provide supporting information similar to that required by Order 87-738, including rate comparisons based on the lowest cost MACH III Service configurations, on an end-to-end basis.
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On 6 May 1988, Bell filed Tariff Notice 2752 requesting approval of an amendment to Interconnect Tariff 7476 that would permit the provision to CNCP, at General Tariff rates, of local digital facilities for interconnect purposes. This amendment would, among other things, enable CNCP to provide DS-1 access to MACH III Service. The Commission granted interim approval to Tariff Notice 2752 in Telecom Order CRTC 88-316, dated 30 May 1988.
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On 16 June 1988, Bell filed a complaint that CNCP had been providing MACH III Service to customers and had been quoting the July 1987 rates that the Commission had denied. By letter dated 20 June 1988, the Commission asked CNCP to comment on Bell's complaint. CNCP replied on 23 June 1988, acknowledging that it had been providing MACH III Service without the Commission's approval. It justified its actions by referring to the "protracted process" of tariff approval. CNCP also acknowledged that it had been quoting the July 1987 rates in order "to provide consistency between all proposals". CNCP informed the Commission that the revised MACH III rates ordered by the Commission's 21 April 1988 letter would be filed by 7 July 1988 and that, once the tariffs were approved, all current MACH III customers would be migrated to the approved tariff.
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On 30 June 1988, Bell filed Tariff Notice 2800, seeking approval for a Special Facilities Tariff for the provision of a discount Megastream Service to a particular customer. Bell submitted that the application was prompted by competitive necessity, since CNCP had offered to provide MACH III Service to that same party at the rates proposed in CNCP's July 1987 filing. Bell stated that the rates filed in Tariff Notice 2800 were set 5% above the rates quoted by CNCP. The Commission deferred ruling on Bell's application until the question of CNCP's MACH III rates had been resolved.
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On 7 July 1988, CNCP filed revised MACH III Service rates, including rates for the Subscriber Premises Hub, under Tariff Notice 443. In addition, on 28 July 1988, CNCP filed Tariff Notice 444, proposing rates for the provision of MACH III Service to the customer referred to above. The rates proposed under Tariff Notice 444 were similar to MACH III rates previously denied by the Commission.
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In Tariff Notice 443, CNCP submitted that its proposed rates meet the direction established in the Commission's 21 April 1988 letter that MACH III rates, on an end-to-end basis, be no lower than the lesser of the rate for the comparable Econovoice Service or 5% below the rate for the comparable Megastream or Megaroute Service. CNCP stated that there were small variances from the directive, which had been minimized to the extent possible, because interexchange mileage rates are the same whether standard or traditional access is used.
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On 25 July 1988, Bell filed comments on CNCP's application. Bell submitted that, in many instances, CNCP's proposed rates would result in end-to-end pricing that would be at variance with the Commission's 21 April 1988 direction. Bell further submitted that these variances would be of sufficient magnitude to require the denial of the application.
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CNCP filed its reply in a letter dated 4 August 1988. CNCP submitted that its proposed rates, on balance, comply with the Commission's direction. CNCP stated that the direction had established two benchmarks for MACH III Service rates, and reiterated its view that, because of the anomalies in the rate relationship between Econovoice and Megastream in relation to distances, volumes and contract terms, there were small variances from those benchmarks that had been minimized to the extent possible. CNCP restated its 15 July 1987 position that MACH III has been price positioned in relation to Econovoice and Teleroute 200, and that the additional Megastream parameter was designed to ensure that rate relationships would be maintained for comparable interexchange voice services.
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CONCLUSIONS
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The rates proposed by CNCP in its January 1988 filing were denied because of the numerous configurations that resulted in significant variances from the criteria set out in Order 87-738, particularly in relation to high volume DS-O channel services with DS-1 access. In its direction of 21 April 1988, the Commission amended its criteria to apply to end-to-end rating in order to take into account Bell's impending filing of a digital services interconnect tariff. The Commission continues to be of the view that approval of the Bell digital services interconnect tariff permits CNCP to provide DS-1 access, thereby ensuring a more rational basis for rate relationships.
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Despite the Commission's specific requirement that, on an end-to-end basis, rates for the provision of MACH III Service be no lower than the lesser of the rate for the comparable Econovoice Service or 5% less than the rate for the comparable Megastream or Megaroute Services, the rates that CNCP has proposed under Tariff Notice 443 give rise to scenarios wherein MACH III rates are up to 13% below comparable Megastream Service and 30% below comparable Econovoice Service. The Commission considers such variances to be of sufficient magnitude and number that the proposed rates clearly fall outside of the Commission's direction. Tariff Notice 443 is therefore denied.
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In the Commission's view, by repeatedly submitting MACH III rates that do not meet the Commission's criteria, CNCP has created considerable uncertainty for potential users of high speed digital services. That uncertainty has been compounded by the fact that potential customers have been quoted rates that have not been approved by the Commission.
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Under these circumstances, the Commission considers that it must provide more specific guidelines for the rating of CNCP's MACH III Service. The Commission notes that CNCP has in its tariffs the same rates for interconnected voice analogue interexchange channels as are contained in the tariffs of Bell. CNCP's tariffs, however, provide for discounts of 5% or 10%, depending on volume. In light of the record of this proceeding, the Commission has concluded that, in order to ensure just and reasonable rates for all subscribers of high speed digital services, it must impose a similar regime for the setting of MACH III rates. Accordingly, the Commission directs CNCP to file for approval by 14 October 1988, with a proposed effective date seven days thereafter, tariff pages specifying rates for MACH III Service that are identical in every respect to Bell's comparable Megastream or Megaroute Service, as applicable, including access arrangements. The tariff pages shall specify that a 5% discount applies to these rates. In addition, the tariff pages shall contain the Subscriber Premises Hub rates proposed in Tariff Notice 443.
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The Commission approves the MACH III customer service contract as revised by CNCP's filing of 3 May 1988. CNCP is directed to indicate in its tariff pages that MACH III Service is provided pursuant to this contract. In addition, the tariff pages shall set out Item 4 of the contract.
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The Commission views with considerable concern CNCP's repeated charging of tolls for MACH III Service that have not been approved by the Commission. The Commission notes that CNCP has charged tolls for MACH III Service that have been denied by the Commission, in violation of the Railway Act. The Commission reminds CNCP that, under sections 343(1), 376(1), 380 and 395, it can prosecute CNCP, its directors and its officers for such violations. In this regard, the Commission directs CNCP to file, by 6 December 1988, a sworn affidavit from a senior officer, listing all customers to whom, as of the date of the affidavit, CNCP is supplying Mach III Services. The affidavit shall include a description for each customer of the Mach III Service or Services being provided (including channel quantities, termination points and tandem points), and attest that, as of the date of the affidavit, those customers are being charged the approved tariff rates for all such services.
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The Commission notes that, under Tariff Notice 444, CNCP is proposing to offer a service equivalent to MACH III at rates that were previously denied by the Commission. The Commission notes further that Tariff Notice 444 was filed when there were no approved General Tariff rates for the provision of MACH III Service. The issuing of revised tariff pages pursuant to this decision will eliminate any justification for the provision of MACH III Service under a Special Facilities Tariff. Accordingly, CNCP Tariff Notice 444 is denied.
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The Commission notes that this decision has eliminated the competitive necessity cited by Bell in support of the discount Megastream service proposed in Tariff Notice 2800. There being no further justification for this discount service, Bell Canada Tariff Notice 2800 is also denied.
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Fernand Bélisle
Secretary General
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