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Telecom Public Notice
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Ottawa, 23 April 1990
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Telecom Public Notice CRTC 1990-37
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BELL CANADA - APPLICATION TO REVIEW AND VARY TELECOM DECISION CRTC 90-3, RESALE AND SHARING OF PRIVATE LINE SERVICES
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I BACKGROUND
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In Resale and Sharing of Private Line Services, Telecom Decision CRTC 90-3, 1 March 1990 (Decision 90-3), the Commission determined that to permit a facilities-based carrier to lease services to an affiliate for purposes of sharing or reselling interconnected interexchange voice services on a joint-use basis would be analogous to permitting facilities-based competition. The Commission concluded that such an affiliate would not be subject to the economic constraints that apply to other resellers and limit uneconomic entry and contribution erosion. The Commission's particular concern was that the combined return of a facilities-based carrier and its resale affiliate would be determined by the cost of providing underlying facilities to the affiliate, rather than by the price paid by the affiliate to the carrier for facilities. Therefore, the margin between rates for Message Toll Service (MTS) and rates for private line services would not be a factor in the decision to enter the resale market. Rather it would be the margin between MTS rates and the facilities-based carrier's marginal costs for private line services. As a result, to the extent that rates for certain private line services exceed their marginal costs, the affiliated reseller could offer larger discounts than other resellers, thus increasing any negative impact of more liberalized resale on Bell Canada (Bell) and British Columbia Telephone Company (B.C. Tel).
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Moreover, since a carrier affiliate could offer greater discounts, it could focus on price competition, as opposed to competition on a value-added basis. Therefore, the Commission determined that a facilities-based carrier would not be permitted to lease interexchange services directly or indirectly to an affiliated company for resale for joint use or sharing, except where those services would be used exclusively to provide data services or portable communications services. The Commission did not preclude a carrier affiliate from entering the resale market using the facilities of carriers other than the one with which it is affiliated.
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The rules governing resale and sharing are set out in the Appendix to Decision 90-3. Section 3(d) of the rules states that:
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Interexchange private line services shall not be provided to an affiliate of the Company, or to a sharing group which involves one or more persons who is an affiliate of the Company, where such services would be resold on a joint-use basis or shared to provide interexchange interconnected voice services, except where such services would be used only to provide portable communications services.
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The definitions applicable to the rules are set out in section 1 of the Appendix. The relevant definitions state that:
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'affiliate' means any person that controls or is controlled by the Company or that is controlled by the same person that controls the Company;
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'control' includes control in fact, whether or not through one or more persons.
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II BELL'S APPLICATION
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On 27 March 1990, Bell filed an application pursuant to section 66 of the National Telecommunications Powers and Procedures Act (NTPPA) requesting that the Commission review and vary that part of Decision 90-3 dealing with the restrictions on carrier affiliates.
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In its application, Bell stated that Decision 90-3 and the record of the proceeding leading to it considered only the potential for entry by affiliated resellers established by the carriers themselves. It was Bell's view that Decision 90-3 and the record upon which it is based do not disclose any consideration of the possibility that a reseller might invest in a facilities-based carrier, regardless of control considerations, in order to achieve an economic advantage. Bell stated that a reseller could invest in a carrier in such a way as to avoid control considerations, and be in precisely the position that the Commission seeks to prohibit. Bell cited Rogers Communications Inc. (RCI) as an example, stating that, in view of its existing relationship with CNCP Telecommunications (CNCP), it might be covered by the definition of "control" contained in the rules governing resale and sharing. However, stated Bell, RCI could rearrange its participation in CNCP so that it or one of its subsidiaries would comply with the letter of Decision 90-3, while nonetheless maintaining the position that the decision seeks to prohibit. Bell cited Telesat Canada (Telesat) as another possible example. Bell noted that the federal government had expressed a desire to privatize Telesat. Bell stated that "a potential bidder for an interest in Telesat, who also had or planned to establish a reseller operation, could have an advantage over other resellers, as well as other potential bidders for Telesat, based on being able to take advantage of the situation that Telecom Decision CRTC 90-3 seeks to prohibit, by structuring its affairs to avoid 'control' of Telesat." Bell requested that the resale and sharing rules be modified to provide for these possibilities.
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In its application, Bell submitted that a new principle had arisen in Decision 90-3. That principle restricts certain persons from market entry on the basis of corporate affiliations with a facilities-based carrier. Bell submitted that substantial doubt exists as to the correctness of the Commission's decision with respect to the problem of affiliate entry. Bell further submitted that the doubt relates to one of the fundamental underpinnings of Decision 90-3, and should therefore be clarified.
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Specifically, Bell requested that the Commission vary section 1 of the Appendix to Decision 90-3 by extending the definition of "affiliate" to include related companies, i.e., those with an economic interest in a facilities-based carrier. Bell proposed the following amendments to section 1:
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'affiliate' means any person that controls or is controlled by the Company or that is controlled by the same person that controls the Company and also includes a person related to the Company.
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'related': a person is related to the Company if the person or its affiliates hold more than a 1% interest in, or any options to acquire more than a 1% interest in any of, the capital, assets, property, profits, earnings, revenues or royalties of the Company or its affiliates.
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III REGISTRATION REQUIREMENTS
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Decision 90-3 requires that resellers and sharers of jointly-used interexchange interconnected voice services register with the carriers and with the Commission prior to receiving service.
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By letter dated 27 March 1990, Bell submitted that, in order for the Commission to achieve its objectives with respect to reseller affiliates, resellers and sharers should be required to provide more than just their names and addresses. Bell submitted that the reseller or the carrier should be required to describe any relationship by way of share ownership, whereby it or the carrier in respect of which it is registering have, directly or indirectly, an interest in, or any options to acquire an interest in, each other's capital, assets, property, profits, earnings, revenues or royalties. Bell also stated that this information should be updated if any change occurs, especially should such a relationship come into existence after registration.
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IV ISSUES
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In establishing the restrictions on carrier affiliates, it was the Commission's intention to ensure that a facilities-based carrier would not indirectly enter the public long distance market through arrangements with related corporations. The restrictions are intended to apply to any person holding a significant interest in a facilities-based carrier, to any entity in which a facilities-based carrier holds a significant interest, or to any entity in which a significant interest is held by a person who also holds a significant interest in a facilities-based carrier. For example, the Commission intended to ensure that Telesat Mobile Inc. would not resell the services of Telesat and that RCI would not resell the services of CNCP in order to provide interconnected interexchange voice services on a joint-use basis.
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Given the Commission's objectives in establishing the restrictions, and in light of the submissions made by Bell in its application and in its letter, the Commission seeks comment with respect to the following:
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(1) whether Decision 90-3 should be reviewed;
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(2) whether the Commission's objectives with respect to reseller affiliates could be better
achieved by varying Decision 90-3;
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(3) whether the Commission should vary Decision 90-3 to incorporate the changes requested by
Bell, or whether other changes might better achieve the Commission's objectives; and
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(4) Bell's submissions as to the information resellers should be required to provide when
registering with the carriers and the Commission pursuant to Decision 90-3.
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V PROCEDURE
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(1) Bell, B.C. Tel, CNCP and Telesat are joined as parties to this proceeding.
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(2) Other persons wishing to be a party to this proceeding must notify the Commission of their
intention to do so by writing to the Secretary General, CRTC, Ottawa, Ontario, K1A 0N2, by
14 May 1990. The Commission will issue a complete list of parties and their mailing
addresses.
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(3) Parties may file comments with the Commission, serving a copy on all other parties, by 7
June 1990. Comments must be actually received, not merely mailed, by that date.
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(4) Parties may file reply comments with the Commission, serving a copy on all other parties, by
23 July 1990.
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Bell's application, letter and related documents may be examined at any of Bell's business offices or at the offices of the CRTC in the following locations:
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Room 201
Central Building
Les Terrasses de la Chaudière
1 Promenade du Portage
Hull, Quebec
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Complex Guy-Favreau
East Tower
200 René-Lévesque Blvd. West
6th Floor
Montréal, Quebec
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Suite 1500
800 Burrard Street
Vancouver, British Columbia
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Suite 1007
Bank of Commerce Building
1809 Barrington Street
Halifax, Nova Scotia
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Copies may be obtained by any interested person upon request directed to Mr. Peter J. Knowlton, Assistant General Counsel, Bell Canada, 25 Eddy Street, 4th Floor, Hull, Quebec, J8X 4B5.
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Rosemary Chisholm
Acting Secretary General
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