ARCHIVED -  Telecom Decision CRTC 91-20

Telecom Decision

Ottawa, 29 November 1991

Telecom Decision CRTC 91-20

TELEGLOBE CANADA INC. - PROPOSED AMENDMENTS TO THE INTERCONNECTION AND OPERATING AGREEMENT WITH TELECOM CANADA

I BACKGROUND

On 23 May 1991, Teleglobe Canada Inc. (Teleglobe) filed an application seeking approval, by 1 July 1991, of proposed amendments to the Interconnection and Operating Agreement (the Agreement) between itself and the members of Telecom Canada. In a letter to Teleglobe dated 4 June 1991, the Commission determined that the proposed amendments should be considered in the proceeding initiated by Teleglobe Canada Inc. - Regulation After the Transitional Period, CRTC Telecom Public Notice 1990-102, 20 December 1990 (Public Notice 1990-102), in view of the potential significant impact of the proposed amendments on Teleglobe's financial performance and on the Commission's regulation of the company.

The proposed amendments include:

(1) $0.045 per minute reductions in the existing settlements payable by Teleglobe to Telecom Canada, effective 1 January 1991 for Canadian-billed International Telephone Service (ITS) traffic and 1 October 1991 for foreign-billed ITS traffic;

(2) effective 1 July 1991, provisions (a) giving Telecom Canada members the option of offering, subject to tariff approval, Canada to overseas Optional Calling Plans (OCPs) at rates discounted in relation to ITS rates, and (b) making Telecom Canada members responsible for the structure and level of collection rates for OCPs; and

(3) a new settlement arrangement for Canadian-billed traffic, effective 1 July 1991, whereby Telecom Canada would retain the balance of collection revenues after remitting country-specific payments (the proposed remittances) to Teleglobe.

By letter dated 12 August 1991, following various requests by Bell Canada (Bell), British Columbia Telephone Company (B.C. Tel) and Teleglobe for interim approval of the proposed amendments, in whole or in part, the Commission stated that, due to the significance of the proposed amendments and their potential relationship to matters before the Commission in the proceeding initiated by Public Notice 1990-102, it would be inappropriate to grant interim approval to the proposed amendments in advance of considering related evidence and argument that may be submitted in the larger proceeding. Accordingly, the Commission denied the requests for interim approval. The Commission indicated, however, that it is generally of the view that reductions in domestic settlement rates are appropriate.

The public hearing in the proceeding initiated by Public Notice 1990-102 was held from 12 August to 28 August 1991. By letter dated 17 September 1991, Teleglobe requested that the proposed amendments be approved forthwith, given that (1) the proposed amendments are consistent with the Commission's general view that reductions in domestic settlement rates are appropriate, (2) the proposed amendments represent a first step in what Teleglobe regards as the already long-delayed process of reducing domestic settlement rates, (3) any further delay may have a significant negative financial impact on the company, and (4) there was no significant intervener argument opposing approval in the proceeding initiated by Public Notice 1990-102.

In commenting on Teleglobe's letter of 17 September 1991, the Canadian Bankers' Association and the Competitive Telecommunications Association (CTA) noted that, in the proceeding initiated by Public Notice 1990-102, they had made representations opposing the proposed amendments.

The Commission has now had an opportunity to consider evidence and argument related to the proposed amendments in the context of the larger proceeding. Accordingly, and in light of Teleglobe's request of 17 September 1991 regarding the approval date for the proposed amendments, the Commission considers it appropriate to issue this separate Decision with respect to the proposed amendments.

II APPROPRIATENESS OF THE PROPOSED AMENDMENTS

The payments proposed to be remitted from Telecom Canada members to Teleglobe, effective 1 July 1991, relate to the delivery of Telecom Canada-originated OCP traffic as well as regular ITS traffic. In final argument, CTA noted Teleglobe's statement that the average difference between the proposed remittances and Globedirect tariffed rates is related to billing functions included in the Globedirect tariff. CTA stated that Teleglobe appears to have attempted to eliminate any price discrimination between the proposed remittances and Globedirect rates. However, CTA contended that differences in the access arrangements provided to Telecom Canada and those provided to Globedirect users result in the proposed remittances being discriminatory. CTA stated that OCPs provide for discounts for a fully interconnected public switched telephone network service, while Globedirect provides limited private line access to the Teleglobe network. In CTA's opinion, resellers using Globedirect have inferior access to Teleglobe's network relative to that provided to Telecom Canada members under the Agreement.

CTA submitted further that, if the Commission approves the OCP remittances, it will be giving Telecom Canada members a significant advantage over resellers who use Globedirect to provide international service. CTA considered that the recent applications for the introduction of Advantage Overseas demonstrate that Telecom Canada members will exercise their control over collection rates by pricing at a level that may prevent resellers from using Globedirect. CTA requested that the proposed OCP provisions be denied.

The Commission notes that the proceeding leading to Applications by Fonorola Inc. and ACC Long Distance Ltd., Telecom Decision CRTC 90-19, 4 September 1990 (Decision 90-19), was initiated by applications from resellers to acquire interconnection with Teleglobe on a basis equivalent to that provided to the members of Telecom Canada. In Decision 90-19, the Commission determined that approving an interconnection agreement between Teleglobe and resellers would be inconsistent with the existing regulatory regime. Under this regime, carriers interconnect their facilities pursuant to interconnection agreements or tariffs in order to provide services. Resellers, on the other hand, lease services from the carriers subject to applicable tariffs and to the underlying interconnection agreements or tariffs.

In Decision 90-19, the Commission ruled that approval of an alternative form of access to Teleglobe's network would be in the public interest and that the arrangement then in place, under which the only way to access Teleglobe's network was by way of Telecom Canada's Message Toll Service (MTS) network, constituted an undue preference. The Commission stated that the implementation of Decision 90-19 would, among other things, require the filing by Teleglobe of a tariff applicable to those who access its network through private lines, and that the rates specified in those tariffs should, relative to the existing ITS rates applicable to conventional customers, exclude amounts retained by Telecom Canada.

In response to Decision 90-19, Teleglobe filed its Globedirect tariff. The Commission was satisfied that the proposed Globedirect rates met the requirements of Decision 90-19 and bore an appropriate relationship to the existing settlement arrangements between Teleglobe and Telecom Canada. Consequently, in Telecom Order CRTC 91-380, 19 March 1991, the Commission approved the proposed Globedirect rates.

The Commission notes that, on average, the proposed remittances are essentially equal to current ITS rates, less the amount that would be retained by Telecom Canada under the $0.045 per minute reduction in Canadian-billed settlement rates proposed to take effect 1 January 1991. The evidence submitted by Teleglobe indicates that the average per minute difference between Globedirect rates and the proposed remittances are more than accounted for by costs incurred by Teleglobe in the provision of Globedirect that are not incurred with respect to its interconnection arrangement with Telecom Canada. In light of the above, the Commission finds that the proposed remittances are not unjustly discriminatory relative to Globedirect rates.

As indicated in its letter of 12 August 1991, the Commission is generally of the view that reductions in settlement rates are appropriate. Consistent with this view, the Commission considers appropriate the proposed reductions of $0.045 per minute in Canadian-billed settlements, effective 1 January 1991, and in foreign-billed settlements, effective 1 October 1991.

The Commission notes that the proposed amendments to the Agreement do not define the specific terms of OCPs or give effect to OCPs. The terms and conditions of any OCPs will be considered by the Commission once applications for the approval of such plans are filed. The Commission notes that, in CRTC Telecom Public Notice 1991-70, 26 August 1991, it provided for the addressing of interrogatories and the filing of comments by interested parties with respect to the applications of AGT Limited, Bell, B.C. Tel and The New Brunswick Telephone Company Limited to introduce Advantage Overseas.

Given the Commission's finding that the proposed remittances are not unjustly discriminatory and the regulatory scrutiny that will apply to applications relating to OCPs, the Commission considers appropriate those provisions in the amended Agreement giving Telecom Canada members the opportunity to offer OCPs at rates for which they would be responsible.

However, the Commission has other concerns with respect to the proposed amendments. Specifically, under the remittance settlement arrangement for Canadian-billed traffic proposed to take effect 1 July 1991, Teleglobe's net operating revenues for Canadian-billed traffic would no longer be directly determined by the level of collection rates. Rather, they would be determined primarily by the level of the remittances, changes to which would be subject to the agreement of both Teleglobe and Telecom Canada. Therefore, the Commission would be unable simply to prescribe collection rates that would result in Teleglobe earning its determined revenue requirement or its allowed rate of return. A negotiated amendment to the Agreement altering the remittances would also be required.

Under the Railway Act, the Commission has the authority to require "companies", within the meaning of that Act, to substitute tolls satisfactory to the Commission or to prescribe tolls in lieu of any tolls that it has disallowed. However, with respect to proposed working agreements, it is considerably less certain that the Commission has the authority to require companies to substitute terms and conditions satisfactory to the Commission or to prescribe terms and conditions in place of those that it has disallowed. The Commission has, to date, merely approved or denied proposed agreements and has, on occasion, indicated the nature of terms or conditions that it would be prepared to approve. As noted in Telesat Canada, Proposed Agreement with Trans-Canada Telephone System, Telecom Decision CRTC 77-10, 24 August 1977:

As regards the nature of the Commission's jurisdiction under [section 338] of the Railway Act, the question arose as to whether the Commission must simply approve or not approve agreements before it or whether it may also alter or amend proposed agreements. Although [sections 60 and 61 of the National Telecommunications Powers and Procedures Act (NTPPA)] provide the Commission with certain ancillary powers to condition its approval on the performance of terms or to grant partial, further or other relief, these do not in the Commission's view empower the Commission to require applicants to enter into a different agreement than that presented under [section 338].

In this respect the Commission agrees with the contention of the applicants in the present case, concurred in by most of the interveners, that the Commission's basic jurisdiction is limited to that of approving or withholding approval of the present Agreement.

The Commission notes that the proposed amendments include a clause specifying that, in the event of a collection rate reduction, Teleglobe undertakes to negotiate with Telecom Canada an appropriate reduction in the amount(s) to be remitted by Telecom Canada for Canadian-billed traffic in keeping with the collection rate reduction. Teleglobe stated that it does not foresee any difficulty in negotiating reductions in the remittances with Telecom Canada, given that the reductions would not have a negative impact on Telecom Canada's revenues and the associated collection rate reductions would benefit all parties.

Teleglobe's view was that the proposed amendments would not compromise the Commission's regulatory authority. In response to interrogatories, Teleglobe submitted that various provisions of the NTPPA and the Railway Act would give the Commission authority to force a change in settlement rates.

Bell supported Teleglobe's view that the current wording of the amendment would not impede the Commission's ability to regulate Teleglobe's earnings effectively. Bell expected that expeditious changes to the remittances could be effected in the event of Teleglobe collection rate reductions. Bell indicated, however, that it is prepared to work with other members of Telecom Canada and Teleglobe to modify the Agreement so as to link reductions in remittances more closely to reductions in collection rates.

In CTA's view, the proposed amendments to the Agreement would remove the Commission's power to regulate Teleglobe directly.

The Commission is not persuaded that provisions of the NTPPA and the Railway Act provide it with authority to ensure that remittances specified in an approved Agreement could be changed with a specific effective date, by a specified amount and with a minimum of delay due to negotiations or to the regulatory process. Furthermore, the clause proposed in the amended Agreement linking collection rate and remittance rate reductions does not specify an exact relationship between the two, nor does it stipulate a time within which negotiations would have to be completed. The proposed clause is not precise enough to alleviate the Commission's concerns regarding its ability to implement decisions with respect to Teleglobe's revenue requirement or its allowed rate of return, thereby ensuring just and reasonable rates.

Teleglobe stated that the proposed Canadian-billed settlement methodology is transitional in nature and that it expects to replace outbound settlement arrangements in the second quarter of 1992 with a gateway access tariff that would provide access to Teleglobe's international facilities. However, in the Commission's judgment, implementation of such a tariff at that time is not certain. Prior to a gateway access tariff coming into effect, negotiations will be required in order to remove settlement arrangements for outbound traffic from interconnection agreements. In addition to the time required to develop the gateway access tariff and negotiate the required amendments to interconnection agreements, objections may arise concerning the specific form of such a tariff once it is filed for the Commission's approval. As well, it will likely be necessary for regulated service providers to develop and implement ITS collection tariffs.

In light of the uncertainties described above, the Commission finds that the proposed arrangement could undermine its ability to set just and reasonable rates. The Commission does not consider it appropriate, even on an interim basis, to implement such an arrangement. Accordingly, the proposed amendments to the Agreement are denied. However, the Commission would be prepared to grant expeditious approval to an amended Agreement that included the following:

(1) the proposed reduction of $0.045 per minute to the Canadian-billed settlement effective 1 January 1991;

(2) the proposed reduction of $0.045 per minute to the foreign-billed settlement effective 1 October 1991;

(3) the proposed provisions for the offering by Telecom Canada of OCPs; and

(4) either (a) the existing settlement method for Canadian-billed traffic, or (b) the proposed settlement method and proposed remittances for Canadian-billed traffic, to take effect 1 July 1991, modified to include a mechanism, also to take effect 1 July 1991, linking collection rate reductions resulting from a Commission finding that Teleglobe's revenues should be reduced (for revenue requirement reasons), to coincident reductions in remittances paid by Telecom Canada to Teleglobe for Canadian-billed traffic.

The Commission contemplates that the mechanism referred to in 4(b) would link the absolute dollar reduction in the weighted average collection rate per minute to an equal absolute dollar reduction in the weighted average remittance per minute. It would define the relationship between collection rate reductions and remittance rate reductions only in instances where collection rate reductions were designed to implement a Commission finding that a reduction in Teleglobe's revenues is necessary for reasons related to Teleglobe's revenue requirement.

The Commission envisages that the mechanism referred to in 4(b) would work in the following way:

(1) if there were no proposed changes in either remittances or collection rates before the Commission, and the Commission were to find that Teleglobe's revenues must be reduced, the mechanism would link prescribed reductions in existing collection rates to reductions in existing remittances;

(2) if there were proposed changes in collection rates, but not in remittances, before the Commission, and the Commission were to find that Teleglobe's revenues must be reduced, the mechanism would link prescribed reductions in proposed collection rates to reductions in existing remittances;

(3) if there were proposed changes in collection rates and remittances before the Commission, and the Commission were to find that Teleglobe's revenues must be reduced, the mechanism would link prescribed reductions in proposed collection rates to reductions in proposed remittances; and

(4) if there were proposed changes in remittances, but not in collection rates, before the Commission, and the Commission were to find that Teleglobe's revenues must be reduced, the mechanism would link prescribed reductions in existing collection rates to reductions in proposed remittances.

The Commission notes that the mechanism described above would not preclude an agreement to reduce the amount of collection revenue per minute that Telecom Canada retains, and the resulting reductions in collection rates or remittances (the latter due to demand stimulation). Such an agreement could only be implemented through changes in either collection rates or remittances. Should proposed changes in either or both result in the Commission determining that Teleglobe's revenues must be reduced, the mechanism would apply as described in (2), (3) or (4), above.

Regarding the possibility that Teleglobe and Telecom Canada may elect to retain the existing settlement method for Canadian-billed traffic, the Commission notes that, while the proposed change in settlement arrangements for Canadian-billed traffic would complement the OCP provisions, Teleglobe indicated that the remittance arrangement was not a precondition to Teleglobe's agreement to the proposed OCP provisions.

III ANTICIPATED ACCESS TARIFFS

In final argument, Teleglobe requested that the Commission indicate its support for the concept of Teleglobe making gateway access tariffs available to domestic service providers for outbound traffic, coincident with domestic service providers making similar tariffs available to Teleglobe for inbound traffic.

CTA submitted that the Commission should give full approval to the concept of the gateway access tariff for outbound traffic and urge Teleglobe to proceed with an application at the earliest date.

Bell stated that no substantive discussions have yet been held between Telecom Canada and Teleglobe pertaining to the establishment of an inbound termination tariff. Bell's view was that this matter should be addressed following negotiations that result in a specific proposal.

The Commission considers the establishment of a gateway access tariff for outbound traffic to be generally appropriate. Such a tariff would enable the Commission to implement a specific Teleglobe revenue requirement, ensuring that it maintains the authority to regulate Teleglobe in a manner consistent with its obligation to ensure that rates are just and reasonable. In addition, such a tariff would provide the domestic service providers with greater flexibility in designing and packaging services for their customers and, by eliminating the requirement for negotiations with respect to outbound settlement rates, reduce the potential for protracted negotiations or settlement disputes.

The Commission notes that, in Exhibit TCI 91-800 and in its responses to the Commission's interrogatories of 21 June 1991, Teleglobe indicated that there is an agreement in principle between itself and Telecom Canada to reduce, over the next 3 to 5 years, the domestic settlements paid to Telecom Canada to a level that will reflect the prevailing Canada-Canada MTS rate schedule at that time. Teleglobe also indicated that, conceivably, the inbound settlement rates could be included in the tariffs of the federally regulated telephone companies and adjusted on a yearly basis to reflect prospectively the most recent inbound traffic patterns and prevailing Canada-Canada MTS rates.

Teleglobe's desire for an indication of the Commission's views on the appropriateness of the coincident establishment of inbound tariffs was not made known until well into the proceeding. As a result, parties may not have had adequate notice of the issue. The Commission is of the view that the potential implications of adopting an inbound termination tariff received a less than adequate consideration during this proceeding.

The Commission notes that an inbound termination tariff, like a gateway access tariff for outbound traffic, may eliminate the need for negotiations with respect to the applicable settlement rates, thus reducing the potential for protracted negotiations or settlement disputes. However, given the timing of Teleglobe's request, the Commission is of the view that further examination of the question of establishing an inbound termination tariff would be required before the Commission would be prepared to make any determination as to its general appropriateness.

Allan J. Darling
Secretary General