ARCHIVED -  Telecom Decision CRTC 91-3

Telecom Decision

Ottawa, 27 February 1991

Telecom Decision CRTC 91-3

APPLICATION BY CALL-NET TELECOMMUNICATIONS LTD. TO REVIEW AND VARY TELECOM ORDERS CRTC 90-1000 AND 90-1001 AND DECISIONS DATED 30 NOVEMBER 1990 AND 24 DECEMBER 1990

Table of Contents

I BACKGROUND

II CALL-NET'S CURRENT APPLICATION

A. General
B. Advantage Canada, MTS and WATS
C. Impact on the Applicant and Other Resellers
D. Equitable Treatment Under the Railway Act
E. Other Issues

III GENERAL CONCLUSIONS AND DISPOSITION

I BACKGROUND

On 25 July 1990, Bell Canada (Bell) and British Columbia Telephone Company (B.C. Tel) filed applications, under Tariff Notices 3616 and 2161, respectively, proposing the introduction of Advantage Canada discount toll service, effective 1 December 1990. The companies also proposed revisions to the rates for Message Toll Service (MTS), Wide Area Telephone Service (WATS), 800 Service, Between Friends and, in the case of Bell, Voicecom.

On 10 September 1990, the companies modified their applications, under Tariff Notices 3616A and 2161A, to reflect various tariff revisions approved by the Commission in Introduction of 800 Plus and Revisions to 800 Service and Wide Area Telephone Service Rates, Telecom Decision CRTC 90-18, 28 August 1990.

By letters dated 8 August 1990, the Commission addressed interrogatories to Bell and B.C. Tel. The companies filed responses to these interrogatories on 22 and 31 August 1990.

On 24 September 1990, the Commission granted interim approval to the applications in Telecom Order CRTC 90-1000 (Bell) and Telecom Order CRTC 90-1001 (B.C. Tel)(Orders 90-1000 and 90-1001). The basis for the interim approval was a prima facie finding that the introduction of Advantage Canada would not result in a significant reduction in contribution. The interim tariffs approved for Advantage Canada indicate that the service may not be resold or shared to provide MTS or other interexchange voice services.

On 24 September 1990, the Commission also issued CRTC Telecom Public Notice 1990-89 (Public Notice 1990-89), establishing procedures whereby the public could comment on the applications by 24 October 1990 and the companies reply by 5 November 1990. The Public Notice also indicated that the Commission would make a final determination on the applications after comments had been considered.

On 19 October 1990, Call-Net Telecommunications Ltd. (Call-Net) filed an application requesting that the Commission rescind Orders 90-1000 and 90-1001. Bell's and B.C. Tel's comments on Call-Net's application were received on 5 November 1990. Call-Net's reply comments were received on 9 November 1990. In its reply comments, Call-Net requested that any disposition of Tariff Notices 3616, 3616A, 2161 and 2161A be delayed until such time as the Commission had fully considered the issues in the proceeding established in Unitel Communications Inc. and B.C. Rail Telecommunications/Lightel Inc. - Applications to Provide Public Long Distance Voice Telephone Services and Related Resale and Sharing Issues: Scope and Procedure, CRTC Telecom Public Notice 1990-73, 3 August 1990 (Public Notice 1990-73)(the Interexchange Competition proceeding).

The Commission denied Call-Net's 19 October 1990 application by letter dated 30 November 1990. The Commission stated that the introduction of Advantage Canada can be considered a competitive response, since it is intended to retain contribution that the telephone companies estimate would otherwise be lost to resellers. The Commission concluded in its letter that its prima facie finding that the introduction of Advantage Canada would not result in a significant reduction in contribution was well founded and provided an appropriate basis for granting interim ex parte approval, given the competitive aspect of the filings and the fact that interveners' comments would be considered before the Commission made a final determination. In addition, the Commission denied Call-Net's request that any disposition of Tariff Notices 3616, 3616A, 2161 and 2161A be delayed until such time as the Commission had fully considered the issues in the Interexchange Competition proceeding. It was the Commission's view that consideration of the proposed implementation by Bell and B.C. Tel of Advantage Canada need not await its determinations regarding the issues in the Interexchange Competition proceeding.

On 19 December 1990, Call-Net filed an application for an ex parte interim order amending the tariffs of Bell and B.C. Tel to permit the resale of Advantage Canada.

By letter to Call-Net dated 24 December 1990, the Commission noted that the issue of whether resale of discounted toll services should be permitted was addressed in Bell Canada and British Columbia Telephone Company - Introduction of Between Friends and Teleplus Subscription Services, Telecom Decision CRTC 88-19, 10 November 1988 (Decision 88-19), and in Bell Canada and British Columbia Telephone Company - Introduction of Advantage Discount Service, Telecom Decision CRTC 90-1, 15 February 1990 (Decision 90-1). In the latter decision, which dealt with Advantage U.S. Service, the Commission stated:

In Decision 87-2 [Tariff Revisions Related to Resale and Sharing], the Commission permitted the resale of MTS to provide MTS. However, it prohibited the resale or sharing of WATS, a domestic bulk discounted toll service, to provide MTS or other interexchange voice services. Similarly, in Decision 88-19, the Commission approved tariffs for Teleplus Subscription Service that prohibit its resale or sharing to provide MTS or other interexchange voice services. Consistent with the above, the Commission concludes that the resale or sharing of Advantage to provide MTS or other interexchange voice services should be prohibited.

In its 24 December 1990 letter, the Commission noted that, subsequent to Decision 90-1, it had issued Resale and Sharing of Private Line Services, Telecom Decision CRTC 90-3, 1 March 1990 (Decision 90-3), in which it liberalized the rules applying to resale of private line services. In its letter, the Commission also noted that Decision 90-3 did not change the rules applying to resale of WATS. The Commission stated that, consistent with its determinations in Decisions 88-19 and 90-1, it had granted interim approval on 24 September 1990 to proposed tariff pages that prohibit the resale or sharing of Advantage Canada to provide MTS or other interexchange voice services.

The Commission stated that it considered that potential changes in the rules governing the resale of Advantage Canada, Advantage U.S. and Teleplus Subscription Service (Teleplus) should be considered together with any potential changes in the rules applying to the resale of WATS. The Commission noted that the issue of WATS resale will be dealt with in the Interexchange Competition proceeding. The Commission therefore decided to deal with the issue of resale of Advantage Canada, Advantage U.S. and Teleplus in that proceeding.

Based on the foregoing, Call-Net's application of 19 December was denied.

II CALL-NET'S CURRENT APPLICATION

A. General

On 7 January 1991, Call-Net filed an application, pursuant to section 66 of the National Telecommunications Powers and Procedures Act, requesting that the Commission review, rescind, change, alter and vary:

(1) Orders 90-1000 and 90-1001;

(2) its decision of 30 November 1990 denying Call-Net's application to rescind Orders 90-1000 and 90-1001; and

(3) its decision of 24 December 1990 denying Call-Net's application for an order permitting the resale of Advantage Canada.

Call-Net requested that these decisions be reviewed and varied to amend Bell's and B.C. Tel's tariffs to permit resale of Advantage Canada.

By letter dated 10 January 1991, the Commission established a process whereby Bell and B.C. Tel could answer the application and Call-Net could file a reply.

Bell's and B.C. Tel's answers were received on 17 January 1991. Call-Net's reply was received on 21 January 1991. Comments were received on 17 January 1991 from the Competitive Telecommunications Association (CTA), on 18 January 1991 from the Consumers' Association of Canada (CAC), on 23 January 1991 from the Canadian Federation of Independent Business (CFIB), on 28 January 1991 from Unitel Communications Inc. (Unitel) and on 6 February 1991 from the Royal Bank of Canada.

In Bell Canada, Request to Review that Part of Telecom Decision CRTC 78-7 of August 10, 1978 Dealing with Saudi Arabian Telephone Project, Telecom Decision CRTC 79-1, 2 February 1979, the Commission adopted certain criteria by which it determines whether to review and vary its telecommunications decisions. Those criteria require that, in order for the Commission to exercise its powers pursuant to section 66, the applicant must demonstrate, on a prima facie basis, the existence of one or more of the following:

1. an error in law or in fact;

2. a fundamental change in circumstances or facts since the decision;

3. a failure to consider a basic principle that had been raised in the original proceeding;

4. a new principle that has arisen as a result of the decision.

In addition, notwithstanding the lack of prima facie evidence that any of the above criteria have been met, it is also open to the Commission to determine that there is substantial doubt as to the correctness of its original decision and that reappraisal is accordingly warranted. This is not so much a fifth criterion, however, as it is a statement of the residual discretion that exists within section 66.

Call-Net argued that the Commission had made errors of law and fact and had been inconsistent in a number of important respects in applying the provisions of the Railway Act (the Act) and the provisions set forth in previous decisions, thereby raising a substantial doubt as to the correctness of Orders 90-1000 and 90-1001, the Commission's letter of 30 November 1990 and its letter of 24 December 1990. In Call-Net's view, these errors resulted in a fundamental unfairness to Call-Net, thus calling the Commission's decisions seriously into question. Unitel, CFIB, CTA and the Royal Bank of Canada supported Call-Net's application.

B. Advantage Canada, MTS and WATS

Call-Net submitted in its application that the Commission had erred in law and in fact in that it decided to regulate Advantage Canada in a manner similar to WATS, disregarded its conclusions in Decisions 87-2 and 90-3, and approved tariffs that prohibit the resale of Advantage Canada.

Call-Net submitted that Advantage Canada is a selectively targeted discounting of conventional MTS and, as such, resale of the service should be permitted. Call-Net referred to Public Notice 1990-89, which characterized Advantage Canada as "a form of MTS". Call-Net described a number of characteristics shared by Advantage Canada and MTS. Call-Net argued that Advantage Canada is discounted MTS, similar to discounted evening and night MTS, and that prohibiting resale of Advantage Canada is tantamount to prohibiting resale of off-peak customer-dialed MTS. Call-Net also described certain characteristics of WATS not shared with MTS or Advantage Canada, noting among other things that WATS requires a dedicated access line and that, with WATS, callers are restricted to a specific termination area.

Call-Net noted that the tariffs prescribed in Tariff Revisions Related to Resale and Sharing, Telecom Decision CRTC 87-2, 12 February 1987 (Decision 87-2), stated that a "...Company's Message Toll Service may be shared or resold to provide message toll service." Call-Net submitted that resale of Advantage Canada, as an MTS service, should be permitted, on a prima facie basis. Call-Net was of the view that restricting the resale of Advantage Canada is inconsistent with Decision 87-2, and with the Commission's policy permitting MTS to be resold and shared.

The Commission's most recent determination on resale of MTS was made in Decision 90-3. Decision 90-3 altered the rules established in Decision 87-2 regarding the resale of MTS in recognition of the availability of volume-based or bulk discount MTS and of the distinction between the resale of regular MTS and the resale of volume-based or bulk discount toll services. Specifically, the Commission prescribed resale tariffs stating that a company's MTS may be shared or resold except where otherwise prohibited in the tariffs. The Commission therefore concludes that the restrictions on the resale of Advantage Canada contained in the Advantage tariff are consistent with the resale tariffs prescribed in Decision 90-3.

Call-Net stated in its application that it recognizes the Commission's policy prohibiting the resale of WATS to provide MTS or other interexchange voice services and indicated that it does not wish, in its current application, to address the issue of the resale of WATS.

Call-Net was also of the view that it would be inappropriate to deal with the issue of resale of Advantage Canada in the Inter- exchange Competition proceeding. Call-Net submitted that expanding the scope of that proceeding at this point to include resale of volume-discount MTS would be prejudicial to the interests of many parties involved. In addition, Call-Net argued that most written submissions in that proceeding have already been filed and that opportunity for the Commission to have the benefit of full counsel on this issue would be frustrated if the scope of the proceeding were expanded to include resale of volume-discount MTS.

The Commission considers that its decision of 24 December 1990 to deal with resale of Advantage in the Interexchange Competition proceeding does not amount to a substantive expansion of the scope of that proceeding. The Commission notes in this regard that the issues raised by resale of WATS and resale of Advantage are, as discussed below, similar. B.C. Tel and Bell, in their evidence (dated 29 and 30 November 1990, respectively) filed pursuant to Public Notice 1990-73, assumed that a liberalization of WATS resale would also involve the liberalized resale of 800 Service and other subscription-based long distance services such as Advantage Canada. Therefore, the Commission considers that the issue of the resale of Advantage Canada had already been raised in that proceeding. Furthermore, the interveners' evidence is not due until 4 March 1991, and parties will also have an opportunity to make their cases through cross-examination and argument. Therefore, the Commission considers that the Interexchange Competition proceeding provides ample opportunity to examine fully the issue of resale of Advantage, and that parties will not be prejudiced by the consideration of that issue in the proceeding.

Call-Net noted in its application that the Commission, in Decisions 88-19 and 90-1, approved tariffs that prohibit the resale of bulk volume-discount MTS to provide MTS or other interexchange voice services. Call-Net further noted that, in Decision 90-1, the Commission stated the following:

... the Commission notes that certain restrictions apply to the resale of carrier-provided facilities and that these restrictions have been found to be in the public interest. The purpose of the restrictions is to prevent resale activity from significantly eroding monopoly toll contribution.

Call-Net noted that Decisions 88-19 and 90-1 were issued prior to Decision 90-3. Call-Net submitted that any decision rendered by the Commission with regard to resale of MTS services must now take into consideration the conclusions and principles contained in Decision 90-3. Call-Net noted that, in the latter decision, the Commission permitted resale to provide MTS-like services and, in so doing, considered the effect of resale on the erosion of MTS/WATS contribution.

The Commission considers that the differences between WATS and Advantage referred to by Call-Net are not among the factors most relevant to the issue of resale. The Commission notes that WATS and Advantage are alike in at least one vital aspect, i.e., both services provide a volume-based or bulk discount relative to full-rate MTS. By contrast, the discounts provided by off-peak MTS rates relative to full-rate MTS are not volume-based or bulk discounts. In addition, off-peak MTS rates represent the premium price for long distance service during the off-peak period, and resellers cannot resell off-peak MTS to compete with full-rate, peak period MTS. The volume-based or bulk discount aspect of WATS is the basis for the current restrictions on its resale because of concerns over MTS contribution erosion. Therefore, given that WATS and Advantage share this characteristic, it is critical that the issues of WATS and Advantage resale be considered together in the Interexchange Competition proceeding. In the Commission's view, because resale of Advantage Canada and resale of WATS raise such closely related issues, removing the restrictions on resale of Advantage prior to considering resale of WATS in the Interexchange Competition proceeding would, in effect, pre-empt the Commission's consideration of WATS resale in that proceeding.

Regarding the consistency of the Commission's decision to restrict the resale of Advantage Canada with the conclusions and principles contained in Decision 90-3, the Commission notes that, as discussed above, the restrictions on Advantage resale are based on the restrictions on WATS resale. Decision 90-3 did not alter the prohibition of resale of WATS to provide MTS or other interexchange voice services. The Commission's conclusions in Decision 90-3 therefore did not alter the basis for the restrictions on Advantage resale.

C. Impact on the Applicant and Other Resellers

Call-Net submitted that the Commission, in reaching the conclusions in Orders 90-1000 and 90-1001, erred in failing to consider the short-term and long-term consequences of interim approval of Advantage Canada and the irreparable harm that it will cause to the commercial viability and operations of many resellers, including Call-Net. Call-Net argued that any assessment of a carrier's competitive response to liberalized resale must take into account the Commission's conclusions in Decision 90-3 with respect to the benefits of resale, as well as the impact that the competitive response would have on the viability of the resale market.

Call-Net noted that the Commission concluded in Decision 90-3 that there were important benefits to be derived from the further liberalization of the rules governing resale and sharing. Call-Net submitted that resellers must be provided an opportunity to establish a foothold in the marketplace and must be permitted to compete on a level playing field with facilities-based carriers. Call-Net argued that the restrictions on the resale of Advantage Canada will irreparably harm the viability of resellers and could result in the elimination of a form of long distance competition that the Commission has found to be in the public interest.

Call-Net stated that it has chosen to offer enhanced and value-added telecommunications services as opposed to basic MTS-like resold long distance services and that it accepts and terminates all customer-originated traffic. Call-Net stated that, unlike some resellers, it carries all long distance traffic generated by its customers, regardless of whether a call can be carried on its leased facilities or must be delivered to Telecom Canada members for carriage as MTS traffic at regular MTS rates. Customer Dialed Account Recording and other services offered by Call-Net are available for all long distance traffic generated by Call-Net's customers. Call-Net argued that the restrictions on resale of Advantage are an unjust penalty for accepting all customer-originated calls and for refusing to carry only the lucrative traffic.

Call-Net provided an exhibit (Exhibit 3), setting out, for 1991, by month, the estimated savings not obtained by Call-Net due to the restrictions on the resale of Advantage Canada and the estimated revenues lost due to price competition from Advantage Canada. The "savings not obtained" figures derive from the fact that resellers may not use Advantage Canada for terminating customer traffic. Call-Net argued that this evidence indicates that Advantage Canada will quickly extinguish the viability of those resellers that offer value-added services and refuse to limit operations only to major and lucrative routes.

Call-Net argued that continued prohibition of the resale of Advantage Canada to provide MTS or other interexchange voice services will seriously compromise its resale operations. Call-Net stated that the 30 per cent discount provided by Advantage Canada effectively eliminates the ability of it and other resellers to compete on a level playing field with facilities-based carriers. Call-Net stated that Advantage service effectively eliminates any price difference between MTS and dedicated private line charges. Call-Net stated that the interim approval of Advantage Canada and the restrictions on its resale have already eroded its market share to a noticeable extent, placing its viability and that of many resellers in jeopardy. Call-Net stated that permitting the resale of Advantage Canada would not guarantee resellers their rightful market share in the Canadian telecommunications system. However, in Call-Net's view, lifting the prohibition would ameliorate the significant impact Advantage will have on the infant resale sector in Canada.

Call-Net argued that the record of the Advantage Canada proceedings indicates that the Commission did not take the conclusions and principles set out in Decision 90-3 into account in reaching its decisions in Orders 90-1000 and 90-1001, in its letter of 30 November 1990 and in its letter of 24 December 1990. Call-Net argued that substantial doubt is therefore raised as to the correctness of those decisions, and that reappraisal is warranted.

CTA argued that interim approval of Advantage Canada has resulted in significant harm to the resale industry. CTA submitted that, in granting interim approval, the Commission was not aware of the start-up nature of the industry, as described in CTA's comments of 29 October 1990 filed in response to Public Notice 1990-89. CTA submitted that the introduction of what it termed predatory rates at this stage of reseller competition may well frustrate the goals of Decision 90-3.

The Commission considers that, for the purposes of assessing the appropriateness of the Advantage Canada filings, it is not necessary to consider the impact of its introduction on the financial viability of competitors. The economic information filed by Bell and B.C. Tel demonstrates that the service more than covers its associated costs. Therefore, consistent with its determinations in Decisions 88-19 and 90-1, the Commission considers that Advantage Canada raises no concerns with regard to possible cross-subsidization and does not confer an undue competitive advantage on Bell or B.C. Tel.

The question of the impact of Advantage Canada on contribution relates to the issue of the targeting of discounts only to certain MTS users, rather than lowering rates for all such users. As noted in Decisions 88-19and 90-1 and in the Commission's letter of 30 November 1990, were alternative toll services to result in a significant reduction in contribution, it could be argued that the reduction would be more appropriately applied to all toll rates.

The Commission made a prima facie finding in Orders 90-1000 and 90-1001 that the introduction of Advantage Canada would not result in a significant reduction in contribution. That finding was re-affirmed in the Commission's letter of 30 November 1990. In making such a finding, it was necessary for the Commission to assess the reasonableness of assumptions concerning, among other things, the characteristics of the resale market. The Commission notes that, in Decision 90-3, it made certain determinations regarding those characteristics. The Commission found in its 30 November 1990 letter denying Call-Net's application for the rescission of Orders 90-1000 and 90-1001 that the economics of Advantage Canada are consistent with its determinations in Decision 90-3.

As noted in its letter of 30 November 1990, the Commission considers that, while the relative impact of the liberalized resale permitted in Decision 90-3 on contribution may be small, Bell and B.C. Tel should not be prevented from mitigating the impact of liberalized resale on the contribution they derive from MTS/WATS. In the Commission's view, the concept of a level playing field between the telephone companies and competitors does not preclude a competitive response on the part of the telephone companies to liberalized resale.

The Commission notes that, in Public Notice 1990-73, it indicated that, in assessing the appropriateness of the applications of Unitel and B.C. Rail Telecommunications/Lightel Inc. (BCRL) and of more liberalized resale, it would be necessary to compare the advantages and disadvantages of various scenarios for lowering long distance rates. This may involve a re-examination of the policy concerning the impact on contribution of the introduction of new volume-based or bulk discount toll services.

Notwithstanding the above, the Commission notes that, in response to Commission interrogatories concerning Advantage Canada, Bell and B.C. Tel provided an income statement for a hypothetical national reseller. This response was intended to address the issue of whether the Advantage Canada economic study assumptions were consistent with resellers' financial viability. The information provided indicated that, in 1993, the hypothetical reseller would have a net operating surplus (i.e., net profit in excess of an assumed return on owners' equity), regardless of whether Advantage Canada was introduced as proposed or the status quo maintained. The Commission notes that, while the information provided by Call-Net in its present application may address the negative impact on its operations of the introduction of Advantage Canada as proposed, that information does not demonstrate that the negative impact will be sufficient to threaten its overall financial viability. The fact that Advantage Canada would have a negative impact on resellers was foreseen by the Commission at the time of Bell's and B.C. Tel's original filings. In its letter of 30 November 1990, the Commission stated, in effect, that Advantage Canada is intended to retain contribution that would otherwise be lost to resellers. The Commission notes that this would be achieved by attracting some customers to Advantage away from resellers' services and by reducing future migration to resellers' services.

Regarding Call-Net's Exhibit 3, the Commission's view is that "savings not obtained" due to the restrictions on Advantage resale does not measure a financial impact caused by the introduction of Advantage as proposed. Whether Advantage is introduced as proposed, or not introduced at all, the result is the same: resellers must terminate off-net traffic using MTS. Therefore, the introduction of Advantage as proposed does not change the fact that off-net traffic must be terminated using MTS. Consequently, of the information provided by Call-Net in Exhibit 3, only estimated lost revenues due to price competition from Advantage Canada can be attributed to the introduction of the service as proposed.

Regarding that price competition, the Commission notes first that Advantage Canada is not a value-added service. To the extent that Call-Net's services are value-added, it is likely that demand for those services will be less sensitive to price competition from Advantage Canada than if Call-Net offered basic MTS-like services less readily distinguished from Advantage Canada. In addition, the Commission notes that the 30 per cent discount cited by Call-net applies only to eligible monthly billings in excess of $10,000. The 30 per cent level is the highest marginal discount offered by Advantage Canada, and is therefore higher than the average effective discount provided by the service.

Furthermore, Call-Net has itself chosen to offer service on less lucrative routes and to accept and terminate all customer-originated traffic. Call-Net presumably could mitigate the impact of Advantage on its operations by limiting its services to more lucrative routes. In fact, in Decision 90-3, the Commission stated that there would be little incentive for resellers to provide customers with the ability to originate and terminate traffic in smaller centres. The Commission anticipated that the costs involved in so doing would be such that price discounts and/or service quality would have to be reduced to levels at which it would not be possible for resellers to attract customers. The Commission therefore recognized that resellers' operations would likely be limited to the higher volume routes. Consequently, the benefits that the Commission found would arise from resale are not dependent on universal geographic coverage or termination of resellers' services.

The liberalized resale of WATS and 800 Service that could provide resellers with volume-based or bulk discount origination and termination, and therefore the ability to compete directly in the MTS/WATS market, will be considered in the Interexchange Competition proceeding.

Call-Net stated in its application that resellers have spent millions of dollars preparing for competitive resale based on the Commission's conclusions in Decision 90-3. CTA was concerned that the delay in consideration of the resale of Advantage Canada coupled with the interim approval will cause significant uncertainty in the market at a time when many members are seeking capital for business expansion.

The Commission considers that the possibility that the telephone companies would propose a competitive response to expanded resale was foreseeable. In this regard, the Commission notes that Bell and B.C. Tel filed their original applications for the approval of Advantage Canada in the summer of 1989. Those applications were denied partly on the basis that neither Bell nor B.C. Tel filed economic evaluation studies in support of the viability of the service. This deficiency was remedied in the Advantage Canada applications granted interim approval in Orders 90-1000 and 90-1001. In addition, Advantage U.S., a service similar to Advantage Canada and a response on the part of the telephone companies to increased competition in the Canada-U.S. market, was approved in Decision 90-1. Further, the Commission noted in Decision 90-3 that volume discounts, such as those provided by Teleplus, Between Friends and Advantage U.S. are one approach to reducing price differentials between competitive network and MTS/WATS rates.

In the Commission's view, its determinations with respect to Advantage Canada do not represent a change in its policy, but rather are consistent with its previous decisions on the introduction of volume-based or bulk discount toll services. The Commission's approach to such services and their resale was enunciated in Decisions 88-19 and 90-1. Therefore, in making investment decisions after Decision 90-3 was issued (1 March 1990) and before the Advantage Canada applications granted interim approval were filed (25 July 1990), resellers were in a position to take into account the likelihood of a response from the telephone companies, and the Commission's likely treatment of such a response, in planning to enter the market or expand their operations.

Regarding CTA's comments concerning uncertainty arising from the delay in considering the resale of Advantage Canada, coupled with the interim approval, the Commission considers that any uncertainty in the reseller market has not been increased by the Commission's decision to restrict resale of Advantage Canada. As noted above, that decision represented no change in the Commission's policy and was consistent with its previous decisions on the resale of WATS, Advantage U.S. and Teleplus.

D. Equitable Treatment Under the Railway Act

Call-Net submitted that restricting resale of Advantage Canada is prejudicial and disadvantageous, not only to resellers, but also to the small and medium sized businesses typically served by resellers. Call-Net stated that the benefits that resale extends to small and medium sized businesses was the primary basis on which the Commission decided in Decision 90-3 to liberalize the sharing and resale rules. Call-Net submitted that restricting the resale of Advantage Canada discriminates against customers who do not have sufficiently large monthly billings. Call-Net stated that Advantage Canada should be made available to all customers on a non-discriminatory basis.

Call-Net submitted that the Commission erred in failing to apply section 340(2) of the Act and that there is therefore a substantial doubt as to the correctness of the Commission's decision to approve tariffs that restrict the resale of Advantage.

CAC argued that the Advantage tariff grants an advantage to certain large users of telecommunications services, while the denial of resale denies similar benefits to other classes of smaller users.

The Commission notes that it has found the restrictions applying to the resale of volume-based or bulk discount toll services to be in the public interest because of concerns over MTS contribution erosion. As noted earlier, the rationale underlying the restrictions on WATS resale also underlies the restrictions on Advantage Canada resale. The Commission is of the view that the introduction of Advantage Canada does not alter the need for these restrictions and that, therefore, the restrictions on Advantage Canada resale do not subject resellers or small and medium sized businesses to an undue or unreasonable prejudice or disadvantage and are not unduly discriminatory.

The Commission notes that Advantage Canada is available to all users at the same rates, under the condition that the service may not be resold or shared to provide MTS or other interexchange voice services.

Advantage subscribers pay a minimum $200 monthly bill regardless of whether they generate a corresponding volume of traffic, thereby bearing a risk that users of regular MTS do not. Therefore, Advantage subscribers face circumstances and conditions for the carriage of their traffic that differ from those faced by regular MTS customers.

Based on these conclusions, the Commission finds that the Advantage Canada tariff does not violate section 340(2) of the Act.

E. Other Issues

CAC argued that interim approval of Advantage Canada was premature. CAC argued that all issues associated with bulk discounts for large users and with the resale of volume discount services should be considered in the Interexchange Competition proceeding. CAC stated that the Commission has chosen to frame the present discussion in terms of the need of the major telephone companies to retain market share vis-à-vis resellers, ignoring its own findings in Decision 90-3 that the carriers had, in that proceeding, substantially overestimated the market share that they would lose to resellers. CAC noted that the Commission's analysis in that Decision indicated a market share loss of approximately 2 per cent in 1994.

CAC also argued that much of the competitive strategy of the telephone companies in relation to the applications of Unitel and BCRL has been approved in advance of a comprehensive look at the subject in the context of the Interexchange Competition proceeding.

Call-Net submitted that interim ex parte approval of Advantage Canada provided neither a proper nor complete evaluation of a proposed competitive response. Call-Net stated that interested parties, including resellers, were not afforded the opportunity to impugn or criticize Bell's or B.C. Tel's evidence, to submit evidence of their own, or to make arguments as to the viability of Advantage Canada. Call-Net argued that, should the Commission give Advantage Canada final approval with the resale restrictions in place, it should revisit the assumptions made in Decision 90-3 and the $200 per month per interexchange channel contribution deemed to be appropriate at that time.

Call-Net argued that the resale of Advantage Canada should be considered in the Interexchange Competition proceeding only if interim approval is rescinded.

Call-Net stated that Advantage Canada is an integral part of the Bell Reference Plan described in Bell's evidence filed pursuant to Public Notice 1990-73. Call-Net stated that Advantage Canada is also an integral part of Bell's and B.C. Tel's responses to the limited competition that currently exists in Canada and to the threat of impending increased competition. Call-Net argued that it is not fair to resellers to approve on an ex parte basis the initial thrust of Bell's and B.C. Tel's Reference Plans. Call-Net submitted that fairness demands that the status quo be reinstated and that the interim ex parte approval of Advantage Canada be rescinded until the matter is considered with the benefit of full counsel.

Regarding Call-Net's and CAC's submissions that interim ex parte approval was premature, unfair and improper, the Commission notes that it took similar submissions into account in arriving at its decision of 30 November 1990. In that decision, which dealt with Call-Net's 19 October 1990 application to rescind Orders 90-1000 and 90-1001, the Commission concluded that a prima facie finding in those Orders that the introduction of Advantage Canada would not result in a significant reduction in contribution was well founded and provided an appropriate basis for granting interim ex parte approval given the competitive aspect of the filings, and given that interveners' comments would be considered before a final determination. Regarding CAC's submission that the Commission ignored the findings in Decision 90-3 concerning potential market share loss to resellers, the Commission notes that it also found in its letter of 30 November 1990 that the economics of Advantage Canada are consistent with its determinations in Decision 90-3. Further, the economic information filed by Bell and B.C. Tel indicated that Advantage Canada would more than cover its causal costs.

Call-Net submitted that, if the Commission gives Advantage Canada final approval with the resale restrictions in place, it should revisit the $200 contribution charge established in Decision 90-3. The Commission notes that, in Decision 90-3, the Commission recognized that resellers' ability to terminate or originate traffic universally in an economic fashion was limited by the restrictions on WATS resale. This limitation was a factor in the Commission's determinations that (l) it was not necessary to design the contribution charges applicable to resale for joint use so as to compensate fully for reductions in the contribution derived from MTS/WATS, and (2) a contribution charge of $200 per month per interexchange channel was appropriate. Therefore, the $200 contribution charge is consistent with the restrictions on WATS resale. Given that the restrictions on Advantage Canada resale are based (as discussed above) on the restrictions on WATS resale, and given that resale of Advantage Canada would provide a more economic means to terminate traffic universally than does regular MTS, the Commission considers that the $200 contribution charge is also consistent with the restrictions on resale of Advantage Canada.

Concerning CAC's argument that bulk discounts for large users and resale of volume-discount services should be considered in the Interexchange Competition proceeding, the Commission notes that, in its 30 November 1990 letter, it concluded that consideration of the proposed implementation by Bell and B.C. Tel of Advantage Canada need not await its determinations regarding the issues in the Interexchange Competition proceeding. The Commission decided in its letter of 24 December 1990 to deal with the issue of the resale of Advantage Canada, Advantage U.S. and Teleplus in the Interexchange Competition proceeding.

Regarding Call-Net's and CAC's arguments to the effect that much of the competitive strategy of the telephone companies in relation to Unitel and BCRL has been approved in advance of the Interexchange Competition proceeding, the Commission notes that Advantage Canada was justified on the basis of the expanded resale allowed in Decision 90-3, and not on the basis of possible facilities-based competition.

III GENERAL CONCLUSIONS AND DISPOSITION

As noted earlier and in its letter of 30 November 1990, the Commission considers that Bell and B.C. Tel should not be prevented from mitigating the impact of liberalized resale on the contribution they derive from MTS/WATS. In the Commission's view, the concept of a level playing field between the telephone companies and competitors does not preclude a competitive response on the part of the telephone companies to liberalized resale.

In this regard, the economic studies and interrogatory responses filed by Bell and B.C. Tel in the Advantage Canada proceeding indicate that the service will more than cover its associated costs. Therefore, the Commission considers that Advantage Canada raises no concerns regarding possible cross-subsidization and that it does not confer an undue competitive advantage on Bell or B.C. Tel. In addition, the Commission considers that the economics of Advantage Canada are consistent with its determinations in Decision 90-3 regarding the characteristics of the resale market. Furthermore, the economic information filed by Bell and B.C. Tel indicates that the services will not result in a significant reduction in contribution.

As stated earlier, the Commission considers WATS and Advantage alike in at least one vital aspect, i.e., both services provide a volume-based or bulk discount relative to full-rate MTS. This volume-based or bulk discount aspect of both WATS and Advantage leads to concerns over the contribution erosion that might arise from their resale, and is the basis for the current restrictions on their resale.

The Commission considers that its decision to restrict the resale of Advantage Canada is consistent with Decision 90-3. Decision 90-3 did not alter the prohibition on the resale of WATS to provide MTS or other interexchange voice services. Therefore, Decision 90-3 did not alter the basis for restrictions on the resale of volume-based discount services such as Advantage.

Moreover, the Commission's conclusions in Decision 90-3 that the joint use contribution charge need not fully compensate for the reduction in the contribution derived by the carriers from MTS/WATS, and that a $200 contribution charge was appropriate, were based in part on the fact that resellers' ability to terminate traffic universally in an economic fashion would be limited by the restrictions on WATS resale. Given that the restrictions on Advantage resale are based on the restrictions on WATS resale, and given that resale of Advantage Canada, like resale of WATS, would provide a more economic means to terminate traffic universally than does regular MTS, the Commission considers the $200 contribution charge established in Decision 90-3 to be consistent with restrictions on the resale of Advantage Canada. The restrictions on Advantage Canada resale are also consistent with similar restrictions on the resale of Advantage U.S. and of Teleplus, restrictions that were also based on the restrictions on the resale of WATS.

The Commission considers it critical that the resale of WATS and the resale of Advantage be considered together in the Interexchange Competition proceeding. In the Commission's view, because resale of Advantage Canada and resale of WATS raise such closely related issues, removing the restrictions on the resale of Advantage prior to considering the resale of WATS in the Interexchange Competition proceeding would, in effect, pre-empt the Commission's consideration of the resale of WATS.

The Commission is of the view that including consideration of the resale of Advantage Canada in the Interexchange Competition proceeding is not unfair to either the parties to that proceeding or to resellers. As stated above, the Commission considers that the question of Advantage resale had already been raised in the Interexchange Competition proceeding prior to the Commission's announcement that it would be examined in that proceeding. The Commission considers that the Interexchange Competition proceeding provides ample opportunity for parties to make their cases concerning the resale of Advantage Canada and for the Commission to examine the issue fully.

As stated earlier, the Commission's determinations with respect to Advantage Canada do not represent a change in its policy, but rather are consistent with its previous decisions on the introduction of volume-based or bulk discount toll services. Consequently, the Commission considers that any uncertainty in the reseller market has not been increased by its decision to restrict the resale of Advantage Canada. In addition, as noted in Part II, the possibility that the telephone companies would propose a competitive response to expanded resale was foreseeable. The Commission's approach to the introduction of volume-based or bulk discount toll services and their resale was enunciated in Decisions 88-19 and 90-1. Therefore, in making investment decisions after Decision 90-3 was issued (1 March 1990) and before the Advantage Canada applications granted interim approval were filed (25 July 1990), resellers were in a position to take into account the likelihood of a response from the telephone companies, and the Commission's likely treatment of such a response, in planning to enter the market or expand their operations.

Concerning the impact on Call-Net of Advantage Canada and the restrictions on its resale, the Commission notes that Call-Net has itself chosen to provide service on less lucrative routes and to accept and terminate all customer-originated traffic. Call-Net is presumably in a position to mitigate the impact of Advantage on its operations by limiting its services to more lucrative routes. In fact, in Decision 90-3, the Commission stated that there would be little incentive for resellers to provide customers with the ability to originate and terminate traffic in smaller centres. The Commission anticipated that the costs involved in so doing would be such that price discounts or quality of service would have to be reduced to levels at which it would not be possible for resellers to attract customers. The Commission therefore recognized that resellers' operations would likely be limited to the higher volume routes.

The Commission's findings in Decision 90-3 that certain benefits would arise out of liberalized resale took full account of the limitations on resellers' ability to originate and terminate traffic. Indeed, the Commission found that such benefits would arise despite those limitations. Therefore, the benefits that the Commission found would arise from liberalized resale are not dependent on universal geographic coverage or universal termination of resellers' services.

Based on the conclusions in this and in the preceding Part, the Commission finds that it has not made the errors of law and fact cited by Call-Net. The Commission also concludes that no substantial doubt has been raised as to the correctness of Orders 90-1000 and 90-1001 or of its decisions of 30 November 1990 and 24 December 1990. Call-Net's application is therefore denied.

Allan J. Darling
Secretary General