ARCHIVED -  Telecom Public Notice CRTC 1992-70

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Telecom Public Notice

Ottawa, 25 November 1992
Telecom Public Notice CRTC 92-70
Review of the Affiliate Rule
In Resale and Sharing of Private Line Services, Telecom Decision CRTC 90-3, 1 March 1990 (Decision 90-3), the Commission stated that it would not permit a facilities-based carrier to lease, directly or indirectly, interexchange services to any affiliated company it controlled for the purpose of joint-use resale or sharing, except where those services would be used exclusively to provide data services or portable communications services such as mobile satellite and cellular services.
In Decision 90-3, the Commission was concerned that, given the contribution payments established for resellers, the entry of affiliates into the resale market would result in a greater level of revenue erosion than that associated with an unaffiliated reseller. The Commission was of the view that to permit a facilities-based carrier to lease services to an affiliate for the purpose of sharing or reselling interconnected interexchange voice services on a joint-use basis would be analogous to permitting facilities-based competition.
The resale and sharing rules, set out in the Appendix to Decision 90-3, define "affiliate" as any person that controls or is controlled by the facilities-based carrier or that is controlled by the same person that controls the facilities-based carrier. "Control" is defined to include control in fact, whether through one or more persons. The Commission's expectation was that this rule would prevent a facilities-based carrier, such as Unitel Communications Inc. (Unitel), from entering the Message Toll Service (MTS) or Wide Area Telephone Service (WATS) market indirectly by means of a resale affiliate.
On 27 March 1990, Bell Canada (Bell) filed an application pursuant to section 66 of the National Telecommunications Powers and Procedures Act requesting that the Commission review and vary the definition of affiliate in the Appendix to Decision 90-3. Bell proposed to extend the definition to include a person who is related to the company. Bell further proposed to define a person who is related as one who holds or whose affiliate holds more than a one per cent interest in, or any options to acquire more than a one per cent interest in, the capital, assets, property, profits, earnings, revenues or royalties of the company or its affiliates.
The Commission established a proceeding to examine Bell's application in Bell Canada - Application to Review and Vary Telecom Decision CRTC 90-3, Resale and Sharing of Private Line Services, CRTC Telecom Public Notice 90-37, 23 April 1990 (Public Notice 1990-37). Fifteen parties filed submissions in that proceeding.
On 12 June 1992, the Commission issued Competition in the Provision of Public Long Distance Voice Telephone Services and Related Resale and Sharing Issues, Telecom Decision CRTC 92-12 (Decision 92-12). In Decision 92-12, the Commission permitted facilities-based competition in the MTS market, specifically approving Unitel's application. In addition, it expanded resale of private lines on a joint-use basis to include the services of the Atlantic telephone companies and permitted the resale of WATS and other discounted toll services. The Commission also announced its intention to review the need for the affiliate rule.
By letter to the Commission dated 3 September 1992, Bell stated that it wished to withdraw its application to review and vary that part of Decision 90-3 dealing with the affiliate rule. Bell submitted that the comments filed pursuant to Public Notice 1990-37 did not reflect the framework established in Decision 92-12. Bell indicated its intention to participate in the review of the affiliate rule noted in that Decision.
By letter dated 21 September 1992, the Commission granted Bell's request to withdraw its application.
In Decision 92-12, the Commission changed the contribution requirements for resellers in order to reflect the changes in the marketplace brought about by that Decision. Decision 92-12 established the initial contribution charge for resellers at 65 per cent of the charge to interexchange carriers for trunk-side access, rising to 85 per cent by 1997. Under this transitional regime, resellers will pay less contribution than Unitel for line-side access until 1997.
In Decision 92-12, the Commission specifically prohibited Unitel from using resellers to aggregate or terminate traffic on its behalf. This prohibition prevents Unitel from using a reseller to carry traffic on its behalf at a lower level of contribution than that found to be appropriate. In Decision 92-12, the Commission maintained the affiliate rule for Bell, British Columbia Telephone Company (B.C. Tel) and Unitel, and extended it to apply to the Atlantic telephone companies. However, the Commission did not apply the rule to B.C. Rail Telecommunications/Lightel Inc. (BCRL). The Commission made this determination on the basis that BCRL's circumstances differ from those of Unitel, in that BCRL's network would be primarily resale-based during its initial stages of operation.
As noted above, there have been major changes in the marketplace since Decision 90-3. The Commission's determination in Decision 92-12 to allow facilities-based carriers to enter directly the long distance voice market reduces the incentive for such carriers to enter the market indirectly through a reseller affiliate, alleviating somewhat the concerns underlying the restrictions established in Decision 90-3. Based on the record of the proceeding established by Public Notice 1990-37 and on its findings in Decision 92-12, the Commission considers that it may no longer be necessary to apply the affiliate rule to Unitel and the telephone companies.
However, the Commission recognizes that, during the transitional period established in Decision 92-12, some incentive may still remain for facilities-based carriers to compete through affiliated resellers. This might, for instance, allow the facilities-based carrier to save on the difference between the line-side contribution charge for resellers and that for facilities-based carriers. Were sufficient incentive found to exist, it might be appropriate to retain an affiliate rule during the transitional period. In order to determine the point at which the contribution differential (and thus the incentive to compete through reseller affiliates) would be sufficiently reduced, the Commission would consider it necessary to take into account, among other things, the degree of control exercised over or by the affiliate.
Based on the above, the Commission is of the view that, if the affiliate rule were to continue to apply, it would be useful to alter it to incorporate the concept of "related" companies and to define "related" on the basis of a threshold level of interest in, or any options to acquire an interest in, any of the capital, assets, property, profits, earnings, revenues or royalties in the company or an affiliate. In addition, the Commission considers that a threshold level of 25 per cent or greater interest may be appropriate to limit the incentive for Unitel and the telephone companies to cooperate with reseller affiliates to avoid contribution.
Finally, the Commission notes that, as a result of its recent privatization, Telesat Canada (Telesat) is an affiliate of some telephone companies, according to the definition established in Decision 90-3. The Commission considers that the application of an affiliate rule to Telesat may, in some circumstances, prevent it from providing its services to the telephone companies for the purposes of resale. Accordingly, it may not be in the public interest to apply the affiliate rule to Telesat.
In light of the above, the Commission seeks comment on the need for an affiliate rule and on the views set out above. The record of the proceeding established in Public Notice 1990-37 will form part of the record of this proceeding.
1. Bell, B.C. Tel, The Island Telephone Company Limited, Maritime Telegraph and Telephone Company Limited, The New Brunswick Telephone Company Limited, Newfoundland Telephone Company Limited, Telesat and Unitel are made parties to this proceeding.
2. Other persons wishing to participate in this proceeding must notify the Commission of their intention to do so by writing to Mr. Allan J. Darling, Secretary General, CRTC, Ottawa, Ontario, K1A 0N2, by 29 December 1992 fax: (819) 953-0795. The Commission will issue a complete list of parties and their mailing addresses.
3. Parties wishing to submit comments with regard to the matters set out in this Public Notice are to file those comments with the Commission, serving copies on all other parties, by 26 January 1993.
4. Parties wishing to submit reply comments in this proceeding are to file them with the Commission, serving copies on all other parties, by 16 February 1993.
5. Where a document is to be filed or served by a specific date, the document must be actually received, not merely mailed, by that date.
Allan J. Darling
Secretary General

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