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Ottawa, 10 March 1992
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Telecom Decision CRTC 92-2
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RESTRUCTURING OF RATES FOR DATAPAC SERVICE
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Table of Contents
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I INTRODUCTION
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II THE APPLICATIONS
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A. Classification of Datapac Serving Areas
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B. Network Usage Rates
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C. Datapac Access Arrangement Rates
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D. Optional Features
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E. Volume Discount Plans
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III POSITIONS OF PARTIES
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IV CONCLUSIONS
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I INTRODUCTION
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On 6 March 1991, the Commission received an application from Bell Canada (Bell), under Tariff Notice 3887, proposing a restructuring of rates for Datapac Service. The Commission subsequently received similar filings from AGT Limited (Tariff Notice 28), British Columbia Telephone Company (Tariff Notice 2338), The Island Telephone Company Limited (Tariff Notice 71), Maritime Telegraph and Telephone Company Limited (Tariff Notice 110), The New Brunswick Telephone Company Limited (Tariff Notice 68), Newfoundland Telephone Company Limited (Tariff Notice 76) and Northwestel Inc. (Tariff Notice 404). Bell submitted a Prospective Annualized Revenue/Cost (PARC) study and a customer impact study on behalf of itself and the other companies. Bell also submitted information showing the impact of the proposed tariffs for various customer billing bands.
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On 30 April 1991, the Commission issued Restructuring of Rates for Datapac Service, Telecom Public Notice CRTC 1991-24 (Public Notice 1991-24), establishing a public process and inviting comments with respect to the applications. The Commission and Unitel Communications Inc. (Unitel) addressed interrogatories to Bell. Canadian Satellite Communications Inc. (Cancom) addressed interrogatories to each of the applicants. The applicants did not file responses to some interrogatories, claiming confidentiality for the information requested. Other responses were filed in confidence with the Commission. Cancom requested disclosure of some of the information in question. The Commission ruled on Cancom's request by letter dated 9 October 1991, and the applicants submitted additional information on 23 October 1991. Cancom and Unitel subsequently filed comments, and all of the applicants except Northwestel Inc. filed reply comments.
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II THE APPLICATIONS
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A. Classification of Datapac Serving Areas
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The companies propose to change the way Datapac Serving Areas (DP.S.A.s) are classified and the use that is made of the classifications. Currently, the companies classify DP.S.A.s into three grades. The grade of new DP.S.A.s is established solely on the basis of economic considerations. Grade 1 DP.S.A.s are those with large packet switches. The remainder of DP.S.A.s, which include exchanges containing smaller packet switches, are classified as grade 2 or 3. The current network usage rates for Datapac calls depend on distance and on the DP.S.A. classification of both the originating and terminating points. However, current access rates are not based on the classification of the DP.S.A. in which the access service is provided.
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The companies propose reclassifying DP.S.A.s. from the existing three classes into two (high density and low density). High density DP.S.A.s would consist of all the current Grade 1 DP.S.A.s, plus all the Grade 2 and Grade 3 DP.S.A.s provisioned with packet switching equipment. The remaining Grade 2 and Grade 3 DP.S.A.s would be reclassified as low density DP.S.A.s.
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B. Network Usage Rates
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The applicants propose that network usage rates no longer depend on the classification of the originating and terminating DP.S.A.s. Rather, they would be distance-sensitive only, with one rate for each mileage band. The proposed rates are approximately 8% to 18% higher than the current rates for traffic between grade 1 DP.S.A.s. All other traffic would be subject to rate decreases ranging from 44% to 87%.
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In addition, a new intra-DP.S.A. rate would be introduced, which would be 5% higher than the current lowest mileage band rate for traffic between Grade 1 DP.S.A.s.
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The companies propose to eliminate the current $.01 set-up charge and to make set-up packets subject to network usage charges. Each set-up attempt and any customer-initiated call reset attempt would be charged 1/1000th of the appropriate network usage rate. The companies stated that they are proposing this change because, for many customers with very short messages, the current set-up charge makes up more than 70% of the charge per call.
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The companies also propose to introduce a minimum charge of $.01 per call. This minimum charge would apply to total per-call usage, including set-up.
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C. Datapac Access Arrangement Rates
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The companies propose to charge 25% more for access in low density DP.S.A.s than in high density DP.S.A.s. The companies stated that, as low density DP.S.A.s are those without packet switching equipment, traffic from these locations must be "backhauled" to a packet switching location. The companies stated, that the 25% premium is designed to recover the cost of providing backhaul. However, to mitigate the customer impact of this rate increase, the companies propose that the premium be phased in, with 12.5% to take effect with the overall rate restructuring and a further 12.5% to take effect one year later.
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The companies propose charging a common rate for some of the lower speeds in order to reflect changes in the cost and functionality of new modems and to encourage customers to move to the higher speeds, thus promoting more efficient use of the network.
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The companies currently apply volume-sensitive packet assembler/disassembler (PAD) charges that were originally designed to recover the costs associated with transforming data into and out of the packet format. These charges apply for all access arrangements except Datapac 3000, with a different PAD rate for each access arrangement. The companies propose to eliminate these charges, stating that the function is an inherent part of the newer generation of packet switching equipment. The rates for most access arrangements currently subject to PAD charges would be increased to mitigate the revenue loss due to the removal of the charge.
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The companies propose to increase the per-minute rate for public dial access for all access arrangements from $0.04 to $0.05 per minute (this would also include out-dial arrangements).
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For Datapac 3000 rates, the only change would be to increase the public dial and the low speed rates (with 1200 and 2400 bps access to be rated the same).
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Datapac 3303 rates would be the same as Datapac 3000 rates. The companies stated that these two synchronous access arrangements serve the same market applications, with the only difference being the protocols used. As a result of the proposed changes, Datapac 3303 access rates would decrease for 2400 and 4800 bps access, but increase for 9600 bps access.
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Datapac 3101, an asynchronous access arrangement, is available in dedicated (on-net and off-net) and in public and private dial-up configurations. Adjustments are proposed to the various access data speeds, resulting in some rate increases and some rate decreases.
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The companies also propose rate increases of up to 17% for Datapac 3201. As this is an asynchronous access arrangement, the proposed changes would make the single-line rates the same as those for Datapac 3101 dedicated access at comparable speeds.
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Two other available synchronous access arrangements, Datapac 3304 and Datapac 3305 have been destandardized. Datapac 3304 service was discontinued on 31 January 1992 and Datapac 3305 will be discontinued 31 December 1992. A 10% increase is proposed for Datapac 3305.
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In order to allow customers to take advantage of the fact that they would be able to use higher speeds at the same price as they would pay for lower speed service, the companies filed amendments to their original filings proposing to waive the service charge associated with changes in service speed.
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D. Optional Features
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Datapac offers a number of optional features to control and enhance the service. The companies propose that rates for Call Redirection be reduced to reflect changes in technology and in the costs of providing the feature. The companies also propose to eliminate the Throughput Class Negotiation surcharge, as the related feature is no longer required.
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In addition, the companies propose that the network usage charges for the Canadian portion of Datapac International, which uses Datapac 3101 and 3303, be reduced to reflect the fact that the PAD charges (which are currently part of this charge) would be recovered from the higher access charges for Datapac 3101 and 3303.
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E. Volume Discount Plans
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The companies propose to introduce volume discounts for network usage and for asynchronous access.
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The proposed volume discounts for network usage would range from 8% for monthly billings of over $2500 up to 15% for monthly billings of over $100,000.
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For asynchronous access, the companies propose to offer discounts for 1, 3 and 5 year commitments to set numbers of access lines. The discounts would range from 1.5% for a 1 year commitment to 500 or more access lines, to 10% for a 5 year commitment to more than 3000 access lines. The companies state that the discount plans are necessary in order to respond to the loss of customers to private networks.
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III POSITIONS OF PARTIES
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Both Unitel and Cancom submitted that the proposed rates are not compensatory. In support of this position, Unitel referred to a Communications Competition Coalition study showing that Datapac rates are 48% less than the packet switched rates of carriers in the United States. Unitel submitted that Datapac rates must be below cost, since rates in the United States are the result of a more competitive market and hence closer to cost. Unitel also submitted that the PARC data filed in support of the applications does not provide sufficient costing information.
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Cancom submitted that the proposed rate reductions are contrary to the principle that rates should maximize contribution. Cancom cited large decreases in network usage rates (up to 87%) in low density (Grade 2 and Grade 3) areas in which it competes. Cancom also noted that, in their responses to interrogatories, the applicants forecasted a 6% decline in Telecom Canada Datapac revenues in 1992, which, Cancom asserted, is a significant decrease.
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The applicants noted out that Cancom's submissions concerning the proposed network usage rates fail to take into account the fact that the proposed rates would no longer reflect backhaul costs, and that these costs would be recovered from the 25% premium charged for low density access.
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Cancom submitted that the Commission should assess whether the proposed rates are compensatory and maximize contribution for the individual companies, and not on a Telecom Canada basis. In support of its position, Cancom noted that the Commission's jurisdiction under the Railway Act is to ensure that the tolls of a "company", and not of a consortium of "companies", are just and reasonable. Cancom also stated that Datapac may not be compensatory for some of the smaller companies.
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The applicants stated that Datapac is a national service and that all companies share the associated risk. Therefore, there is no need to justify the service on an individual company basis. The applicants stated that, in the past, applications with respect to national services have always been accompanied by a single Telecom Canada study provided by Bell. Moreover, the applicants noted that, in responses to interrogatories, they provided information on the impact of the rate changes on individual companies.
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All of the applicants stressed the need to look at the maximization of contribution over the longer term. They stated that the proposed rates realign the access usage tariff structure to better match the underlying cost structure. In addition, the applicants stated that, by balancing customer impact and competitive threat against overall profitability, the proposed rates would maximize contribution over the long term.
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The applicants also rejected Unitel's argument that the proposed rates can be found to be non-compensatory on the basis of a comparison with packet switched rates in the United States. In the applicants' view, the PARC data is sufficient to indicate that the proposed rates are compensatory. They submitted that the data filed indicates that the proposed rates would be compensatory, even if revenues declined in the near term as a result of the proposed changes.
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While Unitel did not support the proposed rate reductions, it regarded the proposed rate structure as appropriate. However, it submitted that the second stage of implementing the 25% premium for access from low density DPSAs should be filed immediately, and not at some indefinite time in the future. Unitel cited several examples where promised future rate action was not forthcoming. In response, the applicants suggested that the Commission's order or decision direct the implementation of the second half of the premium 12 months after the effective date of the rate restructuring.
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In response to questions from Unitel concerning the need to phase in the 25% premium, the applicants stated that it is necessary to give customers time to reassess and revise their service requirements.
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IV CONCLUSIONS
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As stated in previous decisions, the Commission does not consider PARC data sufficient to enable it to determine that rates are compensatory. PARC information provides an indication as to whether rates are sufficient to recover the costs of growth increments of demand, but does not indicate whether rates are sufficient to recover the costs of the existing demand plus the growth increments. However, the Commission does not agree with Unitel's submission that, if Datapac rates are less than the rates for similar packet switched services in the United States, the rates must be non-compensatory.
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In the initial years of Datapac, there were concerns as to whether the service would be compensatory. In 1980, a re-evaluation of Datapac Service was undertaken that forecast rate increases over the period of the study. The study indicated that the service would be compensatory. Rate increases have been approved for Datapac that are at least as great as those forecast in the 1980 study. Further, annual tracking information has been filed with the Commission pursuant to Bell Canada, British Columbia and Telesat Canada: Increases and Decreases in Rates for Services and Facilities Furnished on a Canada-Wide Basis by Members of the TransCanada Telephone System, and Related Matters. Telecom Decision CRTC 81-13, 7 July 1981.
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In light of the above, the Commission is satisfied that the companies should not be required to go to the expense of further economic studies, conducted on either a company-by-company or a Telecom Canada basis.
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The Commission notes that Datapac, as a public data network service designed to serve a broad range of customer applications, has, over time, become less competitive with respect to certain types of applications, particularly those involving large volumes and those in less densely populated areas. Bell stated in response to interrogatories that it has already lost customers. It also identified possible additional revenue losses. While the Commission considers that rating initiatives are appropriate in order to improve the attractiveness of the service, it is not persuaded that rate reductions of the level proposed by the applicants are necessary.
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Finally, the Commission notes the applicants' statement that the proposed network usage rates do not reflect the cost of backhaul in low density serving areas, and that these costs would be recovered from the 25% premium. In the Commission's view, rates for access should reflect the additional cost of backhaul without delay. Accordingly, the Commission considers that the proposed 25% increase in low density access rates should be implemented in one stage, rather than in two.
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In light of the above, the Commission approves the restructuring of Datapac rates with the modifications set out below. The companies are directed to issue, by 28 April 1992 final tariff pages, with an effective date of 8 June 1992, implementing the proposed rate restructuring, subject to the following revisions:
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(1) the full 25% premium for access arrangements in low density areas is to take effect 8 June 1992, and(2) the network usage rates are to be set so as to effect an overall rate decrease of approximately 3% for the entire restructuring, rather than the proposed 6%.
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Allan J. Darling
Secretary General
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