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Telecom Letter Decision
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Ottawa, 19 August 1993
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Telecom Letter Decision CRTC 93-13
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To: Unitel Communications Inc. AGT Limited, BC TEL, Bell Canada, The Island Telephone Company Limited, Maritime Telegraph and Telephone Company Limited, The New Brunswick Telephone Company Limited, and Newfoundland Telephone Company Limited. Stentor Resource Centre Inc. Interested Parties
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Re: Sharing Groups
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On 28 April 1993, Unitel Communications Inc. (Unitel) filed an application against AGT Limited (AGT), BC TEL, Bell Canada (Bell), The Island Telephone Company Limited (Island Tel), Maritime Telegraph and Telephone Company Limited (MT&T), The New Brunswick Telephone Company Limited (NBTel) and Newfoundland Telephone Company Limited (Newfoundland Tel) (the respondents). In its application, Unitel requested (1) an interim order directing the respondents to cease the promotion, marketing and sale of their public switched long distance services to existing and potential sharing groups, and (2) a final order directing the respondents to revise their respective resale and sharing tariffs to require sharing groups to file sharing agreements with the respondents and with the Commission indicating that the members of the group actually share facilities and are jointly and severally liable for all charges payable.
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Stentor Resource Centre Inc. (Stentor) filed an answer on behalf of BC TEL, Bell, Island Tel, MT&T, NBTel, and Newfoundland Tel. AGT filed a separate answer, stating that it should not have been named a respondent, as none of the claims or remedies requested apply to it. The Commission received comments from a number of resellers, interest groups and sharing groups.
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Unitel submitted that the respondents are promoting the formation of sharing groups and marketing their Advantage Plus Services to these groups. Unitel noted that a sharing group program called "Retail Advantage Plus" was developed by Stentor in conjunction with the Retail Council of Canada, an association of approximately 6,000 corporate members. Under this program, each member that joins the group becomes eligible for the maximum Advantage Plus discount of 45% off Direct Distance Dial (DDD) rates, based on the group's aggregate long distance usage. Unitel stated that, although the Retail Council of Canada is appointed as the sharing group administrator, each member of the group receives an individual monthly long distance bill from the respondent responsible for that member's account. Unitel submitted, among other things, that a sharing group administrator should, at least, be liable and assume responsibility for payment. In Unitel's view, the Retail Council of Canada arrangement is not a sharing group; rather, it is a discriminatory pricing mechanism used to provide a telecommunications service to individual retailers who would otherwise be ineligible to receive the volume discount.
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Unitel stated that, when the Advantage Plus tariff applications were filed for approval, the respondents made it clear that the potential market was limited to large business customers, with multiple locations, who were capable of meeting the monthly usage commitment of $500,000. Now that a much larger cross-section of customers is eligible for the Advantage Plus discount, the economic evaluation studies submitted with the tariff applications misrepresent the respondents' market strategy and grossly underestimate the cross-impacts and loss of revenues associated with the migration of existing customers to Advantage Plus. In Unitel's view, massive migration of regular DDD customers to these sharing groups would result in substantial reductions to the respondents' revenues, which would reduce the level of implicit contribution that the respondents make toward the local access shortfall and force them to seek across the board increases to local rates.
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In Unitel's view, as a result of the combination of their Advantage Plus sharing group strategy and their technical advantage in providing universal origination and "1+ dialing", the respondents have conferred a preference on themselves and their customers that cannot be matched by competitors until equal access is available. In Unitel's opinion, if the Commission's sharing rules are not clarified, entire segments of the business customer market will be foreclosed before trunk-side access becomes available.
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Unitel submitted that, since Advantage Plus sharing group members have switched access to the public switched telephone network, there are no special facilities that the members share. In Unitel's view, if the concept of sharing is to have any meaning at all, something must be shared other than the 45% discount. Unitel noted that the requirement for joint and several liability was first introduced in Tariff Revisions Related to Resale and Sharing, Telecom Decision CRTC 87-2, 12 February 1987 (Decision 87-2). Although the joint and several liability requirement was not included in the resale and sharing rules set out in Resale and Sharing of Private Line Services, Telecom Decision CRTC 90-3, 1 March 1990 (Decision 90-3), or in Competition in the Provision of Public Long Distance Voice Telephone Services and Related Resale and Sharing Issues, Telecom Decision CRTC 92-12, 12 June 1992 (Decision 92-12), neither Decision expressly rescinded this requirement.
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Stentor replied that it does not have a strategy to actively promote and market to sharing groups, but that the demands of the marketplace as a result of Decision 92-12 have caused the respondents to respond to customer demand for options such as sharing. Stentor submitted that relatively few Retail Council of Canada members have joined the group. Stentor also stated that the concept of sharing groups was reflected in the economic evaluations filed with the Advantage Plus tariff applications. In Stentor's view, although sharing groups can result in revenue decreases, it is more beneficial for the respondents to serve sharing groups and experience any associated reprice loss, if any, than to lose all revenues associated with the members of the sharing group to competitors.
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Stentor stated that line-side access is available throughout the respondents' territories, so that universal origination is currently available to Unitel and its customers. Stentor also submitted that the Commission fully addressed the lack of trunk-side access in Decision 92-12 by providing contribution discounts to Unitel through the critical start-up period.
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Stentor submitted that there is no requirement that sharing groups physically share facilities; rather, any tariffed service may be shared or resold unless specifically prohibited by tariff. Stentor further submitted that there is no requirement for joint and several liability among members of a sharing group. Stentor noted that the Commission concluded in Decision 90-3 that, from an economic perspective, there is no reason to distinguish between resellers and sharing groups. In the case of the Retail Council of Canada sharing group, Stentor noted, the administrator is responsible for the billing monthly commitment for Advantage Plus. Stentor submitted that such arrangements offer sufficient guarantee against default in payment.
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In Decision 90-3, the Commission noted that resellers and sharing groups are motivated by the same economic factors. Both resellers and sharing groups lease services and facilities from the telephone companies in order to obtain an economic advantage from the shared-use of discounted services by their customers or members.
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Consistent with this view, the Commission considers it appropriate that resellers and sharing groups be in an identical position in terms of their relationship to the telephone company providing services and facilities. In other words, in their dealings with the telephone companies, both resellers and sharing groups should be in the position of a single customer, and both should assume the same responsibilities and liabilities for services rendered. Similarly, in its dealings with a sharing group, the telephone company should not retain responsibilities vis-à-vis the individual members of the group that are characteristic of its relationship with an individual customer.
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In the case of sharing group arrangements such as "Retail Advantage Plus", the sharing group, as a group, is not in the position of an individual customer vis-à-vis the telephone company. While the sharing group administrator has assumed responsibility for meeting the bill minimum, each individual member of the group has assumed liability for the services it uses. Further, the telephone company has retained responsibility for billing and collecting from each member directly, thus taking on a responsibility properly assumed by the sharing group administrator. The Commission has several concerns with such an arrangement.
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Arrangements such as "Retail Advantage Plus" permit individual members of a sharing group to take advantage of bulk discounts without meeting the otherwise applicable usage criteria and without effecting a material change in their relationship to the telephone company. The ease with which customers can enter into such arrangements, and the lack of limitations on which customers could obtain discounts, could result in a significant migration of customers to low-contribution services, resulting in much greater contribution erosion than contemplated in the economic studies filed in support of services such as Advantage Plus. Further, a significant shift of business customers to Advantage Plus or other bulk discounted message toll services from higher contributing services could result in the most contestable toll market segment producing a per-minute contribution well below the average per-minute contribution generated by the telephone companies' long distance services as a whole. Since competitor contribution is based on average contribution per minute, the result could be a significant squeeze of their margins in the most contestable markets, in particular, business markets. The Commission notes that, at present, Unitel and other competitors are already at a certain disadvantage in competing in such markets, because they are not as yet in a position to offer universal origination with 1+ dialing.
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In light of the above, the Commission agrees with Unitel that, at a minimum, a sharing group must be treated as a single customer for the purposes of billing, collection and liability for services rendered. The telephone companies must bill a representative of the group directly for all services obtained by the group's members and, in turn, the representative of the group must be responsible for billing and collecting from its members. As stated above, the Retail Council's sharing group does not conform to these criteria. Accordingly, the Commission directs that the respondents, with the exception of AGT (to whom Decision 92-12 does not apply), have 60 days to ensure that existing sharing groups conform to this decision. The Commission also directs that, effective immediately, no new groups that do not conform are to be formed and no additional members are to be added to existing groups that do not conform.
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As noted above, Unitel requested a final order that would require sharing groups to file sharing agreements indicating that the members of the group actually share facilities and are jointly and severally liable for all charges payable to them. As to the sharing of facilities, the Commission notes that any tariffed service may be shared or resold unless specifically prohibited by tariff. Given that the Commission has decided to permit the resale of bulk-discounted message toll services, it would be inconsistent not to allow the sharing of such services. The Commission agrees with Stentor that there is currently no requirement in place for joint and several liability. The Commission has concerns that the re-imposition of such a requirement would have the effect of limiting sharing arrangements to those between closely related groups of subscribers.
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In the Commission's view, Unitel's application has raised a number of significant regulatory issues related to sharing groups, including the promotion, marketing and sale of telecommunications services to such groups. Accordingly, in Sharing Groups, Telecom Public Notice CRTC 93-51, 19 August 1993, the Commission is initiating a full public proceeding to examine issues related to the appropriate regulatory treatment of sharing groups in the post Decision 92-12 environment.
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Allan J. Darling
Secretary General
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