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Ottawa, 27 September 1993
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Telecom Decision CRTC 93-15
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RESTRUCTURING OF OVERSEAS MESSAGE TOLL SERVICE AND A NEW INTERCONNECTING AND OPERATING AGREEMENT BETWEEN TELEGLOBE AND STENTOR
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I BACKGROUND
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On 1 February 1993, the Commission issued Telecom Public Notice CRTC 93-16 initiating a proceeding to consider applications from AGT Limited (AGT), Bell Canada (Bell), BC TEL, The Island Telephone Company Limited (Island Tel), Maritime Telegraph and Telephone Company (MT&T), The New Brunswick Telephone Company Limited (NBTel), Newfoundland Telephone Company Limited (Newfoundland Tel) (collectively, the Stentor companies), Northwestel Inc. (Northwestel) and Teleglobe Canada Inc. (Teleglobe) for approval of tariff revisions related to the restructuring of overseas message toll service.
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Under Tariff Notice 233, Teleglobe proposed to introduce International Globeaccess Service (Globeaccess), which would replace its existing International Telephone Service (ITS). Globeaccess would allow domestic service providers to interconnect with Teleglobe's international network for the purpose of providing outbound direct-dial telephone service. Teleglobe also filed for the Commission's approval a new Interconnection and Operating Agreement (the new Agreement) between Teleglobe and the members of Stentor.
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Under Tariff Notice 4599, Bell proposed to introduce end-user tariffs for Overseas Message Toll Service (MTS) and 800 Service-Overseas, coincident with the introduction of Teleglobe's Globeaccess service. The proposed rates would be the same as those currently in place for ITS and International 800 Service. The other Stentor companies and Northwestel proposed (under AGT Tariff Notice 268, BC TEL Tariff Notice 2752, Island Tel Tariff Notice 198, MT&T Tariff Notice 300, NB Tel Tariff Notice 215, Newfoundland Tel Tariff Notice 226 and Northwestel Tariff Notice 448) to replace the existing references to Teleglobe's tariffs with references to Bell's tariffs.
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Under Tariff Notice 4614, Bell proposed to flow through part of the reductions embodied in the proposed Globeaccess rates (resulting from inbound settlement reductions) by reducing the rates it would charge customers for calls to the United Kingdom and Hong Kong by 13% and 12%, respectively. Under Tariff Notice 2766, BC TEL proposed to reduce rates on Between Friends Overseas Service for calls to the United Kingdom and Hong Kong.
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The Commission received comments from ACC Long Distance Ltd. (ACC); the Canadian Business Telecommunications Alliance (CBTA); the Director of Investigation and Research, Bureau of Competition Policy (the Director) and Unitel Communications Inc. (Unitel).
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II TELEGLOBE'S GLOBEACCESS APPLICATION
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Teleglobe stated that, in Teleglobe Canada Inc. - Proposed Amendments to the Interconnection and Operating Agreement with Telecom Canada, 29 November 1991, Telecom Decision CRTC 91-20 (Decision 91-20), the Commission endorsed the concept of Teleglobe making gateway access tariffs available to domestic service providers for outbound traffic. Teleglobe noted that, in Decision 91-20, the Commission considered "the establishment of a gateway access tariff for outbound traffic to be generally appropriate".
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Teleglobe stated that Globeaccess is a re-definition of its existing rates for ITS. With Globeaccess, international service would be provided to domestic service providers, rather than to end-users, and would be available only at Teleglobe's gateways. Responsibility for all aspects of the provision of service to end-users, including the establishment of end-user prices, would shift to domestic service providers.
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With Globeaccess, customers would be required to commit to a minimum usage of two million minutes per year under a two-year contract. Teleglobe proposed lower rates (equivalent to a discount of about 1.5%) for those customers committing to five million minutes per year. Customers committing to either a five-year or ten-year contract would receive additional discounts of 0.5% and 1%, respectively, relative to the two-year rates. Customers would also be eligible for a further 1.0% diversity discount should they interconnect to Teleglobe's network at gateways in all three regions, i.e., Eastern Region (Montréal), Central Region (Scarborough) and Western Region (Burnaby).
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In response to a Commission interrogatory regarding availability of Globeaccess only at gateways, rather than at Globedirect points of presence (POPs), Teleglobe stated that its facilities at POPs are designed for relatively low volumes of traffic, whereas the gateways are equipped to handle large volumes of traffic. The company stated that the design and configuration of its network, and the costs and efficiencies inherent in that network, make it unrealistic to consider offering Globeaccess at points other than gateways. Further, Teleglobe submitted that interconnection at the gateways permits it to provide service at lower costs than at POPs.
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Teleglobe stated that the two levels of commitment (i.e., 2 million and 5 million minutes) were introduced as an incentive for all service providers to route all their traffic on Teleglobe's facilities, thus maintaining and increasing traffic on Canadian facilities by stimulating demand and discouraging by-pass. In response to interrogatories requesting justification for the 1.5% volume discount, Teleglobe stated that network efficiency is a function of utilization. In Teleglobe's view, its price structure is the appropriate vehicle for providing incentives for customers to maximize their use of its facilities. The company estimated that at least five customers would have more than five million minutes of traffic in 1993, and noted that the volume discount of 1.5% for five million minutes is modest.
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Teleglobe submitted that the discounts for five and ten year terms would encourage customers to make commitments that are more in line with its network investment and other commitments, and would also contribute to the maintenance of its financing costs at their current low levels. In response to a Commission interrogatory on the appropriateness of establishing a Globeaccess option that requires no volume or term commitments and that provides for time charges set at a premium to the two year, two million minute per year option, Teleglobe replied that the existing Globetel Service already provides such an offering for service providers who do not wish to make minimum volume or term commitments. Teleglobe noted that Globetel is available at a premium to Globeaccess and offers the increased flexibility of access at POPs.
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Teleglobe submitted that the 1% diversity discount for connecting in each of its gateway regions is intended to improve the use of the overall network, both switching and transmission facilities, by providing a price incentive for domestic service providers to better distribute their originated traffic among the gateways. In Teleglobe's view, the price incentive and the "gateway of choice" would result in a more robust, reliable and cost effective network. Teleglobe also saw the diversity discount as a tool to minimize the impact of catastrophic gateway failures. In the company's view, the loss of traffic and revenues in the event of such a failure is so large that the offering of a diversity incentive is justified, in order to protect Canadian subscribers and reassure overseas partners.
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Teleglobe submitted that the proposed Globeaccess rates, in conjunction with the new Agreement with Stentor members, would be revenue neutral for the company. Teleglobe stated that, while Globeaccess is intended to replace the existing ITS tariff, it was not requesting the removal of the latter tariff because negotiations for new settlement arrangements with Unitel have not been finalized.
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III THE NEW STENTOR/TELEGLOBE INTERCONNECTION AND OPERATING AGREEMENT
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A. General
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Teleglobe stated that the development of new interconnection arrangements with domestic service providers complements the redefinition of its international rates. In Teleglobe's view, the new arrangements address a number of aspects of the market and the international operating environment related to (1) bypass, in spite of Teleglobe Canada Inc. - Resale of Transborder Services, Telecom Decision CRTC 91-10, 26 June 1991 (Decision 91-10); (2) the introduction of facilities-based competition in the Canadian long distance telephone market as a result of 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); (3) the international trend to align accounting rates with the costs incurred by each carrier in providing its part of the international and domestic networks; (4) domestic settlement costs; and (5) its major investments and long term commitments in international cables and satellite consortia.
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Teleglobe stated that a firm agreement had been reached with Stentor, but that it was actively negotiating agreements with Unitel and other domestic service providers. The company stated that it would file the latter agreements for Commission approval, once they were finalized.
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Specific elements of the new Agreement are discussed below.
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B. 10-Year Commitment, Areas of Exclusive Responsibility and End-User Marketing
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The new Agreement would require the Stentor companies to route all of their outbound basic service traffic over Teleglobe's network for a period of 10 years, unless otherwise ordered by a government or regulatory body, in which case Stentor would route to Teleglobe the maximum allowed. Teleglobe would agree to limit further deployment of direct end-user international services, including Globedirect. Stentor companies and other domestic service providers would have exclusive responsibility for the carriage of Canada-Canada and Canada-United States (U.S.) traffic, including the negotiation of interconnection arrangements with U.S. correspondents for Canada-U.S. traffic. Teleglobe would have exclusive responsibility for the carriage of all Canada basic international services traffic exchanged with non-U.S. foreign administrations and correspondents, including the negotiation of interconnection arrangements.
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In Teleglobe's view, the 10-year commitment by the Stentor companies to route all outbound basic service traffic over Teleglobe's network is essential. Teleglobe noted that the Stentor companies represent more than 90% of its traffic, and stated that the provision of facilities to carry that traffic involves commitments in cable, satellites and other network infrastructures that are 10, 15 and 20 years in duration. Teleglobe stated that, without the backing of domestic service providers through long-term traffic commitments, it is unlikely to maintain sufficient leverage to negotiate competitive accounting rates and Canadian cable landings and to maximize traffic on the Canadian network. In response to a Commission interrogatory concerning the acceptability of a shorter term commitment for interconnection agreements with other domestic service providers, Teleglobe stated that it views a 10-year commitment with other domestic service providers as highly desirable, but that it would accept shorter commitments.
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With respect to areas of exclusive responsibility, Teleglobe noted that one of the objectives of the overall proposal is to offer non-discriminatory open access to its gateways to all domestic service providers. Teleglobe's view was that its decision to limit its involvement in the domestic market supports this objective.
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Teleglobe stated that its decision not to pursue the direct end-user market would have little material impact on that market. Teleglobe stated that these customers would continue to have access to the same international services, but that these services would increasingly be provided directly through the domestic service providers in an increasingly competitive environment. Teleglobe's view was that there would therefore be no loss, but rather an increase, in service availability, choice and price competitiveness in the Canadian marketplace. Teleglobe added that end-users currently served by Teleglobe directly would continue to receive service and that no services would be abandoned without careful consideration of the availability of alternatives and the transition of customers to an alternative.
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C. Gateway of Choice
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The new Agreement provides for a policy of "gateway of choice", allowing each party a choice as to the gateway location where traffic to or from overseas is exchanged. Teleglobe and Stentor stated that this policy would maximize the efficiency of their networks and lessen the impact of potential network failures on the service provided to the end-user. Teleglobe stated that it would also alleviate the increasing concerns of Teleglobe's foreign correspondents with respect to the diversity offered for their traffic to Canada.
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