ARCHIVED -  Telecom Decision CRTC 93-8

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Telecom Decision

Ottawa, 23 July 1993
Telecom Decision CRTC 93-8
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), the Commission set out conditions governing both line-side and trunk-side access to the public switched telephone networks (PSTNs) of Bell Canada (Bell), BC TEL, The Island Telephone Company Limited, Maritime Telegraph and Telephone Company Limited, The New Brunswick Telephone Company Limited and Newfoundland Telephone Company Limited (Newfoundland Tel) (the respondents). The Commission ordered the respondents to provide Unitel Communications Inc. (Unitel) and future interexchange carriers (IXCs) with trunk-side (equal) access subject to certain conditions, and observed that the nature of resellers' operations had been to obtain line-side (non-equal) access interconnection.
On 19 June 1992, ITN Corporation (ITN), a reseller, applied for trunk-side access to the networks of the respondents on a basis equivalent to that granted to IXCs. In Trunk-side Access by Resellers to the Public Switched Telephone Networks, Telecom Public Notice CRTC 92-55, 23 September 1992, the Commission requested submissions on whether resellers should be permitted trunk-side access and, if so, the terms and conditions that should apply. Comments were received from the respondents, AGT Limited, Cable & Wireless Telecommunications, Call-Net Telecommunications Ltd., Cam-Net Communications Inc. (Cam-Net), the Competitive Telecommunications Association, ITN, Teleglobe Canada Inc., Telesat Canada, Unitel, the Director of Investigation and Research (Bureau of Competition Policy) and the Government of Ontario.
A. General
Most parties, some with certain reservations or conditions, did not oppose the provision of trunk-side access to resellers. The parties supporting the provision of trunk-side access to resellers submitted that such access would be consistent with the pro-competitive thrust of Decision 92-12 and would benefit consumers.
Unitel argued that giving trunk-side access to resellers would disrupt the balance between competing interests and policy objectives struck in Decision 92-12. Specifically, Unitel argued that it would endanger the development of sustainable, facilities-based competition by reducing the incentive to invest in transmission facilities. It also argued that such access would be counter to federal government policy limiting foreign ownership and control of facilities-based carriers. Unitel submitted that, if resellers had trunk-side access, U.S.-based carriers would be able to provide services in Canada as if they owned and controlled Canadian facilities. Unitel also expressed concern that the entire range of sophisticated and value-added services now marketed in the U.S. could become available through the existing databases and intelligent network platforms of U.S. carriers entering the Canadian market as resellers. This, in Unitel's submission, would pose a serious threat to the emergence and viability of facilities-based competition in Canada.
In Decision 92-12, the Commission rejected duopoly in the provision of public long distance voice services in favour of a dynamic market structure. The Commission emphasized the importance of having both facilities-based competitors and resellers in the market, noting that resellers complement facilities-based competition by providing price discipline, ensuring greater responsiveness and serving niche markets. However, the Commission also noted that a reseller operates at the margins provided for in the price of leased facilities and services and is at risk whenever carriers can reduce those margins. The Commission therefore considered that, since an IXC has greater control over its facilities costs, facilities-based entry was required to achieve sustainable competition. The Commission also anticipated that a resale market based solely on arbitrage opportunities may not be sustainable in the long run and that, in order to survive in the face of declining margins, resellers would have to provide value-added services or develop into facilities-based competitors.
In this context, the Commission notes that the margins that resellers need in order to compete solely by offering price discounts are diminishing. Further, as was argued in this proceeding, a reseller's ability to provide value-added services is highly dependent on its ability to obtain the most technologically advanced access available. Therefore, in the Commission's view, to deny resellers the most technologically up-to-date access arrangements, specifically, trunk-side access and Common Channel Signalling 7 (CCS7) interconnection, would limit their ability to compete through the provision of a full range of advanced services, thus limiting choice of service and supply to end users. The granting of such access arrangements, on the other hand, would be entirely consistent with the Commission's intention in Decision 92-12.
As indicated by the above, the Commission agrees with Unitel that trunk-side access would allow resellers to provide many of the same advanced services as IXCs. However, although resellers and IXCs would be able to offer the same services, a reseller without its own facilities would continue to face a higher cost structure for its underlying transmission network. Therefore, given that margins are shrinking, the Commission considers it reasonable to assume that, even with the option of using trunk-side access, the incentive to invest in transmission facilities would remain for resellers that do not wish to limit themselves to niche markets.
The Commission does not agree that, with trunk-side access, a U.S.-based carrier operating in Canada as a reseller would be operating as if it owned its own Canadian transmission facilities. Rather, it is the Commission's view that IXCs have a cost advantage with regard to facilities vis-à-vis any reseller, whether Canadian or non-Canadian. Further, while foreign-affiliated resellers may obtain some benefit through access to sophisticated network databases and intelligent network platforms, that access would provide an advantage only if those resellers were able to access such technology at a lower cost than Canadian market participants can access comparable technology.
In addition, the Commission notes that investment in transmission facilities in Canada, whether by resellers or others, must comply with Canadian ownership and other requirements.
The Commission also notes that neither Unitel nor B.C. Rail Telecommunications/Lightel Inc. (BCRL), a carrier with primarily leased transmission facilities, was obliged by Decision 92-12 to build a minimum level of network facilities as a condition of entry. Moreover, even a facilities-based carrier may determine that direct investment in physical infrastructure is not the most cost effective way to acquire the facilities and technologies it needs in order to compete.
Bell and BC TEL supported the provision of trunk-side access for resellers provided that certain issues were resolved beforehand. In particular, Bell and BC TEL stated that (1) contribution discounts should be eliminated, (2) the start-up costs to be recovered from resellers should be determined, (3) the pricing of local and access services should be addressed, and (4) the telephone companies should be regulated in such a way that they have appropriate pricing flexibility.
The issues of contribution and the recovery of start-up costs are addressed in Sections B and C, below. As to the third and fourth issues noted above, the Commission is not persuaded that it is necessary to address the questions of local and access service pricing and the appropriate regulatory regime for the local monopoly service providers prior to permitting trunk-side access for resellers. The Commission notes that these questions are currently under consideration in the proceeding initiated by Review of Regulatory Framework, Telecom Public Notice CRTC 92-78, 16 December 1992.
In light of the above, the Commission considers that resellers should be provided with trunk-side access to the networks of the respondents on the terms set out below. This determination disposes of ITN's application.
B. Contribution
As noted above, Bell and BC TEL were of the view that contribution discounts should be eliminated prior to granting trunk-side access to resellers. Other local monopoly service providers also expressed concerns as to contribution discounts. On the other hand, certain resellers argued that the transitional discount on line-side access established in Decision 92-12 should be extended to trunk-side connections used by resellers.
The Commission considers that the granting of trunk-side access to resellers does not alter the bases for the contribution regime established in Decision 92-12. Further, in Decision 92-12, the Commission determined that BCRL, which would be operating primarily as a reseller, would pay the transitional discounted reseller contribution on its line-side connections, but would pay the same contribution as Unitel for trunk-side access. Consistent with the above, the Commission considers it appropriate for resellers to pay the transitional reseller contribution on line-side connections and on Canada-U.S. and Canada-Overseas traffic, and to pay the IXC level of contribution on trunk-side connections.
The contribution charges established in Decision 92-12 are based on trunk group sizes and reflect trunking efficiencies. Certain local monopoly service providers argued that, when a reseller uses both trunk-side and line-side connections within the same local calling area, the size of the trunk group for the purposes of determining contribution charges for each of the trunk-side and line-side connections should be based on the size of the circuit group resulting when the trunk and line-side circuits are added together. The Commission disagrees, however, and considers it consistent with the intent of Decision 92-12 to treat the circuits associated with each telephone company switch as a separate trunk group.
C. Start-up Costs, Switching and
Aggregation Charges
Generally, the local monopoly service providers argued that the level and allocation of start-up costs set in Decision 92-12 should be adjusted if resellers are granted trunk-side access. However, the Commission agrees with Cam-Net that, since the start-up cost recovery charge is a per-minute charge, the local monopoly service providers will be compensated if their loss of market share exceeds Decision 92-12 estimates. Accordingly, the Commission concludes that resellers using trunk-side access should pay the rates set for IXCs in Decision 92-12 for the recovery of start-up costs and switching and aggregation charges.
The Commission stated in Decision 92-12 that it expects the respondents to propose unbundled rates for the specific switching and aggregation functions associated with interconnection. Bell proposed in this proceeding that the unbundled tariffs should be in place before such services are made available to resellers. The Commission is not persuaded that it is necessary to have unbundled rates in place prior to granting trunk-side access to resellers. Further, the Commission notes that, pursuant to Decision 92-12, the timing of tariff proposals relating to the unbundling of the network charge is in the hands of the local monopoly service providers.
D. Regulatory Obligations
Some of the terms and conditions established in Decision 92-12 for the provision of trunk-side access to IXCs are based on the entrant being a "company" within the meaning of the Railway Act and thus subject to the Commission's jurisdiction and the requirement to file tariffs. For example, in order to protect consumers, an IXC obtaining trunk-side access must have an approved operator services tariff before it can connect pay telephones or obtain access to billing and collection services or related databases. The entrant must also have an approved general tariff item to protect the confidentiality of subscriber information.
The telephone companies and other interveners submitted that resellers with trunk-side access should be subject to the same regulatory obligations. In general, resellers disagreed.
The Commission is of the view that certain of the safeguards established in Decision 92-12 should apply to resellers obtaining trunk-side access. However, it is expected that resellers, as distinct from "Canadian carriers", will not be subject to regulation under the new Telecommunications Act, which will come into force on 25 October 1993. Since resellers would no longer be required to file tariffs for the approval of rates or of other terms and conditions of service, the Commission would not be in a position to require that they have operator services tariffs or tariff provisions protecting the confidentiality of subscriber information. In order to protect consumers, the Commission considers that no service provider whose rates are not subject to regulation should be permitted to connect pay telephones. Further, mechanisms to take the place of tariff provisions would have to be developed before unregulated service providers could be granted access to billing and collection services and related databases. The Commission will invite comment from interested parties on the form those mechanisms might take and what, specifically, they should provide for. Without such mechanisms, the Commission considers that resellers with trunk-side access should not be permitted to have access to billing and collection services and related databases.
Unitel and other parties expressed concern that the bypass of Canadian facilities would increase if resellers obtained trunk-side access. Certain parties to the proceeding suggested that resellers obtaining trunk-side access should be required to include bypass restrictions in their tariffs and customer contracts and in any agreements that they may enter into with U.S. carriers. In the Commission's view, such a requirement is unnecessary, since resellers with trunk-side access will continue to obtain private lines from the facilities-based carriers and will thus be subject to the bypass restrictions already contained in the tariffs of those carriers. Further, as noted above, with the enactment of the new Telecommunications Act, it is expected that resellers will not be obliged to file tariffs.
Newfoundland Tel requested that the Commission remove the current affiliate rule if resellers are granted trunk-side access. The Commission notes that the affiliate rule is under consideration in another proceeding (see Telecom Public Notice CRTC 92-70, 25 November 1992).
E. Technical Requirements
In Part VI of Decision 92-12, the Commission established the basis for Unitel's interconnection with the PSTNs of the respondents. Among other things, the Commission directed the filing of appropriate tariffs by the respondents, the establishment of Interexchange Carrier Groups and the negotiation of the technical details of interconnection by Unitel and the respondents in Joint Technical Committees. The arrangements ultimately negotiated between Unitel and the respondents pursuant to Part VI will form the basis for the provision of trunk-side access to resellers. Resellers will, of course, be able to negotiate any additional requirements they may have with the respondents on an individual basis.
Unitel argued that trunk-side access would increase the demand for Carrier Identification Codes (CICs) to the point where a change from three to four digit CICs would be required, which would create additional costs. In the Commission's view, the question of conversion to four digit CICs will have to be addressed in Canada regardless of whether resellers are granted trunk-side access. The Commission therefore considers that the eventual need for that conversion does not warrant denying resellers trunk-side access. The Commission further notes that, as the allocation and administration of CICs is an industry matter, resellers must use existing procedures to acquire CICs.
Based on the findings in this Decision and in Decision 92-12, the Commission sets out the following requirements applicable to the respondents and to resellers seeking trunk-side access:
1. The switch availability intervals established pursuant to Decision 92-12 are to apply to resellers seeking trunk-side access;
2. Tariffs established pursuant to Decision 92-12 providing for overflow routing are to apply to resellers with trunk-side access;
3. (a) Tariffs to be established pursuant to paragraph 5(c) of Part VI of Decision 92- 12, providing for the technical terms and conditions of interconnection between the respondents and Unitel, are to form the basis of the provision of trunk-side access to resellers;
(b) The respondents are each directed to negotiate any further technical or other arrangements requested by resellers obtaining trunk-side access;
(c) The respondents are each directed to file proposed tariffs setting out any additional terms and conditions negotiated pursuant to paragraph (b) above, within 60 days of the receipt of the request from the reseller;
4. (a) Requests from resellers for services and facilities necessary for trunk-side access are to be handled by the Interexchange Carrier Groups established pursuant to Decision 92-12;
(b) The respondents are each directed to negotiate an agreement with any reseller requesting trunk-side access specifying the applicable procedures within the Interexchange Carrier Group;
(c) the respondents are each directed to file a proposed agreement with the Commission within 60 days of the receipt of a request from a reseller for trunk-side access.
The Commission will issue further directions concerning the issuing of tariff pages after considering the appropriate mechanisms to govern access to billing and collection services and associated databases by resellers with trunk-side access.
Allan J. Darling
Secretary General

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