ARCHIVED -  Telecom Letter Decision CRTC 94-1

Telecom Letter Decision

Ottawa, 16 February 1994

Telecom Letter Decision CRTC 94-1

To: The New Brunswick Telephone Company Limited - Interested Parties

Re: NBTel - Marketing of Cellular Service

In Rogers Cantel Inc. v. Bell Canada - Marketing of Cellular Service, Telecom Decision CRTC 92-13, 29 June 1992 (Decision 92-13), the Commission stated that, for those telephone companies that operate cellular service through a division of the same corporate entity that provides monopoly telephone services, procedures were warranted for ensuring that, in the provision of cellular service, there is no cross-subsidization from monopoly revenues and no undue preference or advantage conferred with respect to (1) joint marketing and advertising, (2) exchange of customer information, or (3) customer referrals. The Commission directed The Island Telephone Company, The New Brunswick Telephone Company Limited (NBTel) and Newfoundland Telephone Company Limited to file such procedures.

NBTel filed its proposed procedures by letter dated 28 August 1992. By letter dated 14 May 1993, the Commission advised NBTel that its overview of its Management Information Costing System (MICS) did not provide a sufficient basis for the Commission to assess the adequacy of the company's proposed procedures for ensuring that there was no cross-subsidization of its cellular service. As a result, the Commission directed NBTel to file a pro forma report for 1993, using data produced from MICS. The Commission also advised NBTel that its proposed procedures for ensuring that there is no undue preference or advantage conferred with respect to cellular operations were significantly at variance with the requirements of Decision 92-13, and directed NBTel to show cause why it should not be subject to those requirements.

By letter dated 25 June 1993, NBTel responded to the Commission's letter and provided a pro forma report for 1993. With respect to that report, the Commission notes that MICS assigns only direct and some indirect causal costs to specific services, and does not include a number of indirect costs, such as accounting expense and taxes. The Phase III process, on the other hand, encompasses NBTel's entire operation and, in the Commission's view, can be used to identify any cross-subsidization of cellular service by monopoly services. Accordingly, the Commission directs NBTel, when filing its unaudited 1993 Phase III results in September 1994, to include an extract of those results detailing investments, revenues and all operating and other expenses pertaining to cellular service. The Commission also directs NBTel, when filing audited Phase III results beginning in September 1995, to include a similar extract of cellular service investment, revenues and all operating and other expenses, with the extraction procedures attested to by the shareholder's auditor.

As to the applicability of the other requirements of Decision 92-13, NBTel argued that, for three reasons, the Commission should allow it to operate in a closely integrated manner. First, it noted that it was not under the Commission's jurisdiction when it was granted a cellular license, and conditions with respect to marketing, etc, were not attached to that license. Thus, its investment prior to Decision 92-13 in cellular service was made based on a specific set of assumptions and conditions, and should be protected. Second, the company stated that its customers' expectations as to service are very high; thus, the issue is not one of how a service will be sold and marketed, but rather public expectation and perception of which service provider will respond to a stated customer need for service. Third, NBTel stated that, in order to adequately meet the needs of the market, it must provide the most cost-effective service possible, regardless of whether that entails combining operations for such things as billing and marketing.

In the Commission's view, cellular service should not be viewed as either an integral part of basic telephone service or an extension thereof. Further, the Commission notes that the requirements in Decision 93-12 were established based on the need to maintain a healthy market place for cellular services by ensuring that the telephone company does not confer an undue preference or advantage on itself vis-à-vis the competing service. The Commission remains of the view that those requirements are valid and necessary to maintain the competitive regime established when cellular services were first licensed in Canada. The Commission finds that NBTel has failed to demonstrate that the requirements in question should not apply to it.

In light of the above, the Commission directs NBTel to file, by 30 March 1994, procedures that will ensure the company's compliance with the requirements of Decision 93-12 relating to (1) joint marketing and advertising, (2) exchange of customer information, and (3) customer referrals.

Allan J. Darling
Secretary General