ARCHIVED -  Telecom Decision CRTC 95-17

Telecom Decision

Ottawa, 15 August 1995

Telecom Decision CRTC 95-17

TELROUTE COMMUNICATIONS INC. - BYPASS RESTRICTIONS

On 9 December 1993, the Commission received an application from TelRoute Communications Inc. (TelRoute) requesting that the Commission direct Bell Canada (Bell), BC TEL and Unitel Communications Inc. (Unitel) to enforce the bypass restrictions in their tariffs, contracts and interconnection and service agreements with respect to certain cross-border services. In support of its application, TelRoute stated that it had informal knowledge of significant bypass of Canadian services in violation of these companies' tariffs and the Commission's rulings, and that the companies have knowledge that such bypass is occurring.

On 27 April 1994, in response to TelRoute's application, the Commission issued TelRoute Communications Inc. - Bypass Restrictions, Telecom Public Notice CRTC 94-23 (Public Notice 94-23), requesting comment on TelRoute's application and various other issues associated with bypass.

Comments were received from: Canadian Business Telecommunications Alliance, Competitive Telecommunications Association, fONOROLA Inc. (fONOROLA), Mr. Casey Kamath, Optinet Telecommunications (Optinet), Sprint Canada Inc. (Sprint), Stentor Resource Centre Inc. (Stentor) on behalf of AGT Limited, BC TEL, Bell Canada, The Island Telephone Company Limited, Manitoba Telephone System, Maritime Tel & Tel Limited, The New Brunswick Telephone Company Limited and Newfoundland Telephone Company Limited (the telephone companies), Telecommunications Workers Union (TWU), Teleglobe Canada Inc. (Teleglobe), TelRoute, Telesat Canada and Unitel.

II POSITIONS OF PARTIES

fONOROLA and Sprint submitted that there is no evidence of significant bypass and that, in fact, a number of factors serve to provide disincentives to bypass, including reduced rates for Canadian switched services and reduced contribution charges on cross-border circuits. fONOROLA, Optinet and Sprint submitted that, to the extent that bypass exists, it is the result of high private line rates in Canada as compared to the United States.

Stentor submitted that, while there exists no reliable method to calculate the actual volume of bypass, significant reductions in private line rates in recent years should lessen the incentive to bypass Canadian telephone networks.
Stentor also submitted that the level of contribution charges currently in place is not a significant incentive to bypass because of the numerous opportunities available for avoiding contribution. Stentor submitted that, if the Commission were to raise contribution rates in an effort to discourage bypass, it would result in further incentive to avoid or evade contribution. Stentor submitted that the current contribution mechanism should not be modified.

Stentor submitted that the best long-term solution to the problem of bypass is to lower rates for Canadian interexchange services, including private line services. However, Stentor stated that, even if Canadian interexchange rates were reduced to levels generally comparable to those in the United States, other non-price incentives to bypass would still exist. Stentor stated that resellers or customers affiliated with a United States based carrier might make bypass decisions based on the strategic and operational plans of its affiliate rather than on specific rate levels in Canada. Accordingly, Stentor submitted that the current bypass restrictions should remain in place, even when Canadian interexchange rates are lowered to levels equivalent to those in the United States.

TelRoute and a number of other parties submitted that a reduction in the overseas contribution charge would reduce the incentive to bypass Teleglobe's overseas facilities. In addition, TelRoute stated that further reducing Canadian private line rates would provide a disincentive to bypass Canadian interexchange facilities.

TWU submitted that the telephone companies themselves are in the best position to determine if bypass is occurring, and that they should be required to enforce their tariffs and ensure that bypass does not occur. TWU also submitted that, if the telephone companies cannot provide evidence of significant bypass, there is no reason to alter the current contribution regime.

Unitel submitted that there is no evidence of either significant bypass or of any incentive for Canadian carriers to tolerate bypass. Hence, Unitel submitted that there is no need to modify the current bypass rules. In addition, Unitel submitted that recent interexchange rate reductions and the lower value of the Canadian dollar have reduced any economic incentive to bypass Canadian facilities that may have existed. Unitel submitted that, to further reduce incentives to bypass, it may be appropriate to reduce contribution rates on cross-border circuits.

Teleglobe submitted that there is significant Canada-overseas bypass, and cited as evidence the difference between the size of the estimated overseas market and the traffic volumes recorded at its gateways. Teleglobe submitted that the Commission should require all Canadian carriers to report their traffic data. Teleglobe concluded that the contribution regime established 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), provides a strong incentive to bypass Teleglobe's overseas facilities. Accordingly, Teleglobe submitted that the Decision 92-12 contribution charges with respect to overseas traffic should be eliminated.

III CONCLUSIONS

As stated in Teleglobe Canada Inc. - Resale of Transborder Services, Telecom Decision CRTC 91-10, 26 June 1991 (Decision 91-10), the Commission is of the view that the public interest is best served when Canadian telecommunications traffic is carried to the greatest extent possible over Canadian facilities. In addition, section 7(e) of the Telecommunications Act states that the Canadian telecommunications policy has as one of its objectives the promotion of the use of Canadian transmission facilities for telecommunications within Canada and between Canada and points outside Canada. In Decision 91-10, the Commission agreed with those parties who submitted that, rather than tariff provisions, the most effective long-term solution for the reduction of bypass is the lowering of Canadian rates.

In this context, the Commission notes that the rates for switched services in some markets (such as the medium-sized business market) have dropped significantly since Decision 91-10, and considers that these reductions have reduced the economic incentive to bypass in that market segment. However, the Commission is of the view that the high level of private line rates in Canada relative to the United States represents a significant incentive to bypass for large users and for resellers that have faced declining margins. While the rates for these services have not to date declined as significantly as those for switched services, the Commission notes that alternative suppliers are beginning to enter the market. In the Commission's view, expanding network capacity will exert downward pressure on private line rates, which should further reduce incentives to bypass for larger businesses and resellers.

The Commission notes the views expressed by Stentor and TWU that it is the telephone companies who are generally in the best position to detect bypass and to enforce the prohibitions currently in place. The Commission agrees with this view, and notes that some telephone companies are taking action to enforce the bypass restrictions. However, the Commission is unable to conclude that all telephone companies are equally vigilant in enforcing the prohibitions currently contained in their tariffs. The Commission reminds all Canadian carriers of their obligation to enforce their tariffs.

With respect to the scope of the current bypass restrictions, the Commission is mindful of the position of a number of parties that the harmful effects of bypass may vary by type of service. However, the Commission considers that the difficult task of enforcing the restrictions currently in place would be further complicated if the bypass restrictions varied by type of traffic or service. Accordingly, the Commission concludes that the current bypass prohibitions should continue to apply to all types of basic services.

With respect to the effects of the contribution regime established in Decision 92-12, the Commission notes the lack of consensus among the parties to this proceeding. In the Commission's view, there may exist circumstances where the contribution regime provides an incentive to bypass and others where it provides a disincentive. The Commission is not persuaded that changing the contribution regime would reduce any overall incentive to bypass inherent in the present system. The Commission also notes that the reduction or elimination of contribution charges related to certain traffic would result in a coincidental increase in charges related to other traffic. Accordingly, the Commission concludes that amendments to the current contribution regime with regard to bypass are not warranted at this time.

Allan J. Darling
Secretary General