ARCHIVED -  Telecom Public Notice CRTC 95-36

Telecom Public Notice

Ottawa, 11 July 1995

Telecom Public Notice CRTC 95-36

IMPLEMENTATION OF REGULATORY FRAMEWORK - LOCAL INTERCONNECTION AND NETWORK COMPONENT UNBUNDLING

I BACKGROUND

In Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994 (Decision 94-19), the Commission decided that restrictions on entry into the local market should be removed and that principles of open access, unbundling and co-location should be pursued. The Commission also found increased competition in the local telecommunications market to be in the public interest. Accordingly, in order to permit increased competition, the Commission established procedures to implement tariffs to unbundle network components and to allow co-location. In addition, the Commission indicated that it would be predisposed to approve applications to interconnect systems offering local switched voice services, even prior to the approval of those tariffs.

Pursuant to Decision 94-19, AGT Limited (AGT) and Stentor Resource Centre Inc. (Stentor), on behalf of BC TEL, Bell Canada (Bell), The Island Telephone Company Limited, Manitoba Telephone System, Maritime Tel & Tel Limited, The New Brunswick Telephone Company Limited (NBTel) and Newfoundland Telephone Company Limited, filed co-location proposals over the period 16 January 1995 to 10 February 1995. A proceeding to consider the proposed tariffs (the Co-location Proceeding) was initiated in Implementation of Regulatory Framework - Co-Location, Telecom Public Notice CRTC 95-13, 20 March 1995.

In addition, on 15 March 1995, Stentor filed, on behalf of all of the telephone companies noted above (including AGT), a submission that included a proposed model tariff for local network interconnection and unbundled network components. The model tariff did not include proposed rates. Stentor stated that each of the telephone companies was currently engaged in the task of costing and developing rates for the rating elements shown in the model tariff.

By letter dated 22 March 1995, Stentor filed a model local interconnection agreement and additional evidence.

By letter dated 18 April 1995, the Commission requested that Stentor provide a schedule indicating when each of the telephone companies would be in a position to file proposed rates, along with supporting cost information, for each rating element in the proposed model tariff. In addition, the Commission requested that Stentor provide its views as to (1) whether it would be appropriate, in light of the schedules to be provided, to include consideration of the specific proposed rates, when they became available, in the proceeding established to consider Stentor's 15 March 1995 submission (the Unbundling Proceeding), and (2) if so, how best to do so. In its letter, the Commission provided interested parties with an opportunity to comment on Stentor's response.

Following an exchange of correspondence between Stentor and Unitel Communications Inc. (Unitel) and a letter from Unitel to the Commission dated 10 April 1995, the Commission, by letter dated 20 April 1995, determined that satisfying the requirements of long distance competitors for unbundled network components for the provision of long distance services in the competitive environment established by 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), should not await the outcome of the Unbundling Proceeding unless satisfying those requirements would be contingent on the resolution of other issues in that proceeding. The Commission found that the process set out in Notification of Network Changes, Terminal-to-Network Interface Disclosure Requirements and Procedures for the Negotiation and Filing of Service Arrangements, Telecom Letter Decision CRTC 94-11, 4 November 1994 (Letter Decision 94-11), provides the means to address on-going unbundling requirements in the competitive environment established by Decision 92-12.

On 9 May 1995, Stentor replied to the Commission's letter of 18 April 1995. Stentor indicated that the filing of proposed rates and supporting cost information would take place on 3 August 1995. Stentor also submitted that the proposed rates should be considered together with the other issues raised by its submission of 15 March 1995. Stentor provided a proposed timetable for the Unbundling Proceeding that included provision for the filing of evidence by interveners, the filing of further evidence by Stentor and an oral hearing. The Commission received comments on Stentor's letter of 9 May 1995 from the Canadian Cable Television Association (CCTA), Clearnet Communications Inc. (Clearnet), LanSer Wireless Inc. and Rogers Communications Inc. (Rogers).

The Commission's determinations as to the scope and form of the Unbundling Proceeding are set out below.

II SCOPE

A. Nature of Issues

The Commission notes that, pursuant to interconnection and resale arrangements resulting from Interexchange Competition and Related Issues, Telecom Decision CRTC 85-19, 29 August 1985, Resale to Provide Primary Exchange Voice Services, Telecom Decision CRTC 87-1, 12 February 1987, Tariff Revisions Related to Resale and Sharing, Telecom Decision CRTC 87-2, 12 February 1987, and Decision 92-12, opportunities exist, even prior to the implementation of co-location and unbundling, for competitors to provide local wireline services, including exchange services, in competition with the telephone companies. However, the arrangements in place require that competitors buy local network components bundled together, and thus do not permit them to provision their networks using a combination of their own facilities and facilities leased from the telephone companies. In addition, the interconnection arrangements do not provide for compensation payable to the competitor for the termination of traffic originated by the telephone company. Further, the lack of co-location limits the extent to which competitors can provide their own transmission facilities. For the reasons set out below, the Commission considers that the primary purpose of the Unbundling and Co-location Proceedings is to address deficiencies in these current access arrangements for local service providers.

In this context, the Commission notes that, in developing and implementing an appropriate regulatory framework for the industry as a whole, the Commission must take into account a number of inter-related issues. The Commission's resolution of these issues will affect much more than just the development of local competition. For example, two significant issues affecting local competition are the rate at which the contribution component of the Carrier Access Tariff (CAT) and subsidies between various local services should be reduced through rate revisions. The resolution of these issues will require that the Commission take into account concerns related to rate shock, affordability and the impact of changes in the contribution component of the CAT on the toll market. The Commission must also take into account the outcome of potential revenue requirement proceedings over the transitional period and the price cap proceeding.

In the Commission's view, there are two major categories of issues that arise in relation to local competition. The first category relates to providing competitors with the technical means (1) to provide local exchange services using a combination of their own and leased facilities, and (2) to exchange traffic with the telephone company, with appropriate compensation.

The second category relates to restructuring and determining the appropriate levels for the telephone companies' prices for exchange services provided to end-users, and associated pricing flexibility. It is this second category of issues that are affected not only by considerations directly related to local competition, but also by a variety of other concerns. There are, as discussed below, several other proceedings, either already under way or planned, that will deal with many of the issues in this category.

First, AGT, BC TEL and Bell have filed tariff applications proposing local rate restructuring, and the Commission has decided to deal with those applications in separate proceedings, as was the case for previous proposals for rate restructuring by Bell and NBTel. This approach affords the Commission the flexibility to deal with local rate restructuring on an on-going basis and to take into account the impact of other rate action, resulting for example from rate rebalancing and revenue requirement proceedings, and the extent of any market forces.

Second, as indicated in the past, the Commission is willing to examine local rate restructuring in the context of revenue requirement proceedings.

Third, the Split Rate Base proceeding is examining rate rebalancing alternatives, some of which involve local rate restructuring.

Fourth, one of the primary pricing issues in the price cap proceeding will be local pricing flexibility for the telephone companies (for example, what services should be covered by a price cap?, how broad should the baskets be?, should there be additional constraints on the prices for categories of services within baskets?, how should services not subject to price caps be regulated?). The Commission indicated in Decision 94-19 that the price cap proceeding will be initiated in the first half of 1996. In addition, the appropriate degree of pricing flexibility will depend on, among other things, the extent to which market forces develop in the local exchange market. As a result, the appropriate degree of pricing flexibility may continue to change, even after the implementation of price caps, as market forces evolve.

Given the number of factors that are relevant to local rate restructuring (such as telephone company Utility segment revenue requirement needs, rate rebalancing and the potential for local competition) and to pricing flexibility (for instance, the development over time of market forces and the design of price caps), the Commission's view is that it would not be possible to resolve the issues of end-user exchange service rate restructuring and pricing flexibility in any one proceeding at this time. Rather, the resolution of these issues will evolve as the Commission deals with rate rebalancing, revenue requirement needs and tariff applications to restructure local rates, as actual competition develops in the local market and as the nature of price caps is considered.

In fact, the Commission's view is that properly balancing the interests of local and toll competitors, telephone companies and consumers requires that the Commission retain the flexibility to manage the process of rate restructuring by taking into account, at any one point in time for any particular telephone company, the likelihood of rate action resulting from all sources (revenue requirement, rate rebalancing, other local rate restructuring), as well as the then current state of development of market forces.

The Commission also notes that its ability to provide for pricing flexibility, other than through company-specific tariff applications considered on an on-going basis, is constrained by (1) concerns over the sufficiency of market forces to discipline the telephone companies' pricing, (2) concerns arising during the transition to price caps from the application of revenue requirement regulation to the overall Utility segment, and (3) concerns that the Commission would in effect be ruling, prior to the price cap proceeding, on matters related to the application of price caps to certain Utility segment services.

In light of the above, the Commission will not include in this proceeding, consideration of the restructuring of, and appropriate levels for, the telephone companies' prices for exchange services provided to endusers, and associated pricing flexibility.

The first category of local competition issues referred to above (i.e., providing competitors with the technical means to provide local exchange services using a combination of their own and leased facilities and to exchange traffic with the telephone company) involves (1) the form, rates, terms and conditions of tariffs for unbundled network components and of interconnection arrangements for local service providers, (2) any certification requirements (including consumer safeguards) for competing local exchange carriers, and (3) the need for mechanisms to sustain subsidies to certain exchange services from competitive toll and other exchange services. The Commission finds that it is this category of issues that is properly the subject of the current proceeding. In addition, it will be necessary to establish, as part of this proceeding, the appropriate anti-competitive pricing test for telephone company exchange services, as well as non-price-related competitive safeguards.

B. Number Portability

Stentor stated in its 15 March 1995 submission that its owner companies are active participants in forums in both Canada and the United States where possible solutions with regard to number portability are being examined. Stentor stated that an industry-wide solution is not yet available, but that the companies are prepared to work with competitors in the pursuit of interim solutions. Stentor stated that proposed interim solutions would have to be examined in the context of customer and network impacts and costs.

In the Commission's view, solutions to the problem of number portability, both interim and long-term, are best addressed in a proceeding separate from the Unbundling Proceeding, because of the likely need for an element of negotiation between the parties and for intervention by the Commission or its staff at an intermediate stage in the resolution of this issue. Due to the relationship between number portability and the transfer of number administration functions from the telephone company to another body, the Commission considers that the latter issue should be included in the proceeding to consider number portability. However, the issue of the appropriate rates to be paid for telephone numbers by competitive local exchange carriers, as long as Stentor companies retain their current number administration functions, will be considered in the Unbundling Proceeding.

The Commission will issue a separate public notice in the near future to initiate a proceeding to deal with the issues of number portability and the transfer of number administration functions from the telephone company to another body.

C. CCTA's Proposal for a Public Notice Regarding the Scope of this Proceeding

CCTA proposed that the Commission issue a public notice seeking comments from interested parties on the specific issues that should be resolved in this proceeding.

The Commission does not consider it necessary to issue a public notice as suggested by CCTA. In any event, parties have had an opportunity to file comments on the nature of the process. CCTA's request is therefore denied.

D. Conclusions

In summary, the Unbundling Proceeding will include the determination of the appropriate form, rates, terms and conditions of tariffs for unbundled network components and of interconnection arrangements for local service providers, and will cover the issues raised by Stentor's submission, with the following exceptions: (1) those issues to be included in the number portability proceeding discussed above, and (2) issues related to the restructuring of the telephone companies' prices for exchange services provided to end-users, and associated pricing flexibility. As noted above, the proceeding will also include consideration of the appropriate anti-competitive pricing test for telephone company exchange services and non-price-related competitive safeguards.

As discussed above, the process set out in Letter Decision 94-11 provides the means to address the on-going requirements of long distance competitors for unbundled network components for the provision of long distance services in the competitive environment established by Decision 92-12. Accordingly, such requirements will not be considered in this proceeding, unless they are contingent on the resolution of other issues in the proceeding.

III PROCEDURAL AND OTHER MATTERS

A. Filing of Evidence by Stentor

Stentor indicated in its 9 May 1995 letter that it would be filing additional evidence on 18 August 1995. The Commission notes that Stentor has had ample opportunity to file evidence in its submissions of 15 March 1995 and 22 March 1995, and that the scope of the proceeding will be narrower than proposed by Stentor. Accordingly, Stentor is directed not to file additional evidence on 18 August 1995, other than on those topics identified by the Commission in Part IV below.

B. Filing Date for Evidence of Interveners

Stentor proposed that interveners file evidence on 18 August 1995, 15 days after Stentor files its proposed rates and supporting costs.

Clearnet proposed that interveners file evidence on 24 November 1995, arguing that Stentor will have had more than 10 months to file proposed rates pursuant to Decision 94-19 and that it is unreasonable to expect interveners to digest Stentor's proposed rates and respond within two weeks.

Rogers submitted that the Commission should amend the procedure proposed by Stentor to permit interveners to file evidence after Stentor files its evidence.

CCTA proposed that interveners be permitted to file evidence and proposals six months after Stentor files the proposed rates and supporting costs. CCTA submitted that, in considering the length of time required, the Commission should take into account the complexity of the issues, the relative disadvantage of other parties in not having experience with local telephony, and the need to research the issues raised in Stentor proposals and to retain and instruct outside experts to develop evidence and proposals. CCTA also noted the length of time that will have elapsed since Decision 94-19 by the time that Stentor files its proposed rates.

The Commission considers it appropriate to provide interveners with four months, from the time Stentor files its proposed rates, to prepare and file evidence. In the Commission's view, this interval strikes a reasonable balance between interveners' requirements and the public interest in an expeditious disposition in the proceeding.

C. Request for an Oral Process

Stentor's view is that the Commission's decision to open local markets to competition is more significant in terms of scope, complexity and potential impact than any of its previous decisions leading to competition in other markets. Stentor submitted that the related issues can be given full consideration only in an oral public proceeding. CCTA supported Stentor's proposal that there be an oral hearing, including cross-examination.

The Commission notes that participants in its proceedings are increasingly requesting extensions and delays, even where delay is against their interest, due to the burden of participating in the large number of proceedings currently under way. Further, the Commission expects that the number of proceedings before it will increase in the near to middle term. Given that oral hearings can impose significant costs and compromise parties' ability to participate in other Commission proceedings that may affect their interests, the Commission considers that they should be used only when a paper proceeding would not permit a full and fair examination of all the issues to be resolved.

In this particular case, the Commission does not consider an oral hearing necessary in order to ensure a full and fair examination of the issues. Rather, given the technical aspects of many of the issues and the nature of the evidence to be filed, the Commission considers that providing all parties with an opportunity to address a supplementary set of written interrogatories would be a more effective and efficient means of ensuring that all parties have a meaningful opportunity to test evidence in this proceeding. Consequently, the Commission will not hold an oral hearing in this proceeding. However, in light of the requests for an oral hearing, the Commission seeks comment from parties, as set out in Part IV below, on the appropriateness of permitting them to make an oral submission to the Commission coincident with the filing of written final argument.

D. Disk Versions of Hard Copy Filings

In the Commission's view, this proceeding will be much facilitated if the material filed by parties is also made available in machine-readable form. Accordingly, while the paper copy will constitute the official record of the proceeding, parties are requested, where possible, to provide a disk version of any filings. Disk versions, if provided, are to be filed with the Commission and served on parties requesting them at the same time as the hard copy, or, in any event, no later than within one week of the filing of the hard copy.

Parties are requested to provide all text material in Wordperfect 5.1 or MS Word 6.0 format, on IBM compatible 1.44 Megabyte 3.5 inch disks. Where it is not possible to provide the material in Wordperfect or MS Word, ASCII or the original machine-readable format could be provided as an alternative. An IBM-compatible MS-DOS format would be preferable. It is requested that, where applicable, spread sheets be provided in Lotus 1-2-3 WK1 or a compatible format. Electronic copies of graphs and diagrams should be provided in the default format of the software used to create them.

E. Local Telephone Service Trials

CCTA submitted that it will take some time to complete the development of a regulatory framework that will permit the development of sustainable local competition. CCTA stated that, in the interim, some parties may want to conduct technical and/or market trials in the area of local telephony. CCTA noted that sufficient information is not available at this time to develop a comprehensive interim regulatory framework that would meet the requirements of all potential local service competitors. CCTA proposed that the Public Notice in this proceeding make clear that, pending the development of tariffs and a related regulatory framework for local telephone competition, any party may request and receive from a telephone company the network access components required to implement interconnected local telecommunications services.

The Commission is willing to permit interim arrangements and notes that, in Decision 94-19, it indicated a predisposition to approve applications to interconnect systems offering local switched voice services, even prior to the approval of tariffs providing for unbundled network components and co-location. In addition, as noted earlier, interconnection and resale arrangements that would permit the offering of some local services already exist. Depending on the nature of the competitor's service or trial, it may be that its needs can be accommodated under existing arrangements, perhaps supplemented with interim approval, in some form, of certain aspects of the proposed tariffs. The Commission notes that provision of services by local service competitors on other than a technical trial basis would require approval of tariffs for the competitor in question.

IV PROCEDURE

1. The mailing addresses to be used in this proceeding are:

Mr. Allan J. Darling
Secretary General
CRTC
Ottawa, Ontario
K1A 0N2
Fax: 819-953-0795

Mr. R.F. Farmer
Managing Director
Regulatory Matters
Stentor Resource Centre Inc.
160 Elgin Street
Floor 22
Ottawa, Ontario
K1G 3J4
Fax: 819-781-7038

2. Persons wishing to participate in this proceeding (interveners) must file a notice of intention to participate with the Commission, serving a copy on Stentor, by 28 July 1995. Interveners are to indicate in their notices whether or not they wish to receive disk versions of hard copy filings. The Commission will issue a complete list of parties and their mailing addresses, identifying those parties who wish to receive disk versions.

By the same date, parties (Stentor and interveners) may provide their comments on the appropriateness of the Commission hearing oral submissions, coincident with the filing of written final argument.

3. Stentor is directed to file, by 3 August 1995, its proposed rates for unbundled network components and local network interconnection, along with supporting cost information. Copies are to be served on interveners by the same date.

Stentor is also directed to serve on interveners, by 3 August 1995, copies of its submissions of 15 March 1995 and 22 March 1995.

4. When filing the proposed rates and supporting costs, Stentor is directed to:

(a) disclose the supporting cost information on the public record, at a level of disaggregation consistent with the disclosure directed in the Commission's letter of 5 May 1995 in the Co-location Proceeding; or

(b) show cause why this information should not be disclosed.

5. Stentor is directed to file additional evidence on 18 August 1995 on the following subjects:

(a) the appropriate form, level of aggregation and components of the imputation test to be applied to the competitive local exchange services of the Stentor companies, the services to which the test should be applied, and the services or initiatives, if any, that should be exempted, with supporting justification;

(b) evidence as to which tariff components Stentor considers "essential", as defined in Stentor's submission of 15 March 1995, with supporting justification; and

(c) evidence as to which of the proposed tariff components would be imputed to the Stentor companies, with supporting justification.

Each piece of additional evidence is to be accompanied by a concise executive summary.

6. Interveners may address interrogatories to Stentor. Any such interrogatories are to be filed with the Commission and served on Stentor by 2 October 1995.

7. Stentor is to file responses to interrogatories, serving copies on interveners, by 14 November 1995.

8. Requests by interveners for further responses to their interrogatories to Stentor, specifying in each case why a further response is both relevant and necessary, and requests for public disclosure of information for which confidentiality has been claimed, setting out the reasons for disclosure, must be filed with the Commission and served on Stentor by 23 November 1995.

9. Stentor's reply to requests for further responses and to requests for public disclosure is to be filed with the Commission and served on the interveners making the requests by 30 November 1995.

10. The Commission will issue a determination with respect to any such requests as soon as possible. The Commission intends to direct that any information to be provided pursuant to that determination be filed with the Commission and served on interveners by 12 January 1996.

11. Interveners may file evidence on the issues to be addressed in this proceeding. Any such evidence is to be filed with the Commission and served on all other parties by 4 December 1995. Each piece of evidence is to be accompanied by a concise executive summary.

12. Any party may address interrogatories to any intervener who files evidence pursuant to paragraph 11 above. Any such interrogatories must be filed with the Commission and served on the interveners in question by 19 January 1996.

13. Interveners are to file responses to any interrogatories with the Commission, serving copies on all other parties, by 1 March 1996.

14. Requests by parties for further responses to their interrogatories to interveners, specifying in each case why a further response is both relevant and necessary, and requests for public disclosure of information for which confidentiality has been claimed, setting out the reasons for disclosure, must be filed with the Commission and served on the interveners in question by 8 March 1996.

15. Interveners' replies to requests for further responses and to requests for public disclosure are to be filed with the Commission and served on the parties making the requests by 15 March 1996.

16. The Commission will issue a determination with respect to any such requests as soon as possible. The Commission intends to direct that any information to be provided pursuant to that determination be filed with the Commission and served on all parties by 9 April 1996.

17. Parties may address supplementary interrogatories to Stentor and to interveners who file evidence pursuant to paragraph 11 above. Any such interrogatories must be filed with the Commission and served on the parties in question by 19 April 1996.

18. Parties are to file responses to any supplementary interrogatories with the Commission, serving copies on all other parties, by 17 May 1996.

19. Parties may file written final argument with the Commission, serving copies on all other parties, by 10 June 1996. Written final argument is to be accompanied by a concise executive summary.

20. Parties may file written reply argument with the Commission, serving copies on all other parties, by 25 June 1996. Written reply argument is to be accompanied by a concise executive summary.

Allan J. Darling
Secretary General