ARCHIVED -  Telecom Decision CRTC 95-2

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Telecom Decision

Ottawa, 3 February 1995
Telecom Decision CRTC 95-2
On 12 May 1992, Sprint Canada (Sprint), formerly Call-Net Telecommunications Ltd. filed an application requesting that the Commission direct BC TEL and Bell Canada (Bell) to provide Sprint with effective discounts off tariffed rates for long distance voice services on the same or similar terms as are currently offered to hotels and motels under the companies' respective Hotel and Motel Commission Plans (HMCPs).
In its application, Sprint stated that BC TEL and Bell, under their respective HMCPs, offer commissions to hotels and motels based on long distance calls originated by guests. Sprint submitted that the definitions of "telephone toll" and "toll" in the Railway Act are broad enough to include the services provided to hotels and motels and the commissions offered under the HMCPs. Sprint argued that the commissions are tantamount to discounts on approved tariffed rates for telecommunications services billed to guests' rooms, and that the rates offered by means of these effective discounts clearly fall within the Commission's jurisdiction pursuant to the Railway Act.
Sprint stated that BC TEL and Bell refused to negotiate an agreement to provide it with effective discounts or commissions on the same or similar terms and conditions as are offered to hotels and motels. Sprint argued that their refusals, and their actions, were contrary to section 340 of the Railway Act. Sprint submitted that it has been unduly and unreasonably prejudiced and disadvantaged vis-à-vis a class of similar users, i.e., hotels and motels, and that the latter have preferential access to service and rate options not available to Sprint. In addition, Sprint submitted that BC TEL and Bell have conferred an undue and unreasonable preference on themselves by offering the HMCP selectively only to hotel and motel subscribers who otherwise might have purchased services from Sprint.
BC TEL and Bell disputed Sprint's argument that the commissions paid pursuant to HMCPs constitute a service or toll. They argued that the commission is an agency fee arising out of an agency arrangement. They noted that, in Maritime Telegraph and Telephone Company Limited - Revenue Requirement for 1990 and 1991, Telecom Decision CRTC 90-30, 20 December 1990 (Decision 90-30), and in AGT Limited - Revenue Requirement for 1992, Telecom Decision CRTC 92-9, 26 May 1992 (Decision 92-9), the Commission found that the HMCP was not a "toll" within the meaning of the Railway Act and, in Decision 92-9, that the implementation of the plan was not a matter subject to the Commission's authority. Further, BC TEL and Bell submitted that, in light of the Commission's findings in Decisions 90-30 and 92-9, there is no unjust discrimination or undue preference contrary to section 340 of the Railway Act with respect to the HMCP arrangements.
BC TEL and Bell contended, among other things, that resellers and hotels and motels do not operate under similar conditions. BC TEL stated that hotels and motels are fundamentally different from resellers such as Sprint in the nature of their business and in their business relationship to BC TEL. BC TEL and Bell further submitted that the HMCP is not offered selectively, as suggested by Sprint, but is offered to all hotels and motels.
In reply, Sprint reiterated its position that the HMCPs clearly fall within the scope of the Commission's jurisdiction to regulate the activities of BC TEL and Bell pursuant to section 340 of the Railway Act, whether or not the HMCP is a "toll". Further, Sprint submitted that the basis of its application is consistent with concerns about anti-competitive pricing raised by the Commission 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).
On 25 November 1992, the Commission issued Hotel and Motel Commission Plans, Telecom Public Notice CRTC 92-71, 25 November 1992, initiating a proceeding to consider Sprint's application and issues related to a carrier's use of agency arrangements involving the provision of telecommunications services or facilities to an agent or the customers of an agent.
In addition to BC TEL, Bell and Sprint, the Commission joined AGT Limited (AGT), The Island Telephone Company Limited (Island Tel), Maritime Tel & Tel Limited (MT&T), The New Brunswick Telephone Company Limited (NBTel), Newfoundland Telephone Company Limited (Newfoundland Tel), Northwestel Inc. (Northwestel), Teleglobe Canada Inc. (Teleglobe), Telesat Canada (Telesat) and Unitel Communications Inc. (Unitel) as parties (collectively, the carriers) as parties to the proceeding.
The Commission received comments from all of the carriers except Telesat. In addition, Cable & Wireless Telecommunications (CWT), Cam-Net Communications Inc. (Cam-Net), Competitive Telecommunications Association (CTA) and Rogers Cantel Inc. (Cantel) filed comments. Reply comments were filed by AGT, BC TEL, Bell, CTA, CWT, Island Tel, MT&T, Newfoundland Tel, Northwestel, Sprint and Unitel. NBTel did not file reply comments of its own, but concurred with those of Bell.
Cam-Net, CTA, CWT, Cantel and Sprint were of the view that the HMCP is a resale agreement and that hotels and motels are operating as resellers in the provision of long distance service. Cam-Net noted that section 5 of Bell's agreement explicitly makes the hotel or motel directly liable for all charges incurred on guest trunks, whether or not it collects the relevant monies from its guests. Cam-Net stated that this is in direct contrast to a true agency relationship, where an agent accounts to a principal only for the monies actually received from the third party.
CTA stated that the provision of long distance service by hotels and motels squarely meets the definition of resale used by the Commission for a number of years, most recently in Decision 92-12:
 Resale means the subsequent sale or lease on a commercial basis, with or without adding value, of a telecommunications service leased from the company.
CTA noted that hotels typically resell local service at a profit and that the use of the hotel's PBX software permits the hotel to integrate the long distance charge into the guest's hotel bill and to charge for the long distance call. CTA was of the view that these latter two services add value to the service leased from the carrier.
CWT stated that, if a hotel or motel is acting as agent for BC TEL or Bell, these carriers are charging guests rates that have not been tariffed and approved by the Commission. CWT referred specifically to the surcharges applied by hotels and motels and to the non-discount rates that they charge to guests, regardless of time of day or day of week.
Cantel noted that, since in economic terms, a hotel or motel is buying the service from the carrier at one rate (the tariffed rate minus a commission) and is selling it to the end-user at a different rate (the tariffed rate plus a possible surcharge), the commission has become part of the rate charged by the telephone company to the hotel or motel.
Sprint argued that BC TEL and Bell confer an undue and unreasonable preference on themselves by offering the HMCP only to hotels and motels. Sprint submitted that, if the Commission fails to regulate certain of the telephone companies' activities because of the use of thinly veiled agency agreements, not only would the bases and philosophy of Decision 92-12 be significantly eroded, but the success and viability of resellers and interexchange carriers operating under the terms of Decision 92-12 would be prejudiced.
AGT, BC TEL, Bell, Island Tel, MT&T, Newfoundland Tel, NBTel, Northwestel, Teleglobe and Unitel supported the view that the HMCP is an agency agreement. BC TEL and Bell stated that, due to the temporary nature of hotel and motel accommodation, it is impractical for carriers to deal directly with the end-user, i.e., the guest. Therefore, by way of the HMCPs, carriers establish agency arrangements whereby hotels and motels bill and collect, on their behalf, the charges for long distance calls made by the hotel guests.
Those parties who considered the HMCP an agency arrangement were of the view that the commissions paid under the plan do not amount to the charging of rates discounted from those approved by the Commission; rather, the commissions constitute compensation for the billing, collection and remittance services previously referred to. As such, they amount to legitimate business expenses on the part of the telephone company. Several parties noted that, consistent with CNCP Tariff Notice 470 and Facsroute Promotion, Telecom Letter Decision CRTC 89-22, 3 November 1989 (Letter Decision 89-22), hotel and motel agency fees are not passed through to the end-user in the form of discounts, and that guests are billed by the hotel or motel and are required to pay the full amount of the tolls approved by the Commission.
AGT, BC TEL, Bell, Island Tel and MT&T submitted that there is no undue preference or unfair competitive practice because the HMCPs are open to all hotels and motels, and hotels and motels are not prohibited from using the services of alternate long distance carriers.
Unitel argued that BC TEL and Bell had not conferred an undue preference or advantage on either themselves or their hotel/motel agents simply because hotels and motels are paid a commission based on the volume of long distance calling by their guests. Unitel also observed that Sprint has not indicated that it would be willing to serve as the agent of BC TEL or Bell with respect to its customers or, more generally, to assume the same responsibilities as those assumed by hotels and motels under HMCPs. Unitel concluded that Sprint wished to obtain the benefits of the HMCPs without assuming any of the associated obligations. Consequently, Unitel submitted that, unless Sprint is prepared to perform the same agency services as those performed by hotels and motels pursuant to the HMCPs, Sprint's specific request to participate in the HMCPs should be denied.
Other arguments advanced by parties supporting the proposition that the HMCP is an agency arrangement include the following:
(1) a commission cannot constitute a "toll" under the Railway Act (now a "rate" under the Telecommunications Act), as it is not charged by the carrier to the hotel or motel, but rather is paid by the carrier to the hotel or motel;
(2) hotels and motels represent themselves to guests as agents of the carriers and accept no responsibility or liability for failures on the part of the named carrier to provide adequate telecommunications services; and
(3) unlike resellers, hotels and motels neither control nor dictate the network arrangements available to their guests, nor are they free to charge less than the tariffed rates or to offer services on more favourable terms than those approved by the carrier.
In reply, Sprint agreed with the submissions of Cam-Net and Cantel that the terms and conditions of the HMCP do not create a true agency arrangement. Sprint stated that the relationship is properly characterized as one facilitating the aggregation and re-billing of the telephone companies' long distance services. Sprint also stated that Unitel had misinterpreted its application by characterizing the relief sought as an attempt on Sprint's part to obtain the benefits of the HMCP without assuming the obligations associated with the relationship. Sprint stated that, currently, it does bill customers for the telephone companies' toll services and takes significant risks with respect to remittance and collections.
In reply, BC TEL and Bell rejected the view that inclusion of a payment liability component in an agency agreement nullifies the agency nature of such an agreement. Bell stated that an agent and principal are free to establish by contract which of the two parties is to accept the risk associated with the debts of the end-user. Bell submitted that, while it may often be the case that an agent is required to account only for monies actually received, and while this may be implied in the absence of express terms, this is not a requirement of an agency relationship as such. Bell noted that, in its HMCP, the company and its agents have agreed, as part of the compensation arrangement, that the agent will be responsible for all of the accounts billed. With respect to CWT's comments concerning surcharges, Bell reiterated that it bills and receives from the hotel guests only the tariffed rates, appropriate for the time of day and day of week, for their long distance calls.
The Commission notes that, since the completion of the record of this proceeding, the Telecommunications Act (the Act) has come into force, repealing those sections of the Railway Act to which Sprint referred in its application. However, for the purposes of this Decision, the relevant requirements of both pieces of legislation are similar in all material respects.
In this proceeding, discussion centred on (1) whether HMCP arrangements between telephone companies and hotels and motels constitute resale or agency relationships, (2) whether the commissions paid by BC TEL and Bell to hotels and motels constitute a "toll" (within the meaning of the Railway Act), and (3) whether the commissions amount to unauthorized discounts on tariffed rates.
The Commission notes that only Bell's HMCP contract has been placed on the record of this proceeding. The Commission further notes that, in law, the actions of an agent are attributable to the principal. Under clause 5 of the Bell agreement, the hotel or motel has the right to levy a surcharge over and above Bell's tariffed rate. Thus, if the Bell HMCP were an agency arrangement, it would be contrary to the Act, in that Bell (who would be the principal in such an arrangement) cannot legally charge more than tariffed rates. However, in the Commission's view, the Bell agreement, while containing elements of an agency relationship, in substance amounts to an arrangement for the resale of the company's services by the hotel or motel. For example, the Bell HMCP does not identify the hotel or motel as an agent and, in the Commission's view, it is far from clear that guests in hotels and motels consider that they are dealing with the telephone company when paying charges for telephone calls included on hotel bills. In this context, the Commission notes that, under the agreement, surcharges are to be levied in the name of the hotel, and not in the name of the telephone company. In addition, under the terms of the agreement, hotels and motels assume liability for any charges unpaid by guests. While this assumption of liability is commonplace in resale arrangements, it represents a departure from the norm in agency relationships, where the agent is more usually required to account only for monies received.
The Commission also notes that, in practice, the activities on the part of the hotels and motels at issue in this proceeding (i.e., the leasing of services from carriers, using those services to aggregate traffic, and billing hotel guests for telephone calls) are, as noted by CTA, entirely consistent with the definition of resale.
The Commission notes that BC TEL and Bell, in support of their position that the HMCP constitutes an agency arrangement, cited the Commission's statements (in Decisions 90-30 and 92-9) that the commission paid to hotels and motels was not a "toll" within the meaning of the Railway Act and (in Decision 92-9) that the implementation of the plan was not subject to the Commission's authority. However, based on the fuller examination undertaken in this proceeding, and in particular for the reasons set out above, the Commission finds that hotels and motels who have entered into HMCP agreements with Bell are reselling Bell's services, rather than acting as Bell's agent. The Commission further finds that the effect of the commission paid under the HMCP is to provide hotels and motels with a discount on the tariffed rates for services provided to them, contrary to the Telecommunications Act.
Sprint and other resellers argued that, because the HMCP in effect provides hotels and motels with a discount on tariffed rates, the HMCP is anti-competitive.
In this context, the Commission notes the significant evolution in the market place since the inception of arrangements such as the HMCP. In contrast to the previous monopoly environment, many providers (telephone companies, other facilities-based carriers, resellers) now offer and actively market discount packages based on volume of calling. The Commission agrees that, in such an environment, the HMCP offers significant potential for anti-competitive behaviour since, if the commissions paid under the plan are sizeable, alternate service providers would find it difficult to price their services attractively enough to market them successfully to hotels and motels. In addition, the record of this proceeding indicates that, between 1991 and February 1993, the commissions paid by Bell and BC TEL under their plans reached significant levels, i.e., ranging from 15% to 50%, with the higher discounts (based on volume of guest calling) going to the larger hotels, motels and hotel/motel chains that represent the most desirable and contestable segment of this market.
Accordingly, the Commission finds that arrangements pursuant to Bell's HMCP constitute the conferring of an undue or unreasonable preference on the company and on the hotels and motels who participate in the plan.
In light of the above, the Commission directs Bell to terminate the HMCP. As indicated above, in the present environment, hotels and motels have options for replacing the HMCP with services available from various service providers. Both facilities-based providers and resellers offer discount services, permitting hotels and motels to benefit from their ability to aggregate traffic. Bell itself has developed new service offerings (for example, Advantage Preferred) that will enable hotels and motels to obtain discounts, pursuant to tariffs, resulting in lower rates than were previously available. Furthermore, hotels and motels can resell such services combining guest calling with their own administrative traffic, thus maximizing the available discount.
In order to permit hotels and motels to rearrange their service configurations, existing Bell HMCP contracts may continue in effect until 3 August 1995, at which time they are to be terminated. Bell is directed not to enter into any new HMCP arrangements.
As noted above, Bell's HMCP agreement was the only such agreement on the record of this proceeding. Accordingly, the Commission directs AGT, BC TEL, Island Tel, MT&T, NBTel, Newfoundland Tel and Northwestel to file, by 20 March 1995, all HMCP agreements. In addition, AGT, BC TEL, Bell, Island Tel, MT&T, NBTel, Newfoundland Tel and Northwestel are to file, by 20 March 1995, all comparable agreements involving the use of commissions, or their equivalents, applicable to situations involving temporary domicile (such as hotels, motels, hospitals and university residences). These companies are also directed to show cause why the findings in this Decision should not apply to all such arrangements.
Currently, all resellers (and sharing groups) must register with the Commission, regardless of the services being resold. The Commission is of the view that, when resellers (including hotels and motels) are reselling only toll services (including discount toll services), registration serves no useful purpose, because there are no explicit contribution charges applicable. Accordingly, the Commission considers it appropriate to eliminate the registration requirement for resellers who resell only toll services and for sharing groups who share only toll services. The carriers made party to this proceeding are directed to issue forthwith any revised tariff pages required to implement this determination.
Finally, the Commission considers that this Decision disposes of Sprint's application requesting that Bell and BC TEL be directed to provide it with the same discounts as are offered to hotels and motels.
Allan J. Darling
Secretary General

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