ARCHIVED -  Telecom Decision CRTC 97-10

 Telecom Decision

 Ottawa, 5 May 1997

 Telecom Decision CRTC 97-10

 TELEGLOBE CANADA INC. - RESALE AND SHARING OF INTERNATIONAL PRIVATE LINE SERVICES

 I INTRODUCTION

 A. Origin of the Proceeding

1.  On 12 April 1996, fONOROLA Inc. (fONOROLA) filed an application requesting an order from the Commission allowing Canadian carriers to engage in switched hubbing for their international traffic, as defined by the United States (U.S.) Federal Communications Commission (FCC) in its Report and Order on Market Entry and Regulation of Foreign-affiliated Entities, dated 3 November 1995. Switched hubbing would entail routing Canadian overseas traffic to a second country over resold international private lines (IPLs) supplied by Teleglobe Canada Inc. (Teleglobe), and subsequently routing that traffic on to a third country via the international Public Switched Telephone Network (international PSTN). Inbound Canadian traffic would be routed similarly in the opposite direction.

2.  In comments dated 13 May 1996 with regard to fONOROLA's application, AT&T Canada Long Distance Services Company (AT&T Canada LDS, formerly Unitel Communications Company) requested that the Commission issue a public notice initiating a proceeding to examine the extent to which current restrictions related to switched hubbing and to the participation of domestic facilities-based carriers in international resale should be relaxed. While generally supportive of fONOROLA's proposal, AT&T Canada LDS was of the view that approval of fONOROLA's application, without a re-examination of the prohibition on the participation of domestic carriers in international resale, would exacerbate at the expense of facilities-based carriers the advantage currently enjoyed by resellers.

3.  On 10 July 1996, the Commission issued Teleglobe Canada Inc. - Resale and Sharing of International Private Line Services, Telecom Public Notice CRTC 96-25 (PN 96-25), requesting comment on whether it would be in the public interest to eliminate or amend the following provisions of Teleglobe's Resale and Sharing Rules Tariff, which were approved pursuant to Teleglobe Canada Inc. - Regulation After the Transitional Period, Telecom Decision CRTC 91-21, 19 December 1991 (Decision 91-21):

 (2c) Resellers of jointly-used interconnected international private line services are prohibited from carrying the international telephone service traffic of domestic carriers on these facilities.

 (2d) Except where alternate routing has been agreed to by all countries or operating agencies involved, it is prohibited to route Canadian originating or terminating joint-use voice traffic to or from a third country over international private line services leased between Canada and the country where the international private line service terminates.

4.  In PN 96-25, the Commission specifically requested comments as to whether the removal or amendment of the restrictions would contribute to the attainment of the Canadian telecommunications policy objectives set out in section 7 of the Telecommunications Act (the Act). The Commission noted that Canadian telecommunications policy, in addition to promoting the use of Canadian transmission facilities for telecommunications within Canada and between Canada and points outside Canada (subsection 7(e) of the Act), seeks to render reliable and affordable telecommunications services of high quality accessible in both urban and rural areas in all regions of Canada (subsection 7(b)), to enhance the efficiency and competitiveness, at the national and international levels, of Canadian telecommunications (subsection 7(c)), and to respond to the economic and social requirements of users of telecommunications services (subsection 7(h)).

5.  The Commission also noted that, in Decision 91-21, it had concluded that restrictions on the use of resold IPLs by foreign carriers or their affiliates were not warranted. The Commission requested comments as to whether or not such restrictions would be in the public interest, should it decide to eliminate or amend the tariff provisions set out above.

6.  fONOROLA's application, and the comments and reply filed in connection with it, were made part of the record of the proceeding.

 B. Interim Regime

7.  In its comments of 13 May 1996 with regard to fONOROLA's application, AT&T Canada LDS submitted that statements made by fONOROLA suggested that it does not recognize any regulation that would restrict it from immediately engaging in switched hubbing. AT&T Canada LDS therefore requested that the Commission issue an interim order expressly prohibiting the practice until a decision was rendered with respect to AT&T Canada LDS' proposed proceeding.

8.  On 12 June 1996, AT&T Canada LDS filed a separate application requesting an order directing Teleglobe to enforce its tariffs, giving effect to the provisions of Decision 91-21, and preventing resellers of Teleglobe's IPLs from carrying the international telephone service (ITS) traffic of facilities-based carriers, including Sprint Canada Inc. (Sprint) and fONOROLA. In support of its application, AT&T Canada LDS cited the competitive disadvantage that it was facing as a result of the delivery by Sprint and fONOROLA, either directly or via a reseller, of their ITS traffic using international simple resale (ISR) over IPLs leased from Teleglobe.

9.  In comments with regard to AT&T Canada LDS' application, Sprint and fONOROLA submitted that the restrictions on domestic carriers in Decision 91-21 apply only to the Stentor-member companies. Sprint also took the position that, once traffic is routed to the terminating end of a Teleglobe IPL, Decision 91-21 permits Sprint to terminate that traffic on the public switched network at the other end, and from there, to "route or hub" the traffic to a third country, provided the hubbing country or the operating agencies therein permit such routing.

10.  Stentor and Teleglobe supported AT&T Canada LDS' request. Teleglobe submitted that, once Sprint and fONOROLA became carriers, they should have ceased operating or using ISR facilities. Teleglobe stated that it did not then enforce its tariff to terminate Sprint's or fONOROLA's access to Teleglobe's ISR facilities, since both carriers also have established private line arrangements with the U.S. Teleglobe stated that it saw great difficulty in enforcing its tariff without any method of ensuring the traffic would not simply be re-routed via the U.S.

11.  By letter dated 13 August 1996, the Commission made AT&T Canada LDS' application and the associated comments and reply part of the record of the PN 96-25 proceeding. In so doing, the Commission noted the debate with respect to the interpretation of the existing rule as to who may participate in ISR, and that the arguments with respect to the interpretation of the existing rule have much in common with arguments as to what the rule should be.

12.  Citing Teleglobe's apparent inability to uniformly enforce its tariffs, the Commission was persuaded that AT&T Canada LDS' competitive position with respect to fONOROLA and Sprint was untenable and inequitable. Accordingly, the Commission prescribed an interim regime, to be in effect from the date of its letter until the implementation of a Decision in this proceeding. The Commission stated that, during this interim period, AT&T Canada LDS, fONOROLA and Sprint could engage in the joint-use voice resale of Teleglobe's IPLs and/or route their overseas voice calls through resellers of Teleglobe's IPLs.

13.  The Commission also stated that, should AT&T Canada LDS, fONOROLA or Sprint route switched overseas voice traffic other than through Teleglobe's international switched voice service, they were to track all of their billed Canadian-originated overseas switched voice calls, by minute and by country of destination, and be prepared to report details of those calls to the Commission (including information regarding the specific routing of calls). The Commission stated that, in its final decision, it may require an accounting between AT&T Canada LDS, fONOROLA and Sprint, and Teleglobe. To facilitate any accounting, Teleglobe was directed to track the number and routing of all private lines provided to AT&T Canada LDS, fONOROLA or Sprint, or to other service providers who may, to Teleglobe's knowledge, be carrying Canadian-originated overseas switched voice calls originated by AT&T Canada LDS, fONOROLA or Sprint.

14.  With regard to AT&T Canada LDS' request that the Commission issue an interim order expressly prohibiting the practice of international switched hubbing, the Commission stated that it considered that the rules with regard to international switched hubbing as described in fONOROLA's application were clear; specifically, that switched hubbing of Canadian originated or terminated joint-use voice traffic is a form of third country routing and, as such, is precluded by Item (2d) of Teleglobe's Resale and Sharing Rules Tariff, unless such routing has been agreed to by all countries or operating agencies involved.

15.  Approval of Teleglobe's Resale and Sharing Rules Tariff was made interim effective the date of the Commission's letter. In addition, the Commission added to the record the substance of a related application by fONOROLA, dated 2 July 1996.

 C. Review of Overseas Telecommunications/General Agreement on Trade in Services

16.  On 22 July 1995, the government initiated a review of its policy with regard to Canadian overseas telecommunications, including Teleglobe's monopoly and the routing of international traffic.

17.  Teleglobe's monopoly and traffic routing rules were also at issue in negotiations under the World Trade Organization (WTO) on a General Agreement on Trade in Services (GATS) covering basic telecommunications. On 15 February 1997, the government announced that negotiations with regard to the GATS had proved successful. Included in the final Canadian offer was a commitment to end, on 1 October 1998, Teleglobe's monopoly as the sole Canada-overseas facilities-based telecommunications service supplier. Canada's offer also specified that routing of basic telecommunications between points within Canada, and between Canada and points outside of Canada, is regulated to promote the use of Canadian transmission facilities, subject to certain exceptions. Among the exceptions noted is a commitment by Canada that international services will be unrestricted as of 31 December 1999, except for fixed satellite services between Canada and points in the U.S. (which will be unrestricted as of 1 March 2000).

18.  A previous announcement by the government, dated 4 February 1997, indicated that the Commission would establish, by way of a new licensing regime, the conditions of operation applicable to all companies offering international services in Canada.

 D. Submissions Received

19.  The Commission received comments in response to PN 96-25 from ACC TelEnterprises Ltd. (formerly ACC Long Distance Inc.); AT&T Canada LDS; AT&T Canada Inc. (AT&T Canada); Call-Net Enterprises Inc. (Call-Net/Sprint); the Canadian Overseas Telecommunications Union (COTU); fONOROLA; Mercury Communications Limited (Mercury); North American Gateway Inc. (NAG); Stentor Resource Centre Inc. (Stentor) on behalf of BC TEL, Bell Canada, The Island Telephone Company Limited, MTS NetCom Inc., Maritime Tel & Tel Limited, The New Brunswick Telephone Company, Limited, NewTel Communications Inc. and TELUS Communications Inc. (TELUS, formerly AGT Limited); Teleglobe and Westel Telecommunications Ltd. (Westel).

 E. Application by NAG

20.  On 6 March 1997, the Commission received an application from NAG requesting that the Commission re-open the record of the proceeding to permit parties and other interested persons to submit further comments. Parties filed comments with respect to NAG's application on 14 March 1997, and NAG filed a reply on 18 March 1997. The Commission denied NAG's application by letter dated 5 May 1997.

 F. Summary of Main Findings

21.  Having considered the submissions of the parties, the Commission finds as follows:

 (1) the term "domestic carriers" in Tariff Item (2c) and in Decision 91-21 refers to any facilities-based telecommunications service provider in Canada, and is synonymous with the term "Canadian carrier" in the Act;

 (2) Tariff Item (2d) prohibits third country routing over Teleglobe's IPLs, except where all countries or operating agencies involved, including Teleglobe, agree to that routing;

 (3) the approach that will best promote the use of Canadian overseas facilities, while contributing to the attainment of other objectives of the Act, is to remove the restriction on the participation of domestic carriers in ISR, while maintaining the current restriction on third country routing;

 (4) the Commission's approval of the Interconnecting and Operating agreement between Teleglobe and Stentor is withdrawn effective one year from the date of the termination of Teleglobe's monopoly;

 (5) the Commission is not establishing any special conditions applicable to foreign-based carriers (or their affiliates) operating in Canada as resellers;

 (6) the Commission is not imposing reporting requirements on international service providers in this Decision, but will consider the question of reporting in the proceeding that will be required to establish a licensing regime applicable to such service providers; and

 (7) Teleglobe is authorized to bill AT&T Canada LDS, Call-Net/Sprint and fONOROLA for any amounts to which it would have been entitled absent the Commission's interim regime (including any amounts related to traffic routed through third countries contrary to Teleglobe's tariffs), minus appropriate offsets (for example, payments received for IPLs provided).

22.  The Commission's findings are set out in greater detail below.

 II MEANING OF CURRENT TARIFFS

 A. Domestic Carrier Provisions

23.  In the Commission's view, the references to "domestic carriers" in Decision 91-21 and in Teleglobe's Tariff cannot be construed as referring only to Stentor member-companies (or only to Stentor member-companies under the Commission's jurisdiction at the time of the Decision), as argued by Call-Net/Sprint, fONOROLA and Mercury. In particular, the Commission notes that the use of the term "Telecom Canada members" at the end of the first paragraph of the relevant section of Decision 91-21 (Participation by Domestic Carriers and Affiliates, at pages 30-32) is followed immediately by the term "domestic carriers" in the first sentence of the next paragraph. Clearly, had the Commission meant the prohibition to apply only to Telecom Canada members, it would have used the term Telecom Canada members in the second paragraph, rather than the term domestic carriers.

24.  The Commission notes that to construe the term "domestic carriers" as referring only to the Stentor-member companies, or only to Stentor-member companies under the Commission's jurisdiction at the time of Decision 91-21, would be to exclude carriers such as Northwestel Inc., TELUS, Québec-Téléphone and Télébec ltée. The Commission also notes that, at the time of Decision 91-21, it had before it two applications for facilities-based interconnection to the PSTN for the purposes of providing public long distance voice telephone services, one from AT&T Canada LDS and the other from BCRL (i.e., B.C. Rail Telecommunications and Lightel Inc.). At the time of Decision 91-21, a proceeding had already been initiated to consider these applications (see Unitel Communications Inc. and B.C. Rail Telecommunications /Lightel Inc. - Applications to Provide Public Long Distance Voice Telephone Services and Related Resale and Sharing Issues: Scope and Procedure, CRTC Telecom Public Notice 1990-73, 3 August 1990). Thus, the Commission was aware that entrance by other competing facilities-based providers of long distance public switched telephone service was clearly a possibility.

25.  The Commission also notes that two of the four scenarios in the analysis filed by Teleglobe in the proceeding leading to Decision 91-21 took into account entry by a non-dominant Canadian facilities-based carrier (AT&T Canada LDS).

26.  Telecom Decision CRTC 92-12, 12 June 1992 entitled Competition in the Provision of Public Long Distance Voice Telephone Services and Resale and Sharing Issues, of course, permitted entry by multiple carriers. The Commission finds that Decision 91-21 contemplated such entry in using the terms "domestic facilities-based carriers" and "domestic carriers" in the section of the Decision cited above. The Commission also notes its conclusions at the end of the relevant section that restrictions on the resale activities of foreign carriers (that do not themselves operate as facilities-based carriers in Canada), or on the resale activities of persons affiliated with foreign carriers, were not warranted. The Commission considers that its reference to foreign carriers that do not operate themselves as facilities-based carriers in Canada reinforces the view that the restriction on the participation of domestic carriers in resale contemplated more than just the Stentor-member companies. Finally, the Commission notes that, generally, it has used the term "carrier" to refer to a facilities-based service provider.

27.  Based on the above, the Commission concludes that the term "domestic carriers" in Item (2c) and in Decision 91-21 refers to any facilities-based telecommunications service provider, and is synonymous with the term "Canadian carrier" in the Act, enacted in 1993. Current Item (2c) therefore precludes all Canadian carriers from engaging directly in resale of Teleglobe's IPLs and from routing their ITS traffic to resellers of Teleglobe's IPLs.

28.  With regard to Call-Net/Sprint's submission that approval of its 1993 agreement with Teleglobe implies that the current tariff does not prohibit it from engaging in ISR, the Commission notes that, in subsequently approved agreements, the language cited by Call-Net/Sprint was replaced. Subsequent agreements state that Sprint will route all outbound international traffic in accordance with any applicable legislation and/or any regulatory or government order.

 B. Traffic Routing

29.  While fONOROLA requested an order allowing Canadian carriers to engage in switched hubbing, it also submitted that the practice is permissible under the current legal and regulatory framework. Among other things, fONOROLA submitted that the hubbing referred to in Decision 91-21 occurs when traffic is carried via IPLs to one country, then transferred to another private line for termination in another country (rather than carried on to the terminating country via the international PSTN).

30.  The Commission considers that nothing in the language of Decision 91-21 or of Teleglobe's Tariff distinguishes between switched hubbing and the kind of third country routing that fONOROLA submitted was contemplated by Decision 91-21.

31.  The Commission did not, in its letter of 13 August 1996, consider that there was doubt as to the meaning of Teleglobe's Tariff Item (2d). Rather, the Commission stated that it considered the rules to be clear. However, parties to this proceeding made submissions as to the meaning of Item (2d), making arguments (for example) as to whose agreement was necessary to fulfil the requirement for the agreement of all countries or operating agencies involved.

32.  Call-Net/Sprint submitted (among other things) that, for the purposes of Item (2d), what is required is an agreement between a Canadian service provider (i.e., a reseller of Teleglobe's IPLs, a long distance service provider using such a reseller, or after Teleglobe's monopoly ends, a competing facilities-based overseas carrier) and a carrier in the hub country. Mercury submitted that many countries permit the hubbing of traffic through operators located in their territories. Mercury cited the example of the U.K., and submitted that the fact that hubbing through the U.K. is permitted satisfies the requirements of Decision 91-21 and of Item (2d). Accordingly, in Mercury's view, it is permissible for Teleglobe's IPLs to the U.K. to be resold on a joint-use basis in order for non-Stentor carriers and resellers to provide hubbed ITS to Canadians.

33.  In support of its position that Decision 91-21 permits switched hubbing from the terminating end of the leased Teleglobe IPL to a third country, Call-Net/Sprint noted that interconnection to the PSTN in the country where a private line terminates is necessary for switched hubbing, and cited the following from Decision 91-21:

 The Commission ... wishes to state that it has no objection to the resale of Teleglobe's private line services to provide interconnection to the public switched telephone network at the foreign end.

34.  The Commission notes that, in the proceeding leading to Decision 91-21, Teleglobe proposed that its resale and sharing tariff be revised to specify that, unless otherwise agreed, private lines between Canada and an overseas destination should be used to carry traffic between Canada and that overseas destination only. Teleglobe submitted that the proposed provision would govern the routing of traffic by resellers over lines leased from Teleglobe.

35.  In Decision 91-21 (at page 35), the Commission approved "the inclusion in Teleglobe's Tariff of a provision prohibiting the routing through a third country of joint-use private line voice traffic, when that traffic originates or terminates in Canada."

36.  The Commission noted in the Decision that Teleglobe had indicated that it would not object to resold traffic being routed or hubbed through a third country if the countries or operating agencies involved agreed on this routing. The Commission went on to state that it considered "such flexibility regarding the negotiation of traffic routings appropriate" and that Teleglobe tariffs should therefore "provide for an exception to the routing restriction where alternate routing has been negotiated."

37.  Thus, the resale regime established in Decision 91-21 consists of a basic prohibition on third country routing, subject to an exception where "alternate routing has been negotiated." The exception was embodied in Teleglobe's Tariff in the words "except where alternate routing has been agreed to by all countries or operating agencies involved."

38.  The Commission considers that the approach established in Decision 91-21 and the language of the Decision (particularly references to negotiation) contemplate that all three countries or operating agencies (including Teleglobe) have to agree before routing through a third country will be permitted. The Commission notes that virtually all destinations are accessible via the PSTN, including countries that do not permit ISR, and considers that to accept Call-Net/Sprint's interpretation would render meaningless the basic prohibition on third country routing set out in Decision 91-21. The Commission also considers that the interpretation of Item (2d) advanced by Call-Net/Sprint and Mercury would in effect read the word "all" out of the provision.

39.  Based on the above, the Commission concludes that Tariff Item (2d) requires Teleglobe's agreement before its IPLs may be used to route Canadian originating or terminating joint-use voice traffic through an intermediary or third country interposed between Canada and the originating or terminating country.

40.  Mercury argued that it would amount to a trade barrier if switched hubbing of Canadian-originated traffic were prohibited in (for example) the U.K., while U.K.-originated traffic could be hubbed through Canada. Mercury also submitted that it may constitute a breach of Article 85 of the Treaty of Rome for Teleglobe to restrict the use of its IPLs by prohibiting switched hubbing via the U.K. or any other European hub. Mercury cited Article 85, as follows:

 The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market.

41.  The Commission is not persuaded either by Mercury's arguments or by the wording of Article 85, on its face, that the Article should be interpreted as suggested by Mercury; nor does the Commission consider, based on the record of this proceeding, that the continued prohibition on third country routing, absent the agreement of all countries or operating agencies involved, will be regarded in the European Union as the imposition of a barrier to trade.

42.  Applying Item (2d) in its ruling of 9 October 1996 with regard to Hong Kong Telecommunications (HKTel), the Commission found that Teleglobe had not negotiated the routing of Canadian originating or terminating joint-use voice traffic to or from Hong Kong over IPLs leased between Canada and any intermediary country. This finding contributed to the Commission's ruling that the only permissible way to route Canada-Hong Kong basic switched voice calls was via Teleglobe's international switched voice services and its determination that Canada-Hong Kong basic switched voice calls originating in the territories of both BC TEL and Bell had not been routed appropriately. The Commission considers that the reasoning underlying this finding would apply to any situation of third country routing where all countries or operating agencies, including Teleglobe, had not agreed to the routing in question.

 III WHETHER TO AMEND OR ELIMINATE THE CURRENT PROVISIONS

 A. Positions of Parties

43.  Teleglobe submitted that the Commission should make no further changes to the rules, beyond those in its letter of 13 August 1996, until the government has released its decision in the mandate review and established the necessary preconditions for international facilities-based competition.

44.  In support of its position, Teleglobe submitted that further liberalization would have a significant negative impact on its operations. Teleglobe cited, among other things, (1) the incentives for Canadian service providers to seek the lowest available short term marginal cost to route all of their overseas traffic, (2) Teleglobe's inability to match equivalent ISR costs, especially given accounting and inbound settlement rates, (3) loss of inbound traffic resulting from its loss of Canadian-originated settled minutes, (4) the negative effect that liberalization would have on its ability to retain and attract transit traffic and thereby to reduce the average cost of traffic carried by all Canadian service providers, (5) the possible loss of its ability to make necessary investments and therefore to compete, (6) the possibility that segments of its switching and transmission facilities would fall idle (which would not be consistent with promoting the use of Canadian facilities), while it would lack sufficient capacity for the large traffic increases to some hub locations, and (7) a significant negative impact on its relations with foreign carriers.

45.  Teleglobe estimated that, if all industry participants were allowed to engage in switched hubbing, it could lose as much as $250 million annually and 80% of its switched traffic. Teleglobe also submitted that, from a balance of trade perspective, Canada would be a net loser. In particular, Teleglobe estimated that losses on inbound traffic would exceed the benefits of savings on outbound traffic, and Canada's net outpayments would increase by approximately $170 million.

46.  Stentor argued in favour of opening ISR to all carriers, but maintaining restrictions on switched hubbing. Citing various factors, Stentor submitted that concerns underlying the imposition of the domestic carrier restriction are no longer valid. Stentor also submitted that the potential negative financial impact on Teleglobe of removing the restriction would be less severe than originally might have been predicted. In particular, Stentor submitted that Stentor traffic to five ISR countries (U.K., Sweden, Denmark, New Zealand, Australia) accounts for 21.6% of its total overseas switched international direct dial (IDD) minutes. However, due to the relatively low Globeaccess rates to these countries, it accounts for only 7.8% of total payments to Teleglobe for switched IDD traffic. Stentor submitted that the direct loss of revenue to Teleglobe if all Canadian carriers were to send all of their outbound traffic to these overseas destinations via ISR would be more than offset by the elimination of out-payments by Teleglobe to these foreign administrations. In addition, Teleglobe would receive revenue for the IPL facilities. Stentor submitted that, in a worst case scenario where all inbound and outbound traffic between Canada and Australia and Canada and the U.K. is carried over ISR, the negative financial impact on Teleglobe would be some $6.4 million annually.

47.  Stentor submitted that the immediate introduction of switched hubbing would cause significant disruption to Canada's place in the overseas telecommunications marketplace. Stentor stated that, with switched hubbing, Teleglobe would drop out of the settlement process and would, at best, receive revenues only from the lease of IPLs. Stentor submitted that Canadians and the international telecommunications market would be best served by an approach whereby switched hubbing is introduced in "an orderly and fair fashion", which could best be achieved through Industry Canada's mandate review process.

48.  As noted above, Call-Net/Sprint, fONOROLA and Mercury were of the view that Teleglobe's current tariffs prohibit ISR and switched hubbing only for the Stentor-member companies. Mercury submitted that, if the Commission does not accept this view, it should liberalize switched hubbing over Teleglobe's IPLs, at least in respect of IPLs between Canada and the U.K. fONOROLA advocated that the Commission make its 13 August 1996 interim regime permanent, thus permitting all non-Stentor-member companies to engage in ISR, and that it also permit switched hubbing for such companies. Westel submitted that the Commission's interim regime should be made permanent and extended to all carriers. AT&T Canada LDS stated that it had no objection to the participation of Stentor-member companies in ISR and switched hubbing, but that it would not oppose a transitional regime barring that participation for a period of time. In this context, AT&T Canada LDS stated that such a regime may be necessary to prevent revenue erosion at Teleglobe. Call-Net/Sprint made a similar submission.

49.  NAG submitted that limitations on switched hubbing should be eliminated. However, NAG advocated a "phased in" approach to the participation of domestic carriers in resale. Specifically, NAG submitted that domestic carriers should be able to route their traffic via resellers immediately, but should not be allowed to enter the resale market directly for three years.

50.  NAG submitted that the Commission's interim regime went beyond what was necessary to correct any inequity faced by AT&T Canada LDS, in that it allowed domestic carriers to engage in resale directly. NAG urged the Commission to re-examine this issue.

51.  Except for COTU (which supported Teleglobe) or as noted above, parties favoured the elimination of both of the tariff provisions cited in PN 96-25.

52.  Those parties favouring full or partial liberalization of the current restrictions submitted that such a policy would contribute to all of the objectives cited in PN 96-25, as well as the objective set out in subsection 7(f) of the Act, i.e., to foster increased reliance on market forces for the provision of telecommunications services and to ensure that regulation, where required, is efficient and effective. These parties also cited several specific benefits, such as lower prices for consumers and increased choice and diversity of service, that would result from liberalization.

53.  Parties also noted that subsection 7(e) of the Act does not mandate the use of Canadian facilities, but merely requires the Commission to promote that use. In addition, parties argued that permitting domestic carriers to engage in ISR would in no way detract from the attainment of objective 7(e), since it is Teleglobe's IPLs that would be used. Further, approval of switched hubbing could even contribute to the achievement of this objective, since it would foster the use of Teleglobe's IPLs and reduce incentives to bypass through the U.S.

54.  NAG submitted that the existing restrictions cannot be justified, stating that they deprive Canadians of the benefits of competition, shelter Teleglobe from the normal pressure to reduce costs, and stunt market growth. Some parties submitted that Teleglobe's arguments in favour of maintaining the status quo confuse Teleglobe's private interests with the public interest.

55.  Call-Net/Sprint submitted that the issues at stake in the present proceeding do not relate to the bypass of Canadian facilities, but rather to whether or not the Commission should continue to protect Teleglobe's revenues. Call-Net/Sprint stated that protection of Teleglobe's profitability is no longer a compelling public policy in itself. Further, it is at the expense of other more compelling objectives of the Act and is therefore inconsistent with section 7.

56.  Other parties stated similar views, and argued that Teleglobe should not be allowed to continue to rely on regulatory protection at home, while expanding into other, competitive markets and seeking to become a truly global player.

 B. Conclusions

57.  The Commission considers that the approach that will best promote the use of Canadian overseas facilities, while contributing to the attainment of other objectives of the Act, is to remove the restriction on the participation of domestic carriers in ISR, while maintaining the current restriction on third country routing.

58.  With respect to the domestic carrier restriction on ISR, the Commission agrees with Stentor that conditions have changed since 1991. In particular, the Commission agrees that, with the evolution of its transit business, Teleglobe is less dependent on revenues from the provision of service to domestic service providers. The Commission also agrees that wholesale rates to ISR-eligible countries have declined since 1991, making ISR less of a financial threat to traditional traffic exchange arrangements. In this context, the Commission notes Stentor's evidence that, while Stentor traffic to five ISR countries represents something under 22% of its total overseas switched IDD minutes, it accounts for less than 8% of total payments to Teleglobe for switched IDD traffic. In light of these considerations, the Commission concludes that allowing domestic carriers to divert ITS traffic from switched services on ISR routes would have less impact on Teleglobe than was envisioned in 1991.

59.  In addition to the above, the Commission agrees with parties who submitted that resellers can carry significant amounts of traffic. Therefore, the Commission considers that to distinguish between domestic carriers and resellers is not justified. Rather, it would appear to discriminate against the Canadian facilities-based industry.

60.  The Commission also considers, as argued by many parties, that permitting domestic carriers to engage in ISR would allow them to operate more cost efficiently and to pass those benefits on to end-users. It would contribute to the attainment of several of the objectives of the Act, in particular those set out in subsections 7(b), 7(c), 7(f) and 7(h).

61.  With regard to subsection 7(e), the Commission agrees with those parties who argued that the Act requires the Commission to promote the use of Canadian facilities, not the use of any particular Canadian services. Therefore, the Act does not require the Commission to insist on the use of Teleglobe's switched services, rather than its IPL services.

62.  The Commission does not agree with NAG's proposal for a transition period, during which carriers could route their traffic to resellers but not engage directly in ISR. The Commission does not find persuasive NAG's arguments that the public interest would be best served by fostering a specialized international resale industry through such measures. Rather, the Commission considers that such an approach would artificially skew the market in favour of resellers. The Commission notes that permitting domestic carriers to engage in resale directly does not preclude them from using resellers, should they find it advantageous to do so.

63.  The Commission considers that all domestic carriers should be permitted to engage in ISR to those countries open to it. The Commission agrees with Stentor that it would be unjustly discriminatory to exclude only its members from ISR, given the potential cost advantages.

64.  With regard to Item (2d), the Commission considers that third country routing (in particular, switched hubbing) would result in many of the benefits cited by those parties arguing in favour of further liberalization of the rules. However, the Commission is not persuaded at this time that it would promote the use of Canadian overseas facilities, consistent with subsection 7(e) of the Act.

65.  As noted above, on balance, the Commission considers that the best approach for promoting the use of Canadian overseas facilities, while contributing to the attainment of the other objectives of the Act, is to delete Item (2c), while maintaining the current restriction on third country routing contained in Item (2d). In light of the above, the Commission concludes that Item (2c) should be eliminated from Teleglobe's Resale and Sharing Rules Tariff, but that there should be no changes to Item (2d) at this time. Consistent with this determination, fONOROLA's request for an order allowing Canadian carriers to engage in international switched hubbing is denied.

66.  The Commission notes that, by letter dated 11 December 1996, AT&T Canada LDS requested among other things that the Commission direct fONOROLA and Sprint to route their international joint-use voice traffic in compliance with the Commission's rules (specifically, that fONOROLA and Sprint not engage in any third country routing, except where such routing has been agreed to by all countries or operating agencies involved). The Commission directs any person who may be third country routing other than in conformity with this Decision to reconfigure its operations immediately to bring them into conformity.

 IV TELEGLOBE/STENTOR INTERCONNECTING AGREEMENT

67.  NAG commented that, as part of the 1993 interconnection agreement with Teleglobe, the Stentor-member companies had accepted a restriction on their ability to direct their traffic through international resellers. Stentor acknowledged that the agreement requires that Stentor's traffic be carried using Teleglobe services; however, Stentor submitted that using Teleglobe's IPLs would entail the carriage of Stentor's international traffic on Teleglobe's services, thereby respecting the terms of the agreement.

68.  The Commission agrees with Stentor's position with regard to the agreement. In particular, the Commission notes that section 9.1 of the agreement states merely that Stentor will route all outbound traffic to Teleglobe for the duration of the agreement (unless ordered otherwise by government or regulatory bodies). It does not specify that traffic must be routed via Teleglobe's switched services.

69.  The Commission notes that, in Restructuring of Overseas Message Toll Service and a New Interconnecting and Operating Agreement between Teleglobe and Stentor, Telecom Decision CRTC 93-15, 27 September 1993 (Decision 93-15), the Commission considered that any approval of the new agreement should remain in force only until one year after the effective date of a decision by the government to end Teleglobe's monopoly.

70.  The government has announced that Teleglobe's monopoly will end on 1 October 1998. Consistent with Decision 93-15, the Commission withdraws approval of the interconnection agreement effective one year from the date of the termination of Teleglobe's monopoly.

 V IMPACT ON TELEGLOBE'S EXISTING REGULATORY REGIME

71.  Teleglobe submitted that the Commission should not open ISR to all Canadian service providers, without at the same time commencing an accelerated process to revise the regulatory regime established in Teleglobe - Review of the Regulatory Framework, Telecom Decision CRTC 96-2, 2 February 1996 (Decision 96-2). Teleglobe contended that a decision to liberalize ISR would lead to significant losses of switched traffic on certain high volume, low priced routes. Teleglobe stated that high traffic volumes at low rates would disappear, leading to an increase in Teleglobe's Average Revenue Per Minute (ARPM) for the remaining traffic, without Teleglobe having raised any rates. Teleglobe submitted that to require it to respect current ARPM targets would therefore be unjustified; further, it might also need the flexibility to rebalance rates between switched and IPL services, while the current regime does not permit increases in IPL rates.

72.  The Commission does not consider the record of the proceeding adequate to permit any specific determinations as to the effect on Teleglobe's ARPM of permitting domestic carriers to engage in ISR. The Commission notes that Decision 96-2 contemplated changes to the initial price regulation period in exceptional circumstances. The Decision also contemplated that Teleglobe might wish to file an application to review the form of regulation applicable to the company if it lost its monopoly status or if there were changes to that status. While the Commission will not at this time initiate a proceeding to consider revisions to the Decision 96-2 regime, it notes that Teleglobe is free to file whatever applications it considers appropriate to deal with the immediate impact of this Decision and/or the announced termination of its monopoly effective 1 October 1998.

 VI FOREIGN AFFILIATES

73.  Teleglobe noted the possibility of affiliates of foreign carriers establishing one-way ISR operations in Canada, thus creating traffic imbalances and subverting the international settlement process, at the expense of other Canadian service providers. Teleglobe therefore submitted that reporting requirements are essential for foreign carrier resale affiliates.

74.  Stentor submitted that all foreign-owned carriers and affiliates wishing to operate in Canada should be subject to an ex-ante review process similar to the FCC's. Stentor added that foreign-owned carriers or affiliates, once approved for operation in Canada, should be subject to the same rules and regulations as other Canadian carriers and resellers. AT&T Canada, Call-Net/Sprint, Mercury and Westel opposed restrictions on foreign carriers and their affiliates.

75.  The Commission considers that the current rules provide adequate means to address such problems as one-way ISR operations. The Commission also considers that conditions applicable only to foreign carriers or affiliates would not be acceptable under the principles of the GATS, including the National Treatment principle, which will come into effect 1 January 1998. The Commission will therefore not impose any special conditions applicable only to foreign-based carriers (or their affiliates) operating in Canada as resellers.

76.  The Commission notes the government's intention that the Commission establish a licensing regime applicable to all providers of international services. The Commission would expect that regime to address, in a fashion consistent with the GATS, the concerns expressed by Teleglobe.

 VII REPORTING REQUIREMENTS

77.  Teleglobe noted that, in past proceedings, it had requested that the Commission require all carriers and resellers to provide quarterly traffic reports in order to monitor bypass. It also noted the Commission's letter of 28 June 1996, in which the Commission stated that it may have to become more involved in policing bypass, and the reporting requirements established in the Commission's letter of 13 August 1996. Teleglobe submitted that both types of reporting requirements should be implemented and should apply to all service providers and to both Canada-U.S. and Canada-overseas traffic.

78.  Stentor supported Teleglobe's view, and submitted that the traffic reporting mechanism should be supported by an annual audit report, to be filed by all carriers attesting to their compliance with international traffic routing rules. AT&T Canada LDS supported the reporting mechanism in the instance where switched hubbing is prohibited, and submitted that it should apply to all international service providers not using Teleglobe's Globeaccess tariff to route voice traffic.

79.  fONOROLA was of the view that the scope of the proceeding does not include the issue of reporting requirements. Teleglobe replied that the issue of reporting was on the record of AT&T Canada LDS' application of 12 June 1996, made part of the record of this proceeding.

80.  The Commission's approach has generally been that the carriers are responsible for enforcing their tariffs. Third country routing over Teleglobe's IPLs, if the Commission had decided to permit it, might have made it impossible for Teleglobe to distinguish between traffic that was routed through third countries via its IPLs and traffic that was routed through the U.S. However, given the continued prohibition on third country routing (absent the agreement of all countries or operating agencies involved), the Commission considers that Teleglobe (in co-operation with Stentor) is in a position to enforce its tariffs.

81.  The Commission also considers that a further proceeding would be required to establish the specifics of any reporting regime. The Commission again notes the government's announced intention that the Commission administer a licensing regime applicable to all providers of international services, and considers that a proceeding will be necessary in order to establish such a regime. The Commission will consider in that proceeding the question of whether reporting and/or other enforcement mechanisms are required, and if so, what those mechanisms should be.

 VIII IMPLEMENTATION

 A. Tariff Amendments

82.  In its ruling of 13 August 1996, the Commission made interim its approval of Teleglobe's current Resale and Sharing Rules Tariff. In light of its ruling in this Decision with regard to Decision 91-21 and the meaning of the term "domestic carriers", the Commission finds that changes to the Tariff are unnecessary with respect to the period 13 August 1996 to the date of this Decision.

83.  Teleglobe is directed to issue forthwith, effective the date of issue, revised final tariff pages deleting Item (2c) of its Resale and Sharing Rules Tariff.

 B. Accounting

84.  AT&T Canada LDS wrote to the Commission on 23 August 1996 and on 11 December 1996 requesting, among other things, an immediate accounting under the interim regime of 13 August 1996. On both occasions, AT&T Canada LDS submitted that Call-Net/Sprint and fONOROLA were engaging illegally in third country routing and that, as a result, AT&T Canada LDS was continuing to suffer from a competitive disadvantage despite the intent of the interim regime established by the Commission on 13 August 1996.

85.  fONOROLA submitted that the tracking mechanism put in place in the Commission's letter of 13 August 1996 may, in theory, be effective to ensure that the three named carriers do not engage in bypass. However, fONOROLA argued that the application of these requirements to only the three carriers would be discriminatory.

86.  The Commission rejects the submission that reporting requirements applicable only to AT&T Canada LDS, fONOROLA and Sprint would be discriminatory in the context of the interim regime, as these carriers are the only three permitted to engage in ISR under that regime. The Commission reiterates that its authorization for these carriers to engage in ISR or route their ITS traffic to resellers was conditional on their tracking such traffic, and subject to the condition that there may be an accounting for that traffic. The Commission further notes that it gave no authorization for departures from Tariff Item (2d) with respect to third country routing.

87.  In light of the findings in this Decision, the Commission directs each of AT&T Canada LDS, Call-Net/Sprint and fONOROLA to provide to Teleglobe, within six weeks, a report setting out complete details of the information that the Commission ordered these carriers to track in its letter of 13 August 1996, including specific routing information. The report is to be provided subject to a confidentiality agreement and under affidavit from a senior officer of the company. The Commission authorizes Teleglobe to bill these carriers for the amounts to which it would have been entitled absent the interim regime (including any amounts related to traffic routed through third countries contrary to Teleglobe's tariffs), minus appropriate offsets (for example, payments received for IPLs provided). The confidentiality agreement is to specify that the information provided in the reports filed by AT&T Canada LDS, Call-Net/Sprint and fONOROLA is to be used only for the purpose specified here, and that only personnel who require the information for that purpose are to have access to it. If parties cannot agree on the specific terms of the agreement, the Commission is prepared to adjudicate.

 Allan J. Darling
Secretary General

 This document is available in alternative format upon request.

DEC97-10_0