ARCHIVED -  Telecom Decision CRTC 97-11

Telecom Decision

Ottawa, 8 May 1997

Telecom Decision CRTC 97-11

Bell Canada

Repentigny, Quebec - 199603478London, Ontario - 199608270

Applications under the Broadcasting Act and the Telecommunications Act for authority to conduct technical and market trials - Approved

I Introduction

1. Following a Public Hearing held in the National Capital Region commencing 10 February 1997, the Commission approves the applications by Bell Canada, under the Broadcasting Act, for licences to carry on broadcasting distribution undertakings (BDUs) for the purpose of conducting technical and market trials, one in part of Repentigny and the other in part of London. The trials shall each serve a maximum of 3,500 individual subscribers. The Commission will issue licences expiring 31 May 1999. The licences will be subject to the conditions specified in this decision and in the licences to be issued.

2. The proposed trials will be conducted by Bell Canada by means of hybrid fibre-coaxial (HFC) distribution networks, that will overlay the applicant's existing telephone network facilities at each location.

3. The applicant also proposes to conduct technical and market trials that will make use of the HFC distribution networks to deliver telecommunications services to subscribers, initially consisting of a high speed Internet access service. The Commission's decisions with respect to Bell Canada's tariff application, and other issues arising from the applicant's proposal under the Telecommunications Act, are also contained in this document.

4. The 10 February 1997 hearing was a precedent, in that it was the first occasion on which the Commission has considered applications filed by an applicant pursuant to the Broadcasting Act and the Telecommunications Act in the same proceeding in which the applicant proposed the distribution of both telecommunications and broadcasting services over the same network.

5. In addition to the applications by Bell Canada, the dominant local telephone service provider in Ontario and Quebec, the Commission, at the 10 February hearing, considered proposals by TELUS Cable Holdings Inc. (TELUS ), an affiliate of TELUS Communications Inc., the dominant local telephone service provider in Alberta. TELUS sought authority to conduct technical and market trials in Calgary and Edmonton, Alberta. The TELUS applications are approved in Broadcasting Decision CRTC 97-193 and Telecom Decision CRTC 97-12, also issued today.

6. While there are important differences between the applications filed by Bell Canada and TELUS, they both raise the question of whether their approval would constitute a "head start" for the applicants in entering into competition with existing distribution undertakings, particularly in the core cable market. In this context, the applications by Bell Canada also raise the issue of structural separation. These matters are discussed below.

II Head Start Issue

7. In its 19 May 1995 report to the Government entitled Competition and Culture on Canada's Information Highway (the Convergence Report), the Commission endorsed increased competition in cable's core business in order to provide consumers with increased choice among distributors of broadcasting services. The Commission recommended, however, that applications from telephone companies for broadcasting licences should not be entertained until rules removing regulatory barriers to effective competition in local telephony are established. The Commission stated that the perceived need for transitional protection of the core cable business stems essentially from concerns about the market power of the telephone companies and any head start they may obtain in packaging telephony and entertainment.

8. The Government's Convergence Policy Statement of 6 August 1996 confirmed that neither cable nor telephone companies should be given a head start in entering into competition in the other's core market. The Government emphasized, however, that competition should not be unduly delayed. Subsequently, in Public Notice CRTC 1997-49 dated 1 May 1997, the Commission announced the timeframe for its consideration of applications by telephone companies for authority to carry on broadcasting distribution undertakings.

9. A key issue of this proceeding was thus the question of whether licensing Bell Canada to carry on broadcasting undertakings would be contrary to the head start policy. Certain interveners, particularly the cable companies, held the view that licensing the applicant would be inconsistent with the head start policy and that the applications were not "trials", but rather an early entry strategy into the core cable business. At the same time, the majority of interveners taking this position accepted the concept of trials so long as they were genuine trials.

10. The applicant took the position that its proposals were indeed trials that differed from full market entry. It also argued, among other things, that the Commission had previously considered cable industry trials of local telephony to be acceptable and that the trials did not conflict with the head start policy.

11. The Commission considers that it would be appropriate to approve the applications provided that it is convinced that the applicant proposes genuine trials, and is satisfied that it is in the public interest to permit such trials to proceed. The Commission also notes that the Government announcement of 6 August 1996 does not explicitly address the issue of trials. In the Commission's view, any concerns relating to the head start policy would arise principally in relation to a full service roll out, and not in relation to trials.

12. To determine if the proposals constitute genuine trials rather than representing instances of full blown market entry, and if their approval would be in the public interest, the Commission has examined the applications from three perspectives: the technology to be employed, the proposed service offerings, and the number of participating households.

a) Technology

13. The proposed trials will use an HFC trunk and a switched fibre-coaxial trunk. Bell Canada argued that parts of the design architecture of the proposed networks are innovative, experimental and cost prohibitive in a commercial sense. In response to Panel questioning during the oral hearing, however, the applicant acknowledged that part of the network would employ a proven HFC design widely used within the cable industry, and that the network would not be a true switched point-to-point broadband network in that the bandwidth would be shared among users. This is evidenced by the fact that the applicant may not offer true video-on-demand (VOD) services, nor subscriber-to-subscriber video interaction.

14. Nevertheless, the Commission considers that certain technical aspects of the Bell Canada proposals are truly experimental and innovative, including the deployment of digital servers, asynchronous transfer mode (ATM) switching, and the set-top box technology that interfaces with the ATM side of the network in the delivery of "multimedia" applications used in conjunction with traditional broadcast programming. In this sense, this portion of the network is a key distinguishing feature since it would enable new programming and multimedia content applications to be developed, integrated and tested. In addition, the Commission notes there will be opportunities to test particular technical sub-systems as upgrades and new designs are introduced into the trials.

b) Service offerings

15. Bell Canada proposed to distribute a number of services that are not widely distributed by cable companies. These include: a Canadian navigator that will highlight Canadian programs; a Canadian promotional channel; digital transmission of programming; digital multimedia interactive content; digital multimedia interactive content offered in conjunction with programming services; a broadcaster repeat channel; enhanced near video on demand (NVOD) services; and educational NVOD.

16. The Commission considers that the overall nature of these services supports a conclusion that the Bell Canada proposals are genuine trials. In particular, the Commission considers that the bridging of Canadian-produced multimedia content to Canadian-produced traditional broadcasting content is an important feature of these trials that serves to distinguish them from existing distribution undertakings, and encourages Bell Canada to pursue this aspect of its applications.

c) Number of participating households

17. The size of the trials is one indicator of whether the proposals would represent a head start, and this was clearly a key concern to some interveners. For its part, the Commission would be concerned with any undue long term competitive advantage the trials might give the applicant should it conduct them primarily as a "showcase" for its services as part of an early entry strategy, to the disadvantage of incumbent distributors on a going-forward basis. On the other hand, the Commission would not wish to limit the scope of the trials unduly, or impair the applicant's ability to conduct the trials and achieve its stated objectives, particularly those related to the promotion of Canadian programming and services in a digital environment.

18. Bell Canada contended that the projected number of homes to be passed (11,000 and 12,000 in London and Repentigny, respectively), is necessary to achieve the 3,500 target of actual subscribers in each community. It also claimed that the proposed scope of the trials will allow for "testing a multiplicity of features, options and participants' reactions". The cable industry, however, argued that the number of homes to be passed, and the number ultimately to be served, demonstrate that the proposals are not trials, but veiled market entry. The cable industry suggested that the trials be limited to 400 subscribing households in each market, noting that this number is the maximum permitted under the Commission's experimental VOD exemption order (Public Notice CRTC 1994-118).

19. In the Commission's view, a number of factors related to the design and purpose of the proposals support Bell Canada's proposed 3,500 subscriber base in each market. Most notably:

· distinct English- and French-language markets in the two locations support equivalent sample sizes;

· a large subscriber base is necessary to test the packaging and bundling of telecommunications and broadcasting services, particularly since not all customers will subscribe to all services;

· there will be no "negative option" marketing to assist in attracting subscribers;

· testing of Internet applications will be restricted to the number of households with personal computers equipped for Internet access;

· the potential loss of cable subscribers in each test market will be limited to 3,500, and it is improbable that the applicant will attract that number; and

· the 400-home limit specified in Public Notice CRTC 1994-118 is not a relevant benchmark as the exemption order contemplates a single type of service offering (namely VOD), and further, the trials under consideration will be conducted under the authority of a broadcasting licence rather than through exemption.

20. Having considered the technology that Bell Canada proposes to use, the services it intends to offer and the relatively limited number of households that will be participating, the Commission is satisfied that the applicant's proposals constitute genuine trials.

d) Public interest

21. In the Commission's view, the trials will provide new learning opportunities concerning the digital environment for existing broadcasters and producers, including the opportunity to develop, test and apply multimedia content developed by Canadian producers, as well as new navigational and promotional tools to support Canadian content and Canadian services. As required by a condition of licence set out in the appendix, the results of the trials will be filed with the Commission and, to the greatest possible extent, will be made public. The Commission expects that this should be to the significant benefit of interested parties. At the same time, the trials will contribute to the broad policy objective of increased competition, in that they will prepare the applicant for entry into broadcasting distribution on a commercial basis.

22. For these reasons, the Commission is satisfied that approval of the applications by Bell Canada is in the public interest.

III Structural Separation

23. A number of parties in this proceeding argued that the BDU licences should not be held by Bell Canada, but instead by a structurally separate affiliate, both in response to the Government's Convergence Policy Statement and to address concerns with respect to cross-subsidization. Bell Canada submitted that the Government's Convergence Policy Statement does not require structural separation, that the Commission found in Review of Regulatory Framework, Telecom Decision CRTC 94-19 dated 16 September 1994 and Implementation of Regulatory Framework - Splitting of the Rate Base and Related Issues, Telecom Decision CRTC 95-21 dated 31 October 1995, that economies of scope are pervasive and inseparable from Bell Canada's cost structure, that consumer benefits due to economies of scope have been demonstrated, and that a requirement for structural separation would create dis-economies.

24. At the public hearing, Bell Canada submitted that economies of scope, identified in Telecom Decision CRTC 95-21, also exist with respect to its proposed BDU trials. Bell Canada filed further information to demonstrate that consumers would benefit directly from the economies of scope accruing if Bell Canada itself holds the BDU licences. The Commission considers that, regardless of the magnitude of the economies of scope realized during the trial, there will be direct benefit to consumers arising from such economies of scope as do exist. The relative size of the economies of scope is not, in the Commission's view, a sufficient reason to require Bell Canada to hold the BDU licences authorizing it to conduct these trials through a structurally separate affiliate. More important, in the Commission's view, is whether concerns respecting cross-subsidization are addressed. In the circumstances, the Commission considers that concerns regarding cross-subsidization may be addressed without imposing on Bell Canada a requirement for structural separation. In light of the foregoing, the Commission finds that Bell Canada may hold the BDU licences.

25. With respect to the provision of programming services by Bell Canada, the Commission notes that, in this decision, it has authorized such activity, based on the nature of the services proposed and the fact that the applications are for market trials.

IV Applications Under the Broadcasting Act

26. As stated above, the Commission approves the applications by Bell Canada for licences to carry on BDUs for the purpose of conducting technical and market trials involving a maximum of 3,500 individual subscribers in each of London and Repentigny. A condition of licence to this effect is set out in the appendix to this decision.

27. Consistent with the licensing policy set out in Public Notice CRTC 1997-25 entitled New Regulatory Framework for Broadcasting Distribution Undertakings, the Commission will issue a Class 1 licence in respect of each undertaking. The licensee is required, by condition of licence, to operate the technical and market trials pursuant to Parts I, II and IV of the Cable Television Regulations, 1986 (the regulations), as amended from time to time, with the exception of the requirements stipulated in sections 17 and 18 of the regulations. Sections 17 and 18 of the regulations specify requirements concerning installation and provision of basic service, and fees for basic service, respectively.

28. By condition of licence, sections 14 and 15 of the regulations shall apply, with the necessary modifications, in respect of any programs distributed by the licensee that the licensee originates.

29. The Commission emphasizes that its approval of these applications is for a limited duration, in keeping with the fact that the proposed undertakings are for the purpose of conducting trials. To this end, the Commission requires Bell Canada, by condition of licence, to advise all potential subscribers in all promotional material, and each subscriber prior to providing service, that its broadcasting services are being offered on an experimental basis for a limited duration only.

30. These authorities will only be effective and the licences will only be issued, at such time as the undertakings are prepared to commence operation. If an undertaking is not prepared to commence operation within twelve months of the date of this decision, or where the applicant applies to the Commission within this period and satisfies the Commission that it cannot commence operation before the expiry of this period and that an extension of time is in the public interest, within such further periods of time as are approved in writing by the Commission, the licence for that undertaking will not be issued. The applicant is required to advise the Commission (before the expiry of the twelve-month period or any extension thereof) in writing, once it is prepared to commence operation.

a) Programming services to be distributed

31. The applicant proposes to distribute a package of basic and discretionary programming services in accordance with the rules and regulations established for Class 1 cable distribution undertakings. Bell Canada also proposes several alternative community expression initiatives, including arranging for the placement of computer terminals in publicly accessible locations. Proposed programming services to be distributed include: national broadcasting television network services; local English and French-language broadcast television services; the Cable Public Affairs Channel (CPAC) and certain provincial legislative services; Canadian specialty, pay and pay-per-view (PPV) television services; radio services and digital pay audio programming; NVOD and, possibly, VOD services. In addition, Bell Canada seeks authorization to distribute a programming navigator, various promotional channels and interactive services.

b) Requirements concerning access, and distribution and linkage

32. Since Bell Canada indicated that these trials will be conducted under the existing Class 1 rules, and given its commitment to adhere to the Access Rules, the Commission requires the licensee, by condition of licence, to adhere to the Access Rules for Broadcasting Distribution Undertakings contained in Public Notice CRTC 1996-60, and to the Distribution and Linkage Requirements stipulated in Public Notice CRTC 1996-121, as amended from time to time.

c) Rate regulation

33. Consistent with the policy determinations announced in Public Notice CRTC 1997-25, the Commission will not regulate the fees charged for broadcasting services distributed as part of the Bell Canada trials. In this regard, the applicant stated that, while it may discount certain packages and bundles of services as part of the learning objectives of the trials, it intends to offer services that will add value to the existing types of broadcasting services. Consistent with the applicant's statement at the hearing, and in the interest of ensuring that the trials yield meaningful results, the Commission expects Bell Canada generally to charge fees similar to those charged by the local cable incumbent for a similar package of broadcasting services, and higher fees for value-added services. The Commission also reminds the applicant of the requirements concerning billing clarity set out in Public Notice CRTC 1993-74 dated 3 June 1993 and entitled Structural Public Hearing.

d) Analog distribution of broadcasting services

34. The applicant stated that a primary objective of the trials is to test and develop broadcasting services in a digital environment. The Commission agrees that this is an important and worthwhile objective. Accordingly, the Commission requires Bell Canada, by condition of licence, to ensure that all households participating in its trials subscribe to a digital broadcasting service before they are permitted to subscribe to an analog broadcasting service that may be offered by Bell Canada.

e) Contributions to Canadian programming

35. At the hearing, Bell Canada noted that its original applications for the technical and market trials had been submitted prior to the Commission's call for comments on proposed new regulations for broadcasting distribution undertakings (Public Notice CRTC 1996-69 dated 17 May 1996). Nevertheless, the applicant confirmed that its approach to funding Canadian programming, including its community channel proposals, would comply with the Commission's ultimate regulatory framework for broadcasting distribution undertakings. Proposals for such a framework were subsequently announced in Public Notice CRTC 1997-25.

36. In accordance with that policy framework, Bell Canada is required, by condition of licence, to contribute 5% of the gross revenues derived from its broadcasting activities to support the production of Canadian programming. Specifically, in the period ending 31 August 1997, in the broadcast year ending 31 August 1998, and in the period between 1 September 1998 and 31 May 1999:

i) the licensee shall contribute to an independently administered production fund an amount equal to or greater than 5% of its gross annual revenues derived from broadcasting activities, less the amount contributed to community programming pursuant to paragraph ii);

ii) for the purpose of the calculations in paragraph i), the licensee may contribute up to 2% of its gross annual revenues derived from broadcasting activities to expenditures associated with the production of community programming.

37. As part of this condition, the licensee is required to report to the Commission, prior to commencing operations, naming the existing production fund to which it will make its contributions. In this regard, Bell Canada is reminded of the Commission's proposal, as set out in Public Notice CRTC 1997-27 dated 11 March 1997, to require that such programming contributions be directed to the Canada Television and Cable Production Fund.

f) Other authorized services

i) Barker channel

38. Bell Canada proposes to operate a barker channel to promote Canadian programs and services. Bell Canada indicated that trailers and other promotional material would be provided by broadcasters, fed to a file server, and Bell Canada would assemble the package. Bell Canada also confirmed that it would comply with the Commission's barker channel policy, and that it was seeking authorization to offer this service as a "special programming service". The Commission, by condition of licence, authorizes the licensee to operate a barker channel.

ii) Navigator

39. Bell Canada also proposes to operate a navigational system referred to as an "Interactive Program Guide" (IPG). This navigational system would include such features as parental control and V-chip functionality when it becomes available. According to Bell Canada, the IPG will be designed to highlight and promote Canadian programs and services. As proposed by the applicant, the Commission authorizes Bell Canada, by condition of licence, to provide this service as part of the trials.

iii) Pay-per-view, video on demand and near video on demand services

40. Bell Canada proposes to offer PPV/NVOD services provided by Viewer's Choice and Canal Indigo. It indicated that it would encourage these programmers to develop video-on-demand content. The Commission authorizes the licensee to distribute PPV/NVOD services provided by licensed programming undertakings, and VOD services falling within the scope of the Exemption Order contained in Public Notice CRTC 1994-18.

41. In the case of NVOD educational services, Bell Canada indicated that these will be provided either by licensed programming undertakings such as TVOntario and Télé-Québec or by educational institutions. In the case of NVOD programming provided by an educational institution, Bell Canada suggested that the programming could be authorized as a special programming service. It also confirmed that it would be responsible for such a service in regards to the Broadcasting Act. The Commission authorizes Bell Canada, by condition of licence, to provide this service as part of the trials.

iv) Interactive multimedia services

42. Bell Canada proposes to offer interactive transactional services of an entertaining or informative nature.

43. Bell Canada described a type of interactive television where, for example, broadcasters, working with multimedia producers, would create additional material that would be called up by clicking on an icon. It could be related programming, additional information or a survey. Bell Canada characterized such content as "piggybacking" on the broadcasters' existing service. These services would be accessible through the television set.

44. Another type of interactive multimedia would be accessed through what Bell Canada identified as a "Welcome Menu", and would include stand-alone applications such as video games, restaurant guides, horoscope, teleshopping and other possible material such as weather information provided in conjunction with The Weather Network. This is an area in which multimedia producers would be invited to participate in developing new and innovative multimedia products. These services would be accessible through the television set or the personal computer (PC).

45. As proposed by the applicant, the Commission authorizes the distribution of such services, by condition of licence.

v) Broadcast repeat channel

46. The Commission notes the applicant's statement that, since it will have the channel capacity to do so, it will make a separate broadcast repeat channel available to local broadcasters which they can program in accordance with the policy set out in Public Notice CRTC 1993-74. Bell Canada indicated that this channel could also be used to test advanced substitution. The Commission encourages Bell Canada to pursue this proposal as part of the trials.

g) Access to programming

47. Bell Canada requested that the Commission include, in this decision, a statement to the effect that pay and specialty services are expected to offer fair terms and conditions for all distributors.

48. In this regard, the Commission reiterates the statement contained in Public Notice CRTC 1997-25, that it "expects programming service suppliers to treat all distributors equitably when negotiating access to programming services".

h) Access to inside wire

49. Bell Canada based its written proposal on its installing and owning the inside wires, the subscriber drops and the set-top boxes. At the hearing, however, it indicated that it would use the existing inside wire in the home to the extent that it could. Part of the applicant's rationale for this proposal is that it would be helpful to study the suitability of the existing cable for future digital services. Bell Canada noted that, in any event, if a customer subscribes to both cable and high-speed data services, it will be necessary to run at least one new wire into the home.

50. In general, the incumbent cable licensees did not object to the applicant's proposal to overbuild the inside wire. They did object, however, to the proposed use of their inside wire, at least until certain pre-conditions are met.

51. In its May 1995 Convergence Report, the Commission proposed that "... measures be developed to ensure that all telephone and cable subscribers have the freedom to connect the inside wire to the systems of whichever suppliers of service they choose." In Public Notice CRTC 1997-25, the Commission set out these proposed measures, which would permit the customer to acquire and own the inside wire used to receive broadcasting services.

52. Although the regulations to give effect to these policies are not yet in force, the Commission expects all parties, including the applicant and the incumbent distributors, to adhere to this policy framework in order to ensure that customer choice is respected wherever possible and under terms and conditions that best reflect individual circumstances.

i) Interoperability

53. Bell Canada's applications include the assumption that trial participants will take all broadcast and telecommunications services from a single supplier, namely itself. A number of interveners, however, suggested that subscribers should be afforded the opportunity to participate in the trials while continuing to receive broadcasting services from the incumbent distributor. They added that subscribers should have the ability to switch between distributors should they wish to do so.

54. The Commission recognizes that most, if not all, of the technology in question, is undergoing rapid development. Nevertheless, the Commission considers that it is in the public interest that increasing attention be paid to system interoperability in all its facets. This will require examination of a number of issues, including system interconnection, the use of common equipment (subscriber drops, inside wire and set-top boxes), and the development of technical standards for channel compatibility, compression and encryption hardware. The Commission encourages the applicant and interested parties, including the incumbent distributors, content providers and equipment suppliers, to take advantage of opportunities presented by the trials to address such issues.

IV Bell Canada Tariff Notice 5866 and Other Issues Under the Telecommunications Act

a) Bundling and packaging of services

55. In Telecom Decision CRTC 94-19, the Commission described "bundling" as a tariffed telecommunications service, having a "single" price, created by combining existing tariffed services and, possibly, new service elements. In Local Competition, Telecom Decision CRTC 97-8 dated 1 May 1997, the Commission has addressed the regulatory approach applicable to bundling of tariffed and detariffed telecommunications services.

56. In this proceeding, Bell Canada set out its views on the regulatory approach the Commission should take under the Telecommunications Act in respect of a package of telecommunications and broadcasting services offered at a single price. Bell Canada drew on previous Commission decisions in support of its proposed approach, including Complaints by Unitel and Cantel Regarding MT&T Contract with the Province of Nova Scotia - Consent to Prosecution, Telecom Decision CRTC 95-8 dated 9 May 1996. In that decision, however, the Commission was considering the issue of whether the tariffed rate was being charged for a tariffed service, and not the issue of the appropriate competitive safeguards for a package of telecommunications and broadcasting services.

57. The Commission has determined that, for the purpose of these trials, a package of telecommunications and broadcasting services must not be sold for less than the sum of the tariffed rates of telecommunications services included in the package. Further, the package cannot be designed to circumvent the tariff of any tariffed service included in the package. The Commission has also determined that, for the purpose of the trials, tariff pages are not required to be filed under the Telecommunications Act with respect to the price charged or other terms associated with the packaged service offering. In recognition of the fact that the tariffed rate must be charged for all tariffed telecommunications services included in a package, the Commission directs Bell Canada to itemize, on each subscriber's bill, the charges for each tariffed telecommunications service included in the service package.

b) Single billing of primary exchange and trial services

58. Bell Canada does not propose to bundle primary exchange service with other telecommunications services (i.e. offer such services for a "single price"). It does plan, however, to provide a single bill for all services used by the trial participant, including primary exchange service. Certain parties opposed this proposal on the basis that providing a single bill for broadcasting and telecommunications services would constitute a departure from the head start policy. Given that Bell Canada does not plan to bundle primary exchange service, the Commission considers that Bell Canada should be permitted to bill for primary exchange and other services in this manner for the purpose of the trial. Bell Canada may also refer to primary local exchange service in material and discussions relating to trial participation to address trial participants' questions respecting basic local telephone service.

59. While Bell Canada does not plan to bundle or discount primary exchange service, the applicant indicated that it might include optional local services when creating new service packages. In that case, Bell Canada might include Call Management Service (CMS) features, each at its tariffed rate. Bell Canada is now permitted to bundle optional local services with other telecommunications services, subject to Bell Canada satisfying regulatory criteria respecting bundling. Consistent with the Commission's finding that permitting Bell Canada to proceed with its proposed trial is in the public interest, the Commission is of the view that such bundling or packaging, pursuant to the Commission's rules, should be permitted during the trial.

c) Access for third party service providers

60. AT&T Canada Long Distance Service Company (AT&T Canada LDS), iStar Internet Inc. (iStar) and Interlog Internet Services (Interlog) requested that Bell Canada be required to provide access to third parties who may wish to use Bell Canada's facilities during the trial. They referred, in particular, to the Commission's statement in Telecom Decision CRTC 95-21, that Bell Canada should file a video access tariff before it offers its own broadband services.

61. At the hearing, Bell Canada indicated that there are certain technical issues relating to interconnection and third party access which, in its view, make it difficult to provide third party access as of the date it wishes to begin the trial. Bell Canada added, however, that it supports an open model, and noted that the trial provides an opportunity to address technical issues in preparation for a commercial environment. Bell Canada suggested that it could file a Special Facilities Tariff to accommodate interconnection to another Internet Service Provider (ISP). Bell Canada stated in its written reply to interventions that it supports the requirement that access be provided to third party ISPs by BDUs, operating as broadcast carriers within the meaning of Regulation of Broadcasting Distribution Undertakings that Provide Non-programming Services, Telecom Decision CRTC 96-1 dated 30 January 1996. Bell Canada disagreed with Interlog that the Commission's statement in Telecom Decision CRTC 95-21 is the definitive guideline for third party access and stated that the more appropriate reference would be the proceeding begun by Regulation of Certain Telecommunications Services Offered by Broadcast Carriers, Telecom Public Notice CRTC 96-36 dated 6 December 1996. Bell Canada stated, however, that it is prepared to file a tariff for third party ISP access prior to the resolution of the issues addressed in Telecom Public Notice CRTC 96-36. At the time of the hearing, Bell Canada had also initiated discussions with iStar and Interlog in response to their submissions in this proceeding, although iStar indicated that Bell Canada's suggested approach was not satisfactory from iStar's perspective.

62. The Commission reiterates its view, stated both in the Telecom Public Notice initiating the current proceeding and in Telecom Public Notice CRTC 96-36, that it will examine issues relating generally to the framework for the provision of telecommunications services offered by broadcast carriers on broadcasting distribution networks in the proceeding initiated by Telecom Public Notice CRTC 96-36. In particular, the Commission considers that the proceeding begun by Telecom Public Notice CRTC 96-36 provides the appropriate forum for addressing the regulatory framework for third party access to broadcast carrier facilities. Moreover, the Commission is reluctant to adopt an approach in this decision that could result in the delay of the trials while Bell Canada and interested ISPs resolve technical issues.

63. At the same time, the Commission considers it important that Bell Canada and interested ISPs take advantage of the opportunity presented by these trials to address technical and other issues related to third party access to telecommunications facilities. The Commission notes Bell Canada's discussions with certain ISPs to facilitate third party access. In order that the Commission may follow the progress of this initiative, Bell Canada is directed to file a report, within four months of the date it commences the trial, describing third party access issues and the steps taken toward their resolution. Bell Canada is further directed to serve a copy of this report on appearing interveners. Such a report will not be required, however, should proposed tariff pages respecting access be filed prior to the report's due date.

d) Bell Canada Tariff Notice 5866

64. Bell Canada intends to conduct trials of two high speed residential Internet access services in association with each of its broadcasting distribution market trials in London and Repentigny, one which will provide PC access and one which will provide for television-based access. Accordingly, the applicant filed, under the Telecommunications Act, Tariff Notice 5866 in respect of its planned market trial of a high speed PC Internet access service. It has not filed a tariff notice for its high speed television Internet access service, which is still under development.

65. Interlog submitted that the Commission should not approve this filing in the absence of cost justification. Interlog further submitted that Bell Canada must unbundle the monthly rate so that users can provide their own terminal equipment and software once relevant standards are disclosed by Bell Canada for the PC Connection Unit (PCCU) which connects the trial participant's PC to the distribution network.

66. The Commission notes that, contrary to Interlog's submission, cost justification is not required in trial situations. The Commission accepts Bell Canada's position in respect of the PCCU that, owing to the experimental nature of its proposed service, the company will furnish trial participants with the PCCU. The Commission notes that it has approved, on an interim basis, similar tariff filings in respect of high speed Internet access services offered by other broadcast carriers. The Commission therefore grants interim approval to Bell Canada Tariff Notice 5866, effective as of today's date. The Commission intends to consider the issue of final approval once it has addressed the matters raised in Telecom Public Notice CRTC 96-36.

e) Cost and revenue allocation

67. Certain parties raised concerns with respect to the allocation of revenues and costs associated with the trial activities proposed by Bell Canada. In Telecom Decision CRTC 95-21, the Commission addressed the issue of the treatment of costs associated with Bell Canada's proposed implementation of new broadband infrastructure. The Commission determined that, in general, the most appropriate regulatory treatment for new broadband initiatives is to require the telephone companies to assign to the Competitive segment all new investments and related expenses (i.e. those incurred after 31 December 1994) associated with the deployment of fibre cable, coaxial cable, opto-electrical equipment, ATM switches, and video servers. The Commission also concluded that investment and related expenses for any broadband-related market or technical trials, including research and development expenses, whether incurred prior to or after 1 January 1995, must be allocated to the Competitive segment. Accordingly, Bell Canada must assign all capital investment and investment-related expenses incurred as a result of the proposed technical and market trials to its Competitive segment. Bell Canada confirmed that it will do this. It has also identified various field codes that will enable separate tracking of all costs related to the trials.

68. Bell Canada proposed to offer a television screen-assisted telephony service (caller identification on the television set), which will not be associated with its broadcast distribution network facilities. AT&T Canada LDS expressed concern that this service could be categorized as a Competitive segment service, given that services of this nature generate contributions to the Utility segment shortfall. Bell Canada stated that revenues based on the tariff for caller ID service should flow entirely to the Utility segment. Bell Canada noted, however, that it will also be necessary for the subscriber to possess an appropriate terminal equipment box to connect the television receiver to a caller ID-enabled subscriber line. Bell Canada submitted that the provision of this equipment would be competitive since any third party could provide similar terminal equipment. The Commission finds Bell Canada's proposal to assign any incremental revenues and costs associated with the provision of this equipment entirely to the Competitive segment to be reasonable.

69. Certain interveners expressed concern regarding Bell Canada's assignment of costs associated with single billing for existing and new telecommunications services, as well as for broadcasting services. Bell Canada stated that, in accordance with Telecom Decision CRTC 95-21, billing costs associated with existing telecommunications services will continue to be assigned 50% to the Utility segment and 50% to the Competitive segment. The Commission notes that these costs are related to postage and centralized mail remittance, and include the expenses associated with recording Customer Profile Information for name, address and billing and with bill printing. Bell Canada also indicated that a new process is being established to collect trial service information for billing for all broadband and broadcast services offered as part of the proposed trials and that the costs incurred to develop and operate this new billing process will be contained in a special account code and will be assigned entirely to the Competitive segment.

70. The Commission considers the proposed allocation of billing costs (50% to the Competitive segment and 50% to the Utility segment) to be appropriate for the trial.

71. Certain interveners also raised concerns with respect to the allocation of other non-investment related expenses associated with Bell Canada's proposed trials. The Commission reminds the applicant that all trial expenses associated with activities such as advertising and promotion, sales and marketing, business planning, and business office maintenance must be appropriately segregated and assigned entirely to the Competitive segment.

72. The issue of pro-rating revenue as between Utility and Competitive segment services would arise in the situation where a trial participant subscribes to a package of services and pays less than the full bill. Should such a circumstance arise in the context of these trials, and in order to reflect the recovery of tariffed rates for telecommunications services included in a service which packages broadcasting and telecommunications services, the Commission directs that revenues be allocated in the following order of priority: primary exchange service, other tariffed Utility segment services, tariffed Competitive (telecommunications) segment services and then between other Competitive segment services.

73. The Commission also directs Bell Canada to maintain a separate revenue account for gross broadcasting revenues received during the trials.

f) Section 36 approval

74. Bell Canada proposed that, as part of its high-speed PC Internet access market trials, it would provide subscribers with access to predominantly alphanumeric content of an entertaining and informative nature, and access to such content related to the company's services. In this connection, the applicant requested authorization, under section 36 of the Telecommunications Act, to control the content or influence the meaning of the telecommunications carried by means of its high-speed PC Internet access market trial.

75. In Regulation of Broadcasting Distribution Undertakings That Provide Non-Programming Services, Telecom Decision CRTC 96-1 dated 30 January 1996, the Commission granted interim approval under section 36 of the Telecommunications Act to broadcast carrier involvement in the content of the telecommunications services which they carry pending the completion of the proceeding begun by Telecom Public Notice CRTC 96-36. In view of this, the Commission does not find it necessary in this decision to approve Bell Canada's involvement in such content for the purpose of its trials, since it already has interim approval pursuant to Telecom Decision CRTC 96-1.

V Interventions

76. The Commission acknowledges the interventions submitted in support of, and in opposition to, these applications, as well as those interventions commenting on the technical and market trials proposed by Bell Canada.

77. With respect to the intervention made by the Federation of Canadian Municipalities (FCM), the Commission notes that both affected municipalities, the City of London and La Ville de Repentigny, confirmed their support of Bell Canada's application.

78. Moreover, the Commission notes that the Telecommunications Act provides the statutory framework governing access by a Canadian carrier or a distribution undertaking to highways or public places for the purpose of constructing, maintaining or operating its transmission lines. At the hearing, the FCM confirmed that the intervention did not constitute an application for relief pursuant to those statutory provisions.

79. In light of the foregoing, the Commission considers that no further action with respect to FCM's intervention is required.

This decision is to be appended to each licence.

Allan J. Darling
Secretary General

This document is available in alternative format upon request.

Appendix to Broadcasting Decision CRTC 97-192

Conditions of licence in respect of the broadcasting distribution undertakings carried on by Bell Canada at London, Ontario and Repentigny, Quebec

1 a) Except as provided below, for the purposes of the Cable Television Regulations, 1986 (the regulations), as amended from time to time, the licensee is deemed to be a Class 1 licensee;

b) sections 17 and 18 of the regulations shall not apply to the licensee; and

c) sections 14 and 15 of the regulations shall apply, with the necessary modifications, in respect of any programs distributed by the licensee that the licensee originates.

2. The licensee shall adhere to the Access Rules for Broadcasting Distribution Undertakings stipulated in Public Notice CRTC 1996-6, and to the Distribution and Linkage Requirements stipulated in Public Notice CRTC 1996-121, as amended from time to time.

3. The technical and market trials shall provide service to no more than 3,500 individual subscribers in each of London and Repentigny.

4. In the period ending 31 August 1997, in the broadcast year ending 31 August 1998, and in the period between 1 September 1998 and 31 May 1999,

a) the licensee shall contribute to an independently-administered production fund an amount equal to or greater than 5% of its gross annual revenues derived from broadcasting activities, less the amount contributed to community programming pursuant to paragraph b);

>b) for the purpose of the calculations in paragraph (a), the licensee may contribute up to 2% of its gross annual revenues derived from broadcasting activities to expenditures associated with the production of community programming.

As part of this condition, the licensee is required to report to the Commission, prior to commencing operations, naming the existing production fund to which it will make its contributions.

5. The licensee shall file with the Commission, on 31 December 1997, and at the end of each six-month period thereafter during the period of the licence term, a report on the progress and results of the trials, including, at a minimum, the following information:

a) the price of each service (including telecommunications services) and of each service package offered;

b) the number of subscribers to date for each service, and for each package of services;

c) the take-up rate for the various options and packages by subscribers;

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