ARCHIVED -  Telecom Decision CRTC 97-14

Telecom Decision

Ottawa, 11 June 1997

Telecom Decision CRTC 97-14

NBTEL - TARIFF REVISIONS RELATING TO DIGITAL NETWORK ACCESS OC-3 AND DIGITAL BROADBAND SERVICES

BACKGROUND

1. On 19 August 1996, the New Brunswick Telephone Company, Limited (NBTel) submitted proposed tariff revisions under Tariff Notice (TN) 566 for the introduction of Digital Network Access (DNA) service at 155 megabits per second (mbps). In TN 566A, dated 9 September 1996, the company submitted corrections regarding the application of charges beyond the first half-kilometre.

2. NBTel also submitted TN 567 proposing rates for connection of the 155 mbps access facilities to NBTel's Digital Broadband Service (DBS). On 6 November 1996, the company submitted TN 567A making changes to its application indicating, among others things, that the DBS network would continue to operate at a transmission speed of 10 mbps, on a virtual circuit basis, even if service connection is for 155 mbps.

3. The Commission received comments opposing the application from Fundy Cable Ltd./Ltée (Fundy), including a report by Lemay-Yates and Associates, and from the Canadian Cable Television Association (CCTA). The Commission requested additional information from NBTel.

4. On 7 April 1997, NBTel filed tariff revisions under TN 631 which assumed approval of TN's 566 and 567.

POSITION OF PARTIES

5. Fundy submitted that the demand forecasts are not realistic and that the rates are too low compared to other services and are not compensatory. With respect to demand, Fundy argued that the demand forecast submitted under TN 566 could be overstated. Fundy submitted that the Province of New Brunswick issued a Request for Proposal (RFP) for a provincial Asynchronous Transfer Mode (ATM) network and that the service applications were filed in connection with the RFP. Fundy also submitted that some time after the filing of the service applications, the New Brunswick government indicated that the contract would be divided between NBTel and Fundy, rather than being awarded entirely to NBTel. According to Fundy, this change, if reflected in the demand forecast, could greatly affect the viability of the service.

6. In reply, NBTel indicated that since each high-speed DNA uses discrete resources, the profitability of each unit of demand is not dependent on the overall level of demand.

7. Fundy submitted that the OC-3 access rates proposed by NBTel are very low compared to the DS-3 access rates in the Stentor National Services Tariff. Fundy indicated that at the rates proposed, NBTel rates per DS-3 capacity would be cheaper by a factor of seven, and that differences of this magnitude raise questions as to whether the proposed service would be compensatory. CCTA argued that it is inconceivable that an OC-3 access facility, which has three times the capacity of a DS-3 access facility, would cost less than the latter. According to CCTA, such inconsistency in pricing is likely to lead customers requiring only DS-3 capacity to request OC-3 facilities because of the price difference.

8. In response, NBTel indicated that the service proposed under TN's 566/A should be called "High-Speed LAN Interconnection - Local Access" and not Digital Network Access as originally submitted, since the proposed OC-3 service is quite different from DS-3 access service. According to NBTel, whereas a DS-3 access facility requires equipment to convert between electrical and optical signals, the proposed OC-3 does not. NBTel submitted that because of this fundamental difference, the OC-3 access service it is proposing can be offered at a lower rate.

9. Fundy indicated that the cost savings from the equipment required for signal conversion in DS-3 circuits are not sufficient to account for the significantly lower OC-3 rates. Fundy also took issue with NBTel's comments to the effect that "potential customers of higher speeds do not necessarily expect to pay based on additional bandwidth". Fundy questioned the basis of this assertion and requested the Commission to order NBTel to file any available studies in support of this claim.

CONCLUSIONS

10. The Commission has a number of concerns with the costing information provided by the company that raise doubts as to whether the proposed access service is compensatory.

11. The Commission notes that the company provided the overall cost per unit of demand for OC-3 access in response to interrogatory NBTel(CRTC)-2 (TN 566/566A). In response to interrogatory NBTel(CRTC)-3 (TN 566/566A), the company provided costs for the first half-kilometre and additional half-kilometres for OC-3 access. The Commission notes that the costs provided in response to the two interrogatories for an OC-3 access differ significantly.

12. The company also submitted arguments that the cost of providing OC-3 access is considerably less than that for DS-3 service or a 10 mbps service as signal conversion equipment is not required for OC-3 service. The company also submitted information indicating that the access architecture is similar for both DS-3 and 10 mbps service, both of which require similar signal conversion equipment. However, in response to interrogatory NBTel(CRTC)-3 (TN 566/566A), the company provided information indicating that the cost of 10 mbps service is nearly identical to that of OC-3 service. In light of the foregoing, the Commission is not persuaded that NBTel has satisfactorily established the costs for OC-3 access.

13. The Commission is further of the view that, contrary to NBTel's position, there would be an increased cost per unit of demand arising from the reduction in demand anticipated from changes in contract conditions.

14. On the basis of the record of this proceeding and in light of the concerns expressed above, the Commission is not satisfied that NBTel has provided sufficient rationale to justify the costs and the proposed rates of the OC-3 access service. This is particularly relevant because OC-3 has three times the capacity of a DS-3, and yet the proposed rates are a fraction of the latter. TN's 566/A are therefore denied.

15. The Commission would be prepared to grant expedited interim approval to an application that adequately addresses the above findings.

16. Given the Commission's denial of the tariff revisions submitted under TN's 566/A and given that TN's 567/A are dependent on the tariff revisions submitted under TN's 566/A, the Commission hereby denies TN's 567/A. Similarly, TN 631 is also denied.

17. Fundy requested the disclosure of information for which NBTel has submitted claims of confidentiality. In the Commission's view, disclosure of the requested information could cause competitive harm to NBTel. Therefore, Fundy's request is denied.

Allan J. Darling
Secretary General

This document is available in alternative format upon request.

DEC97-14_0