ARCHIVED -  Telecom Decision CRTC 97-4

Telecom Decision

Ottawa, 26 February 1997

Telecom Decision CRTC 97-4

DEFINITION OF CUSTOMER

I BACKGROUND

By letter dated 27 June 1995, Bell Canada (Bell) filed under Tariff Notice 5523 an application requesting that the Commission approve tariff revisions concerning the definition of what constitutes a "customer" of the company. The Commission denied Bell's request in Telecom Order CRTC 95-951, 31 August 1995 on the grounds that the proposed definition was too broad and did not sufficiently clarify what would constitute a "customer".

The Commission also received an application from British Columbia Systems Corporation (BCS), dated 22 March 1995, requesting relief from the payment of contribution charges assessed on telecommunications services and facilities leased from BC TEL. BCS, an agent of the Crown in right of the Province of British Columbia, leases lines from BC Tel in order to provide voice and data communications to government entities in the province. BC TEL's claim for contribution was based on the view that BCS had violated its status as a "customer", and had in effect become a reseller or sharing group in that it permitted entities that would not qualify as part of the Government of British Columbia to access its network.

On 13 December 1995, the Commission issued Definition of Customer in the General Tariffs of the Telephone Companies, Telecom Public Notice CRTC 95-54, (PN 95-54), seeking comment on:

(1) what definition(s) of "customer" would be appropriate for the Commission-regulated telephone companies, having regard to the need for a clear distinction between single customers, resellers and sharing groups; and

(2) whether there should be a common definition of "customer" in the General Tariffs of the telephone companies regulated by the Commission.

The Commission deferred its determination with respect to BCS's application pending the outcome of the proceeding initiated by PN 95-54. The Commission notes that a decision regarding this application will be issued separately.

Comments were received from AT&T Canada Long Distance Services Company (AT&T Canada) (formerly Unitel Communications Company), BC TEL, BCS, Canadian Business Telecommunications Alliance (CBTA), Chrysler Canada Ltd. (Chrysler Canada), Credit Union Central of Canada (CUC), Glentel Inc. (Glentel), Home Hardware Stores Limited, Imasco Limited (Imasco), London Telecom Network (London Telecom), McGill University, Northwestel Inc. (Northwestel), Ontario Northland Transportation Commission (ONTC), Province of British Columbia, Sprint Canada Inc. (Sprint), Stentor Resource Centre Inc. (Stentor), on behalf of BC TEL, Bell, The Island Telephone Company Limited, MTS NetCom Inc., Maritime Tel & Tel Limited, The New Brunswick Telephone Company, Limited, NewTel Communications Inc., (formerly Newfoundland Telephone Company Limited), Québec-Téléphone and TELUS Communications Inc., formerly AGT Limited, Télébec ltée, Telesat Canada, TELUS Communications (Edmonton) Inc., (formerly ED TEL Communications Inc.), University of British Columbia and Westel Communications Ltd. (Westel).

II POSITIONS OF PARTIES

Parties generally identified the following issues: (1) whether it is necessary to define a customer in the telephone companies' tariffs; (2) the extent to which entities related to the customer of record should be included as being part of that single customer, for the purposes of, among other things, determining the discounts that may be available due to aggregation of traffic; (3) the distinction, if any, that should be made between a customer of a telephone company and a sharing group or reseller; and (4) whether a common definition of customer should apply to all telephone companies.

Stentor submitted that a common definition of customer is necessary because the provision of services on a national basis requires consistency in the treatment of customers across the territories of the Stentor member companies.

Accordingly, Stentor proposed that the following definition of customer be included in the tariffs of the companies, as well as in the tariffs of all other federally regulated telephone companies and those carriers who are required to file tariffs as follows:

A customer, for the purposes of these tariffs shall be defined as:

(1) a single legal entity, including a reseller; or

(2) a sharing group, represented by the administrator; or

(3) a company or individual and its subsidiaries and affiliates; or

(4) a government, including government departments and those agencies or crown corporations that are defined by statute or otherwise to be part of that government; or

(5) a company and its franchises and authorised franchisees; or

(6) a co-operative organisation and its associated member companies; or

(7) a company and its authorised agents and/or employees regularly conducting business at fixed or designated locations outside the principal business premise or business premises of the company.

In addition, Stentor proposed that the "customer" be defined as the party that can be held liable for all products and services provided to it by the telephone company.

All parties generally agreed that a definition of "customer" is necessary as long as the Commission continues to maintain a distinction between end-user customers of the telephone companies' services and resellers and sharing groups, as different regulatory rules apply to these customer categories for different reasons. Stentor noted that sharing groups and resellers must be uniquely identified because of the potential requirement to pay contribution charges, and because certain services, such as equal access interconnection, are available only to these types of customers.

In addition, there was general support for the establishment of a common definition of "customer" for all of the companies. Several parties suggested that any common definition should also apply to the independent telephone companies. Most parties agreed that it is not necessary to extend the common definition to non-dominant carriers.

A number of parties generally supported Stentor's proposed definition of "customer", including CBTA, CUC, ED TEL, Northwestel, Télébec, Chrysler Canada and Imasco.

Several other interveners, however, including AT&T Canada, Sprint, London Telecom, ONTC, Westel and Glentel submitted that Stentor's proposed definition is too broad and ambiguous. These parties were concerned mainly with the inclusion of corporate affiliates and associates, associated co-operative entities and franchise arrangements in the definition of "customer". According to those parties, the proposed definition would give the telephone companies the opportunity to group or aggregate the traffic of a larger number of associated or affiliated entities into a single customer. Those interveners submitted that, as a consequence, the telecommunications services provided by competitors would become a relatively less attractive alternative to many users.

AT&T Canada submitted that more objective criteria, such as legal liability for payment, should be used as the guiding principle for defining a customer of the telephone companies. AT&T Canada proposed that a customer be defined as:

A person or legal entity, including a reseller or sharing group, that purchases, and is liable for telecommunications services provided by the telephone company.

According to AT&T Canada, only by determining who is liable for the telecommunications services that have been rendered it is possible to accurately identify the entity responsible for assuming the principal obligations of customer. AT&T Canada submitted that liability criteria are much more objective and simpler than the criteria used in the definition proposed by Stentor.

Sprint supported the approach proposed by AT&T Canada. Other parties, however, while acknowledging that liability is an important criteria, suggested that it should not be the sole criterion. Stentor submitted that an approach based solely on liability would be overly simplistic and impractical and would not establish a distinction between a customer on the one hand and a sharing group or reseller on the other hand. BCS submitted that it would be easy to get around the intent of such a rule through the establishment of shell entities to assume liability.

III CONCLUSIONS

The Commission notes that there have been several disputes about aggregation and contribution under the current definitions which indicate that a more precise definition of "customer" is needed in order to clarify the distinction between a customer and a sharing group or reseller.

The Commission also agrees that it is important that the federally regulated Stentor member companies (the companies) adopt a common definition of "customer" in order to ensure consistency of application and interpretation. However, the Commission does not consider, at this time, that it is necessary to extend the common definition of "customer" to the independent telephone companies or to Teleglobe or Telesat. Accordingly, the Commission's determinations in this decision apply only to the Stentor member companies.

The Commission considers that the definition proposed by AT&T Canada, which is based on the assumption of legal liability, has appeal. In the Commission's view, it is straightforward, easy to implement, would require little on-going regulatory intervention and would be largely market driven (i.e., it would be based on the willingness of users to assume liability). The Commission also notes that liability for services rendered was considered by all interveners to be an important factor in defining a customer. In light of these considerations, the Commission is of the view that assumption of liability should be the primary component of the definition of "customer".

At the same time, however, the Commission considers that an approach based solely on liability does not adequately address the issue of what is a reseller or sharing group and may therefore be of little assistance in determining whether contribution is payable. The Commission also notes that, aside from AT&T Canada and Sprint, no other intervener submitted that a customer be defined exclusively with respect to the assumption of liability.

In the Commission's view, however, Stentor's proposed definition is too broad, and would enable many more entities to become customers of the companies, thereby qualifying for larger discounts through aggregation of traffic of affiliated and associated entities. In particular, the Commission has concerns with respect to including in the definition of "customer" corporate affiliates and their authorised agents, associated co-operative entities and franchise arrangements. In this regard, the Commission notes the submissions of a number of parties that, under Stentor's proposed definition, some entities that currently would be required to join sharing groups to qualify for the associated discounts would be considered as customers of the companies as long as they are affiliated with or associated contractually with a larger entity, such as a franchise or co-operative.

In light of these considerations, the Commission considers that the determination of whether an entity is part of a single customer, as opposed to being part of a resale or sharing arrangement, should generally be based on a control test, and not merely on the existence of a contractual or agency relationship. Accordingly, the Commission will consider a single customer to include only the entity that is liable for the telecommunications services purchased and that entity's affiliates. An "affiliate" in this context will be limited to a person that controls or is controlled by the customer or that is controlled by the same person that controls the customer. In this regard, the Commission notes that "control" is defined in the tariffs of the telephone companies to mean control in fact, whether through one or more persons.

Under this approach, then, non-governmental entities that use aggregated telecommunications services will be required to be controlled by the entity that is liable for payment for the services in order to be outside the definition of a resale or sharing arrangement and thereby removed from the requirement to pay contribution. A mere contractual relationship, such as the relationship between a franchisor and franchisee, will not be sufficient for this purpose, nor will a co-operative organization and its associated member companies constitute a single customer unless the requisite control links exist.

With respect to the issue of government customers, the Commission is of the view that a single government customer should include only those entities that have been declared by statute to be part of the government in question or, those entities with respect to which the government has the obligations of employer. Government entities that do not meet either of these criteria will be required to contract for telecommunications services in their own right. The Commission considers that these criteria for government entities adequately address, in a general manner, a variety of circumstances unique to particular jurisdictions and levels of government.

As noted above, the Commission considers that assumption of liability should be the primary component of the definition of "customer". Accordingly, to be considered a "customer", an entity must be liable for payment of services and products purchased from the company. The Commission notes that the assumption of liability will be at the discretion of the customer. For example, a parent corporation may choose not to be liable for certain of its subsidiaries, or a government may choose not to be liable for certain of its departments or branches that would otherwise qualify as being included as part of that customer. In such cases, the subsidiaries or government departments for which liability is not assumed would be required to become customers of the Company in their own right, and would pay for services based solely on the volume of traffic that they themselves generate.

The Commission notes that entities that do not qualify as being part of a larger single customer, such as non-controlled corporate affiliates, franchisees, agents and co-operative organizations without ownership links, will be able to continue to enjoy discounts from traffic aggregation, by, for example, forming a sharing group or pursuing other arrangements.

To address the question of proper aggregation of traffic, the Commission directs the companies to include in the definitions section of their General Tariffs, the following definition of "customer":

A person or legal entity, including a reseller or sharing group, that purchases telecommunications services from the company, and is liable to the company for those services.

To address the issue of when use of aggregated services constitutes resale or sharing (and thus whether contribution is payable), the Commission directs that the following qualifications be included in the tariffs of the companies, adjacent to the definitions of "resale" and "sharing":

"(x) For the purposes of this paragraph:

"affiliate" means a person that controls or is controlled by the customer or that is controlled by the same person that controls the customer.

For greater certainty, a customer is deemed not to act as a reseller or a sharing group if the telecommunications services that it purchases from the company are used only by itself and one or more affiliates.

(x) For greater certainty, a government is deemed not to act as a reseller or sharing group if the telecommunications services that it purchases from the company are used only by departments, agencies, crown corporations or other entities:

(a) declared by statute to be part of the government in question; or

(b) with respect to the employees of which the government has the obligations of employer."

The companies are directed to issue revised tariff pages, reflecting the changes noted in this decision, within 10 days of the date of this decision.

Allan J. Darling
Secretary General

DEC97-4_0