ARCHIVED -  Telecom Decision CRTC 97-6

Telecom Decision

Ottawa, 10 April 1997

Telecom Decision CRTC 97-6

UNBUNDLED RATES TO PROVIDE EQUAL ACCESS

References -

Switching and Aggregation Tariffs and Associated CSG Agreements

TCI TN 473/A
BC TEL TN 3065/A
Bell TN 5144/A/B
Island Tel TN 310/A
MTS TN 57/A
MT&T TN 438/A/B
NBTel TNs 334/A and 353
NewTel TN 363/A/B

Billing and Collection Tariffs and Associated Billing and Collection Agreements

TCI TN 474/A/B
BC TEL TN 3070/A
Bell Canada TN 5155
Island Tel TN 313
MTS TN 120
MT&T TN 441
NBTel TN 336/A
NewTel TN 365

I BACKGROUND

The Commission issued Equal Access, Telecom Public Notice CRTC 94-26, 24 May 1994 (PN 94-26), to initiate a proceeding to consider the Stentor owner companies' (SOCs) proposals for tariff revisions related to the provision, on an unbundled basis, of the Switching and Aggregation services and other service components required to provide equal access including the proposed Billing and Collection Service (collectively, the unbundled rates), Schedule 4 [Primary Interexchange Carrier (PIC) Information Processing] of the Carrier Services Group (CSG) Agreement, along with the proposed tariffs and agreements related to the Billing and Collection Service. Tariff filings were submitted by the following SOCs: Bell Canada (Bell), BC TEL, TELUS Communications Inc. (TCI), The New Brunswick Telephone Company, Limited (NBTel), Maritime Tel & Tel Limited (MT&T), The Island Telephone Company Limited (Island Tel), NewTel Communications Inc. (NewTel) and MTS NetCom Inc. (MTS). Most of the proposed tariffs and agreements, as listed above, were filed with the Commission beginning in March 1994.

The proposed unbundled rates reflect a fulfilment of the Commission's expectation that the SOCs would disaggregate the bundled rate of 1.1 cent per minute per end established in Competition in the Provision of Public Long Distance Voice Telephone Services and Related Resale and Sharing Issues, Telecom Decision CRTC 92-12, 12 June 1992 (Decision 92-12), to better reflect the nature of costs incurred by each of the SOCs. The unbundled services include Switching and Aggregation services, PIC processing services, Operator services and Billing and Collection services associated with calls for which the SOCs bill and collect on behalf of competitors. The Switching and Aggregation services consist of the Direct Connection and Access Tandem (AT) Connection services which comprise the two most significant components of the unbundled services. The Direct Connection provides for interconnection at a SOC end office switch while the AT Connection provides for interconnection at a SOC toll (tandem) switch. For Operator services, the SOCs proposed the use of currently approved general tariffs.

In Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994 (Decision 94-19), the Commission established a split rate base regime for the SOCs and new principles governing interconnection arrangements utilized by the SOCs' competitive services. Under this split rate base regime, the SOCs utilize a carrier access tariff (CAT) as a means of ensuring the recovery of costs by the Utility segment for activities performed by that segment on behalf of all long distance competitors and the SOCs' own competitive operations.

On 30 June 1995, Stentor filed revised rates for the unbundled services that reflected rates specific to the SOCs' Competitive segments and specific to alternate providers of long distance service (referred to as competitors) for Direct Connection, AT Connection, PIC Selection, 800 Directory Assistance - Database Update and Administration and Billed Number Screening Database Access Query services (collectively, the differential rates). The 30 June 1995 revised rates also included a 25% mark-up for the recovery of fixed and common costs, which are not included in incremental Phase II cost studies. This submission also redefined the AT Connection service to encompass only the costs associated with toll connecting facilities and toll office switching.

The proceeding included two rounds of interrogatories from competitors and final comments filed on 29 April 1996 by Sprint Canada Inc. (Sprint), AT&T Canada Long Distance Services Company (AT&T Canada LDS), Westel Telecommunications Ltd. (Westel), ACC TelEnterprises Ltd. (ACC) and fONOROLA Inc. (fONOROLA). Final reply comments were filed by Stentor on 29 May 1996.

II ISSUES

A. Differential Rates

Stentor claimed that its proposal to charge to each class of carrier rates that reflect the Phase II costs of providing Utility functionalities to that class of carrier addresses the cost-based pricing principles enunciated in Decision 94-19, thus avoiding resource misallocation and deterring uneconomic entry. Stentor further submitted that the revisions incorporated current forecasts of demand and costs and were the most appropriate rates on the record of this proceeding.

Most competitors opposed the proposed differential rates and favoured the use of an approach whereby an average resource cost is established based on the combined SOC and competitor demand hereinafter referred to as the All Carriers approach, claiming that Stentor's proposal to have different rates charged between SOCs and competitors for access to the local network was unreasonable, provided an unjust preference to the SOCs' Competitive segment and was contrary to the objectives established in Decision 94-19.

The Commission notes that under the proposed differential rates, the SOCs' Competitive segments would, in certain cases, be charged network access rates that are lower than the rates proposed for competitors for the same service. This difference arises from the premise that it is less costly for the Utility segment to serve the Competitive segment interconnection requirements than to serve the competitors' requirements. The Commission agrees with the competitors' claim that, to the extent there are different rates for comparable services, this would serve to weaken the competitive equity objectives of the regulatory framework of Decision 94-19. The Commission further notes that under the All Carriers approach, the unbundled rate structure which would be provided at the same tariffed rates for both competitors and SOCs, is equitable, simple to understand and implement and, by providing a disincentive to SOCs to engage in cost shifting, would serve as a competitive safeguard and lead to less regulatory oversight and costs.

Stentor reported that the cost differences between the SOCs and competitors associated with the Direct Connection service were due to the differences in resources in providing certain functionalities to the competitors such as for billing, trouble reporting and network resource management. With the exception of the billing functionality, the Commission notes that these latter cost components are relatively minor in nature compared to the major network cost components such as capital and maintenance for which the Phase II per minute costs of SOCs and competitors were reported to be nearly identical. The Commission is therefore of the view that the ongoing costs of performing the major switching and aggregation functions for competitors, other than billing, are not materially different from those of the SOCs, and that it would be inappropriate and contrary to the public interest to set separate rates for competitors and the SOCs.

With respect to cost differences associated with the billing functionality, the Commission notes that in the proposed per minute costs for Switching and Aggregation, the cost of billing for the SOCs' Competitive segment was assumed to be minimal, while for competitors, this item represented a significant component of the costs submitted. Stentor indicated that, pursuant to Decision 92-12, the SOCs' networks and carrier billing systems were modified to measure and bill competitors' Switching and Aggregation traffic based on total connect minutes and that, accordingly, the ongoing costs associated with serving this requirement were identified as costs causal to equal access interconnection. In contrast, Stentor submitted that the SOCs' toll minutes could not be measured and billed for in the same fashion without major and costly network modifications and proposed a statistical approximation technique whereby the SOCs' measured conversation minutes would be converted to total connect minutes using the application of two factors. The first factor would estimate terminating minutes from originating minutes to determine two-way conversation minutes. The second factor would convert total conversation minutes to total connect minutes and would reflect the additional usage associated with call set-up, busy signals and call completion.

Although it is cognizant of the problems inherent in the use of an approximate method which may lead to inaccuracies in the measurement of the total connect minutes for the SOCs, the Commission notes that the cost savings associated with avoiding the requisite network modifications required by measurement of the total connect minutes will be significant. In the circumstances, the Commission considers that Stentor's proposed method is sufficiently accurate to meet the requirement of determining the Switching and Aggregation charges for the SOCs' Competitive segment.

As indicated in the foregoing, the billing of connect minutes for the competitors is proposed by Stentor to be on an actual basis, whereas the billing of connect minutes for the SOCs' Competitive segment is estimated. Sprint proposed that Stentor's estimated billing approach apply to both the SOCs' Competitive segments and competitors; more specifically, that the total monthly Switching and Aggregation charges for both competitors and the SOCs' Competitive segment be based on conversation minutes used for billing contribution charges along with appropriate connect to conversation minute ratios. The Commission considers that Sprint's proposed approach, to the extent it can further reduce billing costs, will be to the benefit of all service providers. In addition, under this approach, the SOCs and competitors will be subject to the same accuracy and determination criteria, and will share in the costs of the associated measurement system. Accordingly, the Commission finds acceptable Sprint's proposed approach and directs the SOCs to file within thirty days for approval by the Commission revised proposed tariff pages setting out connect to conversation minute ratios considered to be appropriate for each of the SOCs' Competitive segment and competitors.

With reference to the proposed PIC Selection service, Stentor's proposed higher charges for competitors are reported to be the result of additional CSG resources required to complete the order system process; while this same activity for the SOCs is accomplished using existing business office service order systems but with certain modifications. On the basis of the record of this proceeding, the Commission finds that it is more appropriate to employ the All Carriers approach to determine the rates for PIC Selection service.

Concerning AT&T Canada LDS's proposal to charge the 800 Directory Assistance (800 DA) service to end-users rather than service providers, the Commission considers that 800 service is by its nature, perceived by end-users as a toll-free service. The Commission therefore concludes that it would be appropriate for the 800 DA service costs to be recovered from service providers who may then choose to pass on these costs to their 800 toll-free customers. The Commission further notes that under the recommended All Carriers approach, both competitors and SOCs' Competitive segment will pay the same 800 DA rates, with the exception of the 800 DA setup fee. With respect to this latter charge, the Commission notes that it is a small one-time fee to recover the incremental costs of establishing a new service provider's subscriber records on the 800 database. Consistent with causal costing principles, the Commission is of the view that this setup fee should be charged only to new alternative 800 service providers causing such incremental costs.

B. Resource Cost Studies

AT&T Canada LDS and other competitors alleged that several aspects of the resource cost studies conducted in support of the proposed unbundled rates and Billing and Collection rates are incorrect. Specific concerns related to the inclusion of certain non-recurring or capital costs, the demand estimates, the Utility Return on Equity (ROE) and the study period used in the resource cost studies.

With respect to the inclusion of certain non-recurring costs, the Commission considers that the proposed cost studies, as claimed by Stentor, exclude all development costs associated with Decision 92-12 start-up costs, and reflect ongoing causal incremental cash flows associated with non-recurring cost elements such as demand-related capital costs and ongoing operating costs of the Interexchange Carrier Trouble Report Centre.

The Commission notes that extensive and detailed costing information was obtained in this proceeding with a view to assessing the appropriateness of the costing methodologies and the validity and accuracy of the current costs associated with the cost-based unbundled rates proposal.

The Commission notes that certain costing inconsistencies were found between the individual SOC cost studies. For instance, BC TEL and MT&T included elements of costs such as DMS switch start-up costs for BC TEL and DMS-100 line group controllers (LGCs) and network modules for MT&T which were not included by other SOCs. In addition, SOCs had different views on whether incremental land and building costs, and/or conduit and structure costs and/or fibre cable costs were traffic sensitive and should be included in the costing process.

The Commission notes that in a 1996 update of its toll network costing model, Bell included the costs of additional network elements considered to be traffic sensitive (i.e., DMS-100 LGCs and maintenance trunk modules), which had been previously excluded from the causal costing process.

Most competitors submitted that BC TEL's access service rates were unreasonably high and expressed concerns with BC TEL's associated costing methodology and cost inclusions. The Commission notes that, in its initial submissions, BC TEL justified higher per minute capital unit costs, especially for Direct Connections, on the basis of certain network elements that were eliminated from its revised network model in subsequent cost submissions. The Commission further notes that despite the reported removal of such elements in BC TEL's latest cost submissions, BC TEL's capital unit costs were left virtually unchanged from the initial levels.

While attempts were made by the Commission to obtain Phase II costs filed by the SOCs to obtain a consistent level of cost inclusions or to obtain the SOC-specific resource cost estimates for certain resources excluded, such information was not made available.

The Commission has concerns regarding the inconsistent cost inclusion levels and the fact that certain costs such as generic software update costs are not identified as being causal at the overall service level. On the basis of the foregoing, the Commission concludes that the costs for Direct Connection service are underestimated for most SOCs while BC TEL's costs for this service may have been overestimated.

The Commission further notes that the current costs associated with Switching and Aggregation excluded the costs for the SOCs' own use of telecommunications services, also referred to as official telephone service (OTS). The treatment of OTS, although not currently estimated or included for purposes of individual service Phase II cost studies, is being considered in Phase II Costing Issues, Telecom Public Notice CRTC 95-19, 20 April 1995.

Certain competitors claimed that the demand used in the resource cost studies is inappropriate; in particular, they argued that the AT Connection demand is underestimated and that the associated service rates, especially over longer study periods, are inflated. The Commission agrees with Stentor that the increase in the competitors' AT Connection rates over longer study periods is not due to either demand assumptions or lumpy costs, but rather, is primarily due to the change in cost increase factors associated with expenses over time.

AT&T Canada LDS claimed that the AT functionality is required by the SOCs to route 800 calls and that the SOCs have not attributed an appropriate amount of SOC demand in the derivation of rates for AT Connection service. In this regard, the Commission notes that, pursuant to Implementation of Regulatory Framework - Splitting of the Rate Base and Related Issues, Telecom Decision CRTC 95-21, 31 October 1995 (Decision 95-21), all connections provided to the SOCs' Competitive segment toll services are Direct connections and, consequently, the connections for the SOCs' 800 calling service are not AT Connections.

With regard to the SOCs' PIC Processing demand, some interveners argued that the demand resulting from a change of address was not considered in the resource cost study and that the associated PIC Processing rate element is thus overestimated. The Commission considers that this particular SOC demand element was appropriately factored into the overall demand through consideration of the total number of orders requiring a PIC change. The Commission notes that both competitors and the SOCs' Competitive segment will pay the same PIC Processing rate under an All Carriers approach.

Concerning AT&T Canada LDS's claim that a Utility ROE should be used in the cost studies, the Commission is of the view that, consistent with the current practice for developing cost studies associated with Utility segment tariff filings, rates are to be based on resource cost studies which employ the mid-point of each SOC's currently-approved Utility ROE range. In determining the unbundled rates, the Commission has applied this current practice.

In this proceeding, Sprint and Stentor proposed the use of a five-year study period while AT&T Canada LDS proposed the use of a ten-year study period. The Commission considers that a study period of seven years represents an appropriate timeframe to capture the significant cashflows associated with the unbundled services.

C. Mark-Up

In Decision 92-12, the Commission stated that a mark-up can be seen as providing a contribution to common and access costs as well as to the difference between Phase II current costs and Phase III embedded costs (which generally exceed Phase II costs). In this same Decision, the Commission concluded that since AT&T Canada LDS would be making a substantial contribution payment in respect of its access to the Public Switched Telephone Network, the addition of a mark-up may result in it paying an excessive level of contribution to the SOC.

In Decision 95-21, the Commission stated that the issue of mark-ups for the equal access services would be dealt with in the Equal Access proceeding.

In this proceeding, Stentor proposed the use of a 25% mark-up in order to provide a contribution towards the recovery of fixed and common costs which are not included in Phase II cost studies.

The competitors opposed Stentor's proposed mark-up of 25%, arguing that Stentor had not provided any evidence in support of this mark-up and that a decision to allow a mark-up would only serve to recover Utility segment fixed and common costs twice since long distance competitors are already funding any shortfall from unrecovered Utility segment fixed and common costs through contribution payments. The competitors further noted that in a number of Commission rulings, mark-ups for bottleneck services had been disallowed.

The Commission notes that evidence filed in this proceeding indicates that there are significant differences between Phase II current and Phase III embedded costs for the Switching and Aggregation services. For example, Bell estimates of 1995 Phase III embedded cost estimates for Direct and AT Connections were 0.5 and 1.5 cent per minute per end, respectively, in contrast to proposed Phase II current costs of 0.2 and 0.4 cent per minute per end, respectively.

A large part of the differences between current and embedded costs stems from the fact that embedded facilities have a large existing capacity to handle foreseeable future demand, resulting in zero current costs. Furthermore, costs for various facilities such as for switch start-ups are considered as fixed common costs from the perspective of Phase II service costing. Given the significance of these differences, the Commission considers that they should be taken into account.

In this regard, the Commission notes the positions taken by MT&T and Island Tel to consider the service's fixed and structural investments, omitted from the Phase II costing process, in setting final rates. In MT&T's opinion, these fixed and structural investments, while historical, would require continued financing and if not shared equitably between SOCs and competitors, would place the full burden of such investments on the SOCs. MT&T estimated that the fixed and structural investment costs associated with Direct and AT Connection services amounted to additional per minute per end costs of 0.14 cent and 0.79 cent, respectively.

On the basis of the foregoing, the Commission finds that a mark-up, applicable to both competitors and the SOCs' Competitive segment, for bottleneck Switching and Aggregation services and the other services that are the subject of this proceeding, is appropriate and that, with the exception of the Direct Connection service, the use of a 25% mark-up above Phase II costs for the unbundled services is also appropriate. As discussed above, the Commission considers that the associated Phase II costs should be determined based on the All Carriers approach using a seven-year study period and employing the mid-point of each SOC's currently approved Utility segment ROE range.

With respect to the Direct Connection service, the Commission considers that a rate of 0.7 cent per minute per end, applied uniformly to the SOCs' Competitive segments and competitors and across all SOC territories, appropriately recognizes costs and will provide acceptable levels of contribution. In determining this 0.7 cent per minute per end rate, the Commission has recognized that the Direct Connection Phase II costs for most SOCs have been underestimated, while BC TEL's Phase II costs may have been overestimated. The Commission notes that in Stentor's latest submission, the proposed SOC Direct Connection rates, under the All Carriers approach using a seven-year study period, varied between the levels of 0.24 cent per minute per end to 0.86 cent per minute per end. The Commission further notes that in its 30 June 1995 submission, BC TEL proposed to charge its own Competitive segment a rate of 0.74 cent per minute per end for Direct Connection service.

The approved unbundled rates are set out in the attached Appendix and are hereby made final effective 1 July 1997.

The Commission notes that these approved rates will result in increased revenues for the Utility segment beyond what are currently received under the existing 1.1 cent bundled rate. These increased revenues will result in a lowering of the local access shortfall, which currently forms the basis for contribution rates applicable to competitors and the SOCs' Competitive segment. The SOCs are hereby directed to file for approval effective 1 July 1997, within thirty days, revised contribution charges which reflect the incremental revenues arising from the approved rates in this proceeding. At the same time the SOCs are to provide the supporting calculations and underlying data.

The Commission notes that the rates approved for AT Connections in this decision will likely not provide sufficient mark-up to fully recover the differences between current and embedded costs for this service. Nevertheless the Commission considers that the associated mark-up of 25% is appropriate. In this regard, the Commission notes that SOCs include in their imputation tests the Phase II costs for this functionality, and do not include the 25% mark-up.

The Commission considers that in the future, there is the possibility that AT Connections may not be seen to be a bottleneck service, in which case there may be greater latitude to employ more than a 25% mark-up for this particular service. This possibility was recognized in Decision 95-21 in which the Commission stated that, in the long term, competitive alternatives may arise from local service competitors and from high volume toll service competitors who use Direct Connection service with their own trunking and tandem switching to provide AT Connection service to other toll competitors.

D. Operator Services

The individual operator services are Long Distance Directory Assistance (LDDA), Busy Line Verification, Busy Line Interrupt and Long Distance Operator Assistance. LDDA represents the primary component of these operator services.

AT&T Canada LDS claimed that cost-based rates should be used for operator services since these services are bottleneck services. AT&T Canada LDS further submitted that the SOCs should be directed to develop wholesale rates that reflect the costs of the services that are provided to the competitors and the SOCs' Competitive segments, exclusive of the avoidable costs such as billing that are currently included in the retail tariff rates.

The Commission notes that Decision 92-12 allowed the use of existing tariffs for bottleneck services and did not preclude the use of operator service general tariff rates.

The Commission considers that the mark-up included in the SOCs' current LDDA rates, representing the primary component of operator services, is not excessive. The Commission also notes that both competitors and the SOCs' Competitive segment will pay the same operator service rates. The Commission concludes that the use of existing operator service tariffs is appropriate at this time.

E. Considerations Regarding the Imputation Test

Pursuant to Decision 95-21, the AT Connection rate is not applied to SOCs since the costs associated with this functionality, when provided to the SOCs' Competitive segments, are assigned entirely to the Competitive segment. Consistent with this treatment, the imputation test for competitive toll services relies on the tariffed rate for Direct Connection service along with the Phase II costs for the AT Connection functionality.

Most competitors claimed that this approach conferred an undue advantage on the SOCs with respect to the pricing of competitive toll services since the costs of the underlying AT Connection functionality charged to the SOCs in the imputation tests would be lower than the AT Connection rate charged to competitors. In the Commission's view, it would not be appropriate to include the AT Connection rate in the imputation test as the AT Connection service is not the bottleneck service used by the SOCs.

With respect to the competitors' concerns that the SOCs would not include the costs associated with the AT Connection functionality in their imputation tests, the Commission considers that the SOCs should identify on an explicit basis the AT Connection Phase II costs in their imputation tests. Effective 10 April 1997, the SOCs are directed to provide this information with their toll tariff filings.

Similar to the AT Connection service, the proposed inward and change service order rates, which are used to recover costs of activities associated with toll connecting circuit work orders and testing, are not applicable to the SOCs because the associated costs are assigned to the Competitive segment pursuant to Decision 95-21. The Commission finds acceptable Stentor's approach to charge the SOCs Competitive segment by way of the Phase III cost allocation and include in its imputation test, the Phase II costs for this work.

F. PIC Selection and Processing Capabilities

In this proceeding, the competitors stated a number of concerns related to the PIC guidelines which are incorporated in the CSG agreement. These comments pertain to the operation of the SOCs' CSGs and business offices. The Commission notes that some of these comments relate to issues that have already been dealt with by the Commission in previous proceedings or other matters which have been resolved on an ongoing basis between the SOCs and the competitors but not to the complete satisfaction of competitors. The Commission further notes that the PIC guidelines as modified have been employed for several years and considers that there may be changes which should be made from time to time.

Several competitors suggested that to ensure impartial treatment, the SOCs' business offices should be required to accept a non-Stentor PIC selection from a customer on behalf of a competitor, default additional access lines to the same non-Stentor PIC selection and default interprovincial customer moves to the same non-Stentor PIC selection. The Commission notes that such procedures would cause additional processing costs. Further, the Commission considers that such procedures would assign responsibility to the SOCs' business offices to act as agents for the competitors, which is inconsistent with the requirement for a direct authorization between a consumer and the consumer's equal access service provider of choice. The Commission further considers that imposing such an additional requirement on the SOCs' business offices would be inconsistent with the Commission's determinations in Equal Access - Marketing Information Telecom Decision CRTC 94-17, 24 August 1994.

Since the implementation of equal access, several competitors have raised various issues with the Commission and the SOCs regarding operational matters related to the SOCs' CSGs and business offices. The Commission or the SOCs have addressed and resolved certain of these matters. For example, an application was filed by fONOROLA on 1 August 1995, in which fONOROLA raised various complaints regarding PIC/Carrier Access Record Exchange processing operations. The Commission notes that Stentor initiated direct discussions with fONOROLA to resolve the problems at an operational level, resulting in the withdrawal by fONOROLA of the aspects of its application related to specific operational complaints. With respect to the SOCs' business offices and sales and marketing organizations, the Commission has intervened, for example in denying the use of PIC Restrict, where certain SOC business offices were attempting to implement consumer safeguards that were considered by the Commission to be detrimental to the evolution of a competitive marketplace.

The Commission notes that it will continue to address on a case-by-case basis concerns regarding the ongoing operational processes in order to ensure a proper balance between competitive equity objectives and consumer safeguards.

On the basis of the record of this proceeding, the Commission is of the view that only limited changes should be made and accordingly finds acceptable the proposed CSG agreements, with the following modifications. These modifications are: (1) to allow an access customer submitting a PIC transaction to initiate a correction without invoking the PIC dispute procedure and (2) to allow a competitor to re-submit a PIC lost or rejected due to a SOCs systems error without invoking PIC processing charges. The Commission further requires that the CSG agreements, including the Appendices, Schedules and PIC/CARE handbook, be incorporated by reference in the SOC tariffs.

G. Billing and Collection Service Rates

The SOCs provide a Billing and Collection service to a competitor for certain types of calls. This service is provided for casual calls (i.e., 10XXX calls placed over a competitor's network by a calling party that is not pre-subscribed to the competitor) and collect and third party billed calls over a competitor's network that are billed to a party that is not pre-subscribed to the competitor. This service will similarly be provided for calls to a competitor's 900 service provider that are billed to a party that is not pre-subscribed to the competitor.

Some competitors submitted that the proposed Billing and Collection service rates, and in particular the monthly subscription fee which is contracted for a period of sixty months, were too high and not affordable for competitors. The competitors also expressed concerns over the low demand forecasts used to estimate the resource costs and over the proposed ARM discounts. AT&T Canada LDS further submitted that the development costs for the Billing and Collection service are start-up costs as contemplated in Decision 92-12, and should therefore be treated in accordance with the recovery procedures set out in Decision 92-12, where competitors pay 30% of start-up costs while the remaining 70% are allocated to the SOCs.

The Commission notes that the Billing and Collection service was required by the Commission in Decision 92-12 in order to remove the undue preference identified in Decision 92-12 that the SOCs confer on themselves with respect to billing and collection. Since the costs for this Billing and Collection service were not addressed as part of Decision 92-12 network modifications and since this service is only applicable to new entrants, the Commission is of the view that it would be appropriate for competitors to bear the cost recovery for the Billing and Collection service.

The Commission considers that the proposed rates associated with Billing and Collection Service are based on appropriate Phase II costing methodology and include only causally-related incremental costs. Accordingly, the Commission concludes that, with the exception of the monthly subscription fee, the proposed cost-based rates which include a 25% mark-up, are appropriate.

With respect to the development costs of the Billing and Collection service, the Commission considers that these costs are considerable and that the associated recovery mechanism proposed by Stentor, via the monthly subscription fee, would result in unduly high rates overall and would limit interest in the service. The Commission notes that there is an apparent lack of interest for this service as proposed. The Commission is therefore of the view that this rate element as proposed should be removed. Stentor may file submissions, to be considered by the Commission in a subsequent public process, on the following alternative options for recovering the development costs that have not otherwise been recovered: (a) recovery over all competitor Direct Connection minutes, (b) recovery over all competitor casual call messages, (c) recovery over the number of subscribers using the service, (d) recovery of the Net Book Value associated with these development costs under one of options (a), (b) or (c) above, or (e) that no fee be charged on the assumption that these costs will be recovered, to the extent possible in the mark-up of the other service rate elements.

H. Billing and Collection Service Agreement

The proposed terms and conditions of the Billing and Collection service are contained in the Billing and Collection service agreement (the Agreement). This Agreement which is similar to the 900 service accounts receivable management (ARM) agreement, allows the SOC to purchase the accounts receivable from the competitor. As owner of the accounts receivable, the SOC bills and collects for the call. Under the Agreement, the SOC can choose not to purchase certain types of accounts receivable, or alternatively, can charge back to the competitor charges, associated with, among other things, fraudulent or suspected-fraudulent calls. The SOC is liable for other types of uncollected charges, i.e., bad debts. The SOC receives a certain discount on the price of the accounts receivable purchased from the competitor to account for its liability for bad debts.

Numerous concerns, particularly from Westel, were raised concerning specific provisions of the Agreement for billing and collection. These include the scope of calls that may be charged back to competitors without collection, the liability for fraudulent calls, the application of partial credits, the billing and settlement procedures, the dispute procedures as well as several other detailed provisions.

In response, Stentor submitted that the service is designed based on existing systems in order to minimize costs for all competitors and that the Agreement and the service should be considered as a whole, balancing the needs of the competitors, the SOCs and the end-user customers. Stentor also remarked that the current service demand was only a fraction of the forecasted demand and that Westel itself indicated that it does not expect casual call volumes to be substantial. Stentor further indicated that the administrative complexities and uncertainty to which Westel refers have not arisen to date, in its experience with a number of billing and collection agreements similar to that at issue in this proceeding.

Westel submitted that it would be more appropriate for SOCs to act as agents for the purpose of billing and collecting casual call charges. Westel noted that the mere nature of the proposed process requires that accounts flow back and forth between the two companies as responsibility is assumed pursuant to the terms of the Agreement and submitted that such a process is extremely onerous from both an administrative and accounting perspective. The Commission notes that AT&T Canada LDS, having initially argued for an agency arrangement, subsequently submitted that an ARM agreement would be acceptable subject to its proposed changes. The Commission further notes that the provisions of this Agreement are consistent with similar agreements which have been in place for pay-per-call service providers for several years without causing such service providers any undue difficulties.

With respect to the competitors' request for allowing for partial credits, the Commission notes Stentor's concerns with this proposal regarding the associated business office and systems development requirements and high costs. The Commission further notes Stentor's claim that there is only a small demand for chargebacks associated with casual calls leading to a partial refund. The Commission is satisfied that the procedure under the current proposed Agreement, whereby the competitor settles with the customer on an appropriate adjustment and then rebills the charge through the agreement, is appropriate under the circumstances.

With respect to adopting a true-up process to settle uncollectibles, Stentor indicated that the true-up process would be unduly costly, would not substantially improve accuracy of results and would not be materially different from the existing Agreement, whereby the competitor's responsibility for uncollectibles due to fraud and bad debt is determined according to the chargeback process and ARM discount, respectively. The Commission agrees with Stentor's conclusions that a true-up process is not necessary.

With respect to the request for more precise definitions of bad debt and fraud, the Commission considers that the current definition of bad debt coupled with the fraud call return provisions of the Agreement relating to uncollectibles could provide some latitude for the SOCs to transfer more costs of non-collection to competitors through the chargeback process. At the same time, the Commission agrees with Stentor's claim that fraud is difficult to define precisely for purposes of the Agreement given that the specific activities intended to be captured, by their nature, continuously evolve. In the Commission's view the proposed initial ARM discounts, based generally on the overall bad debt percentage, provide reasonable and equitable rates. In light of the foregoing, the Commission considers that the procedure to settle uncollectibles under the proposed Agreement is appropriate.

The Commission considers that most of the modifications proposed by competitors would result in significant cost increases for this service. Examples of such modifications, in addition to those previously mentioned, would be the provision of casual calls to LDDA over a competitor's network, extension of the time limits for eligible charges or for competitors to inititate an account dispute, immediate re-issue of settlement reports of billing accounts in the event that an error is found, increase of the SOC's liability for damages, and reductions in the Agreement's contract period and associated penalty charges in case of a premature termination by a competitor.

The Commission is of the view that should the competitors wish to obtain billing and collection arrangements which provide additional features, as mentioned above, such modifications should be the subject of negotiations among the relevant parties.

The Commission notes that the Billing and Collection Service has been in operation for nearly three years without having caused any apparent undue difficulties to the customers. The Commission also notes that Stentor's proposed terms and conditions of the agreement are similar to agreements for other services that have received Commission approval, such as for the Advantage 900 service. On the basis of the record of this proceeding, the Commision considers that the present arrangements as modified below are appropriate.

Accordingly, the Commission considers that approval of the proposed Agreement, with the following modifications is in the public interest. The modifications are: (1) to allow the disclosure of customer name and address information to a third party for billing and collection purposes subject to the appropriate privacy safeguards, (2) to extend the 60-day limit for raising a dispute concerning the settlement of billing accounts to 120 days, (3) to delete the requirement to have an approved operator services tariff, (4) to delete the section of Article 2.2(l) that permits the SOC to charge back "other billed calls in any other circumstances where payment for such calls has not been received", (5) to amend Article 3.8 to permit the competitor to obtain customer information when calls are charged back under Articles 2.2(j) and 2.2(k), (6) to make express provisions in the Agreement for the exclusion of casual calls to LDDA, (7) to state that all substantive provisions regarding the category of calls that are eligible for the Billing and Collection service are to be provided expressly in the Agreement, (8) to amend Article 2.4 to clarify precisely when ownership of the accounts receivable passes from one party to the other, (9) to reconcile Articles 6.1 and 6.2 to ensure that the competitors will have received a full accounting of the chargeback by the time the competitors must account to the SOC for any difference in the value of the accounts receivable recorded and returned, and (10) to amend Article 17 to allow for changes as ordered by the Commission.

III DISPOSITION OF APPLICATIONS

The Commission finds that the proposed rates as modified above are just and reasonable. Accordingly, for each SOC, the Commission approves on a final basis the individual tariff applications, with rates modified as set out in the Appendix, to be effective 1 July 1997. The current interim bundled rate of 1.1 cent per minute per end is hereby made final up to and including 30 June 1997. The SOCs are hereby directed to issue tariffs reflecting the foregoing within thirty days. The Commission also approves, on a final basis the various CSG agreements that are the subject of this proceeding and the standard form Billing and Collection Service Agreements filed by the SOCs as amended by this Decision. The SOCs are hereby directed to issue within thirty days revised Form Agreements incorporating the modifications herein.

In Decision 95-21 the Commission considered that certain equal access services proposed by Stentor to be assigned to the Competitive segment should be assigned to the Utility segment when the rates are unbundled. These services include the AT Connection service and other services identified at page 51 of Decision 95-21. In addition, the Commission approved an allocation of revenues derived from the interim 1.1 cent rate, as between the Utility and Competitive segments. The Commission hereby directs the SOCs to discontinue this revenue allocation approach and to file, as necessary, Phase III Manual updates to implement the foregoing assignment changes, effective 1 July 1997.

Allan J. Darling
Secretary General

Appendix