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Ottawa, 1 May 1997
Telecom Decision CRTC 97-8
DECISION
LOCAL COMPETITION
TABLE OF CONTENTS
Para. No.
I INTRODUCTION.........................................................................................1
A. Background.............................................................................................1
B. General Considerations.............................................................................4
II INTERCONNECTION.................................................................................15
A. Introduction.............................................................................................15
B. CLEC Serving Areas.................................................................................18
C. Cost Allocation for Interconnecting Trunks and CSS7 Links..........................25
D. Points of Interconnection...........................................................................29
E. Interconnection of CCS7 Signalling Networks..............................................35
F. Notification of Network Changes.................................................................42
G. Interconnection Trunking...........................................................................46
H. Integrated Digital Loop Carrier....................................................................49
I. Carriage of 800/888 Calls............................................................................52
III COMPENSATION FOR TRAFFIC TERMINATION.........................................56
IV ESSENTIAL FACILITIES AND MANDATORY UNBUNDLING........................66
A. Background.............................................................................................66
B. Definition of Essential Facilities.................................................................68
C. Market Definition......................................................................................75
D. CLECs and Essential Facilities.................................................................79
E. Facilities that are Essential.......................................................................81
F. Other Facilities........................................................................................82
1. Local Loops.............................................................................................82
2. Inside Wire..............................................................................................88
3. Local Switching.......................................................................................90
4. Transiting of Traffic...................................................................................94
5. Signalling Networks................................................................................100
6. Directory Assistance Databases..............................................................106
7. Directory Assistance...............................................................................109
8. Directories..............................................................................................111
9. 9-1-1 Service...........................................................................................113
10. Message Relay Service..........................................................................115
11. Access to Rights-of-Way and Support Structures.....................................117
G. Pricing of Essential Facilities..................................................................119
V RATES AND PHASE II COSTS................................................................127
VI START UP COSTS.................................................................................137
VII ACCESSIBLE SERVICE IN A COMPETITIVE ENVIRONMENT..................139
VIII CONTRIBUTION....................................................................................151
A. Introduction............................................................................................151
B. Full Rate Rebalancing.............................................................................153
C. Proposals..............................................................................................156
D. Portable Contribution - The Commission's Approach..................................174
1. Calculation of Subsidy Requirement.........................................................174
2. Sources of Contribution...........................................................................179
E. Administration of the Central Fund...........................................................185
IX COMPETITIVE SAFEGUARDS.................................................................188
A. Exclusive Arrangements...........................................................................188
B. Bundling and Joint Marketing....................................................................195
C. Long Term Contracts...............................................................................200
D. Customer Access to LECs.......................................................................203
X IMPUTATION TEST....................................................................................207
A. Background.............................................................................................207
B. The Need for an Imputation Test...............................................................208
C. The Structure of the Test..........................................................................211
D. Application of the Test..............................................................................216
E. Imputation test for Bundled Services..........................................................220
F. Implementation........................................................................................221
XI DIRECTORIES AND DIRECTORY ASSISTANCE DATABASES...................222
A. Introduction.............................................................................................222
B. Directories..............................................................................................225
C. Directory Assistance Databases...............................................................232
XII RESALE..............................................................................................................237
A. Introduction............................................................................................237
B. Resale of Unbundled Components...........................................................240
C. Resale of Retail Services........................................................................241
1. Sprint's Proposal....................................................................................241
2. Other Approaches to Resale of Retail Services.........................................256
XIII REGULATORY FRAMEWORK FOR NEW ENTRANTS.........................................258
XIV ENTRY OBLIGATIONS FOR COMPETITIVE LOCAL EXCHANGE CARRIERS.........275
A. Introduction...........................................................................................275
B. Conclusions..........................................................................................279
1. Access - Other Carriers and Services.......................................................281
2. LEC-to-LEC Interconnection....................................................................282
3. Access to Operator Services...................................................................283
4. Privacy Protection..................................................................................288
5. Protection of Carrier Information...............................................................290
6. Other Obligations....................................................................................291
C. Entry Procedures...................................................................................295
ATTACHMENT A
I INTRODUCTION
A. Background
1. In Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994 (Decision 94-19), the Commission found increased competition in the local telecommunications market to be in the public interest and determined that restrictions on entry into the local market should be removed. On 11 July 1995, the Commission issued Implementation of Regulatory Framework - Local Interconnection and Network Component Unbundling, Telecom Public Notice CRTC 95-36 (PN 95-36) initiating a proceeding to establish principles and procedures that would permit competitive entry into the local exchange market.
2. On 15 March 1995, pursuant to directions contained in Decision 94-19, Stentor Resource Centre Inc. (Stentor) filed a submission that included a proposed model tariff for local network interconnection and unbundled network components. The filing was made on behalf of AGT Limited, now TELUS Communications Inc. (TCI), BC TEL, Bell Canada (Bell), The Island Telephone Company Limited (Island Tel), Manitoba Telephone System, now MTS NetCom Inc. (MTS), Maritime Tel & Tel Limited (MT&T), The New Brunswick Telephone Company, Limited (NBTel) and Newfoundland Telephone Company Limited, now NewTel Communications Inc. (NewTel) (collectively, the incumbent local exchange carriers (ILECs)). On 22 March 1995, Stentor filed a model local interconnection agreement and additional evidence, followed by rates and supporting costs on 3 August 1995.
3. On 9 April 1996, the Commission issued Implementation of Regulatory Framework - Local Interconnection and Network Component Unbundling - Oral Hearing, Telecom Public Notice CRTC 96-11 in which it announced an oral component to the proceeding to consider certain issues. The oral public hearing took place in Hull, Quebec, from 19 August to 4 September 1996. The following parties participated in the proceeding: ACC TelEnterprises Ltd., AIReach Integrated Network Limited (AIReach), AT&T Canada Inc., AT&T Canada Long Distance Services Company (AT&T Canada LDS, formerly Unitel Communications Inc.), Canadian Business Telecommunications Alliance (CBTA), Canadian Cable Television Association (CCTA), CellularVision Canada Ltd., City of Calgary, Clearnet Communications Inc. (Clearnet), Cogeco Cable Canada Inc., Consumers' Association of Canada (CAC), Canadian Wireless Telecommunications Association (CWTA), Director of Investigation and Research, Bureau of Competition Policy (the Director), Fédération nationale des associations de consommateurs du Québec and National Anti-Poverty Organization (FNACQ/NAPO), GTE Data Services Incorporated, London Telecom Network (London Telecom), MFS Communications Company, Inc. (MFS), Microcell Telecommunications Inc. (Microcell), Ministère de la Culture et des Communications, Gouvernement du Québec, Mobility Canada, Octel Communications Corporation and Octel Communications Canada Inc., Ontario Telephone Association, Province of British Columbia (B.C.), Rogers Cantel Inc. (Cantel), Sprint Canada Inc. (Sprint), and Stentor. In reaching its determinations set out herein, the Commission has reviewed and considered the submissions filed by all parties.
B. General Considerations
4. As noted above, in Decision 94-19, the Commission concluded that increased local competition is in the public interest. The Commission subsequently initiated proceedings, including this proceeding, to establish the necessary frameworks for co-location, local number portability, unbundling and interconnection to give effect to the Commission's conclusion.
5. Historically, local exchange services have been provided on a monopoly basis by the ILECs. Changes in wireline and wireless technologies have developed to a point where interconnection of competing networks is fully feasible in a manner that is transparent to the user. In addition, the advent of broadband networks gives rise to the capability of carriage of voice, high speed data, broadcasting and video on common facilities. These developments in technological convergence have resulted in fundamental changes in market conditions that the Commission recognized in its conclusion in Decision 94-19 on competitive entry into the local market. Local competitive entry, although limited, has already begun to stimulate innovation in service offerings and prices. The Commission is confident that this Decision will stimulate development of competition in the local exchange market, thereby increasing service innovation and total market revenues.
6. In this Decision, the Commission establishes a framework for local exchange competition that balances the interests and needs of consumers, local competitive entrants, toll competitors and incumbent telephone companies while at the same time maintaining universal access to affordable telecommunications services in high cost areas. This framework encourages efficient interconnection arrangements while remaining neutral in terms of technology. Thus, for example, should a wireless service provider (WSP) wish to become a competitive local exchange carrier (CLEC), it will be subject to the same terms and conditions set out in this Decision as wireline CLECs as long as it accepts the obligations applied to CLECs by the Commission in this Decision.
7. In this Decision, the Commission has adopted the principle that CLECs are not simply customers of ILECs but are carriers equal in stature to the ILECs in the local exchange market. In accordance with this principle, the framework for local exchange competition must allow for the transition from the single ILEC's network to a network of fully interoperable networks permitting subscribers of any local exchange carrier (LEC), i.e., ILEC or CLEC, to complete calls with at least the same ease and efficiency as at present. Only with this degree of interoperability can there be the true local exchange competition necessary to fulfil the promise of local price and service innovation.
8. Currently, there are several barriers to entry into the local exchange market. Generally, they arise from: (1) technical restrictions; (2) tariff restrictions designed for regulation in a monopoly environment; and (3) subsidized pricing policies implemented in respect of residence exchange service rates.
9. The technical restrictions prevent CLECs from interconnecting their networks to the ubiquitous networks of the ILECs in a manner that would enable them to offer exchange services using their own facilities. In this Decision, the Commission mandates interconnection arrangements between LECs and directs that associated technical modifications be made to the ILECs' networks. However, the Commission also recognizes that additional technical and operational modifications are needed and will require further investigation and negotiation on the part of those affected. The Commission accordingly requests the CRTC Interconnection Steering Committee (CISC), established pursuant to Implementation of Regulatory Framework - Development of Carrier Interfaces and Other Procedures, Telecom Public Notice CRTC 96-28, 1 August 1996, to identify issues and propose solutions for consideration by the Commission.
10. The Commission has found the input and assistance of the CISC and its working groups to be of great value. The CISC brings together participants of the industry in working groups under the guidance of the Commission. The industry working groups have started development of the administrative systems required for local competition. As this work proceeds, the relevant groups should begin developing the operational systems needed to implement the interconnection arrangements mandated in this Decision. In addition, local number portability (LNP) arrangements will be finalized through these groups.
11. The current tariffs do not permit the type of CLEC-to-ILEC interconnection needed to facilitate effective local exchange competition. The existing tariff structure provides for local services packaged to serve the end-user. The Commission, in this Decision, orders interconnection and mandates unbundling of certain ILECs' service and facility components that CLECs will require, but will not generally be able to provide themselves. To this end, the Commission establishes a definition of an essential facility, service or function. The Commission considers that this approach will ensure that the CLECs are provided with an appropriate level of access, but will not require ILECs to supply CLECs with facilities that CLECs should more appropriately provide themselves. The result will be an efficient use of resources and an expansion of competitive facilities.
12. The Commission is establishing in this Decision a set of competitive safeguards that it considers are needed to protect against ant-competitive practices. These include, among other things, upper limits on prices that ILECs may charge CLECs for essential facilities and lower limits on prices that ILECs may charge for business local exchange services in order to prevent anti-competitive pricing.
13. A complex subsidy system is currently in place to permit the ILECs to maintain residential rates at levels below costs, particularly in rural areas. In this Decision, the Commission establishes a contribution mechanism that balances the objective of fostering effective competition with the equally important objective of ensuring that, to the greatest extent possible, residence customers, including those in higher cost areas, have access to services that reflect the benefits of competition.
14. The Commission has concluded that, in the interests of consumer protection and competitive equity, certain obligations should continue to apply to the ILECs, at least for the time being. With respect to CLECs, the Commission is mandating certain consumer protection obligations, but beyond this intends to minimize ongoing regulatory scrutiny, relying instead on competitive forces to discipline non-dominant players.
II INTERCONNECTION
A. Introduction
15. The current monopoly regime for the provision of local services permits the exchange of calls between all local subscribers, access to long distance service providers and access to other telecommunications services. To ensure the maximum integration of new competitive networks into what will evolve into a network-of-networks, and to ensure that subscriber-to-subscriber access is maintained, all LECs in a local calling area must be interconnected. The Commission also wishes to ensure that the competitive framework encourages efficient interconnection arrangements to the benefit of all subscribers.
16. The Commission is of the view that the interconnections required by this Decision must rely on the use of industry standard network interfaces to the greatest extent possible. The implementation and use of non-standard interfaces and reliance on proprietary standards will be permitted only in exceptional circumstances.
17. Accordingly, to achieve the above objectives, the Commission orders LECs to provide for interconnection with the facilities of other carriers in the manner established and subject to the conditions established throughout this Decision.
B. CLEC Serving Areas
18. The issue of serving area boundaries was raised by several parties who submitted that CLECs should be able to provide services in serving areas that do not coincide with ILEC exchange areas. Those parties submitted that flexibility in defining respective serving areas is an important element to enable CLECs to differentiate themselves from ILECs in marketing their services. Such parties noted, for example, that an important marketing strategy might be to offer customers flat-rated local services over areas wider than those currently provided by the ILECs.
19. With respect to existing serving areas, an exchange is defined as the basic unit for the administration and provision of telephone service by an ILEC and it normally encompasses a city, town or village and adjacent areas. Within an exchange and to other exchanges that have extended area service (EAS) or similar services with that exchange, all subscribers may place an unlimited number of calls of any duration to all other subscribers without incurring long distance toll charges. Exchanges for which EAS or similar services have been established continue, nevertheless, to be separate and distinct exchanges.
20. The exchange system is both integral and necessary to the general functioning of the network. For example, the three digit telephone number prefix (NXX) or Central Office (CO) code is unique to an exchange within a given Numbering Plan Area (NPA). NXXs identify the exchanges in which a call originates and terminates and are thus used to rate and route calls. The Commission notes that both Stentor and CCTA proposed that each CLEC acquire at least one NXX in each ILEC's exchange in which it is providing service.
21. The Commission notes that several parties, including Stentor and AT&T Canada LDS, did not object, in principle, to variances in serving areas in a competitive environment, but indicated that the basis for toll contribution must be maintained as it is if the contribution system is to remain viable. CCTA, while arguing that CLECs should be free to set their own serving areas, acknowledged the importance of the toll contribution framework and agreed that, for the purposes of calculating contribution, the ILECs' exchange boundaries should continue to be used.
22. In the Commission's view, permitting CLECs to define serving areas that encompass more than one ILEC's exchange, without making provision for toll contribution for CLEC calls that cross an ILEC's exchange boundary, would mean that many CLEC calls would avoid contribution while ILEC calls with the same routing would be subject to it.
23. In light of the above, the Commission concludes that CLECs should be permitted to establish their own continuous local serving areas for the purpose of setting rates for retail services. The Commission also concludes that a CLEC must obtain at least one NXX for each ILEC's exchange area in which it provides services. Further, any CLEC-generated call between ILECs' exchanges where ILECs' toll charges are applicable is to be treated as a toll call for contribution payment purposes, regardless of the structure or extent of the CLEC's serving area.
24. The effect of these conclusions is that the present ILECs' exchanges will be maintained as the elementary unit for the purposes of interconnection and calculation of contribution in a competitive environment.
C. Cost Allocation for Interconnecting Trunks and CCS7 Links
25. The exchange of traffic between LECs requires that any given LEC has circuits between at least one of its switches and at least one switch belonging to each LEC to which it is interconnecting. In addition, each LEC requires signalling links between its Common Channel Signalling System 7 (CCS7) signalling transfer point (STP) and STPs used by other LECs to which it is interconnecting, to transport the CCS7 signalling needed for the interchange of traffic.
26. Stentor submitted that each LEC should provide the trunks required for traffic originating on its network and terminating on another carrier's network as each carrier should be responsible for the delivery of traffic originating from its customers to the local switches of all other carriers. Most other parties commenting on this issue, however, argued that any given pair of LECs should share equally the costs of interconnecting links. CCTA, for example, noted that in the current environment the point of interconnection (POI) between two LECs is at the territorial boundary between the two LECs or at some other agreed upon meet point. In either case, the two LECs share the cost of the interconnection facility. The Director submitted that the sharing of the costs of facilities between two interconnecting networks provides an incentive to cooperate in minimizing the costs of joint interconnection.
27. To minimize a LEC's costs, the Commission mandates the equal sharing of the costs of interconnecting trunks and CCS7 signalling links. The Commission considers that this approach will assist in promoting competitive equity and efficiency of interconnection by reducing or eliminating any incentive to impose on competitors higher than necessary costs for interconnection facilities. The Commission expects this approach to be implemented by means of interconnection agreements to be approved by the Commission pursuant to section 29 of the Telecommunications Act (the Act).
28. The Commission is also of the view, however, that the equal sharing of costs of interconnecting trunks should be required only for interconnection within a given ILEC's exchange. In the Commission's view, to do otherwise would provide a CLEC with incentives to establish one switch or POI only, regardless of the size of its declared serving area, thereby imposing inappropriate costs upon ILECs for the resulting interconnection trunks.
D. Points of Interconnection
29. Generally, the ILEC's local network is characterized by direct connections between end office switches. In some cases, however, end office switches may be interconnected through one common local switch, which is referred to as a local tandem switch. A CLEC's local network may involve only one switch initially and, as its customer base grows, the CLEC would likely install additional switches or remotes.
30. In Stentor's view, as the local switch is the point at which the bottleneck exists with regard to call termination, connections should be made at each local switch, without any form of mandated tandeming. Most other parties that commented on this issue took the position that interconnection at local tandems should be mandated.
31. In the Commission's view, interconnection solely at the end office switch level would impose higher than necessary costs on all LECs. These costs would constitute a significant barrier to competitive entry and would result in an inefficient network architecture to the detriment, ultimately, of all consumers. The Commission is of the view that the interchange of traffic between LECs should take place at a single POI designated as a gateway. The gateway concept would provide for greater network efficiency for all local exchange service providers. This approach would alleviate the concerns described above regarding barriers to competitive entry and overall costs to consumers resulting from the generalized network inefficiencies that would arise from mandating connection at the end office switch only. The Commission acknowledges that such an approach would require ILECs to install tandeming software at designated switches and to engineer their networks to take account of tandem traffic requirements generated by CLECs. The Commission notes that this requirement is also imposed on CLECs.
32. In keeping with the Commission's decision to maintain the ILEC's exchange as the elementary unit for the purposes of interconnection and calculation of contribution, the Commission is of the view that the interchange of traffic between LECs should take place on an exchange basis. The Commission concludes that each LEC providing service in an exchange must, except as otherwise provided below, designate one switch or establish a POI as its gateway for purposes of interconnecting to other LECs operating in the exchange. The gateway would be used to terminate traffic in the exchange.
33. The Commission notes, however, that there may be instances where traffic characteristics are such that other arrangements, such as connection to an end office, may be the most efficient network configuration. As a result, the Commission considers that other arrangements should not be precluded. In the Commission's view, requiring gateway connections, unless other arrangements are negotiated, would permit flexibility in implementing network architectures for all LECs.
34. The Commission is of the view that it would be appropriate to leave the establishment of criteria for designation of gateway locations to negotiations among parties. The Commission will request the CISC to provide recommendations regarding the selection of ILEC switches to be designated as the gateways and the criteria for implementation.
E. Interconnection of CCS7 Signalling Networks
35. All parties that commented on this issue agreed that CCS7 signalling should be employed for local interconnection. CCS7 signalling is required for various essential call processing functions such as setting up and taking down calls and communicating with databases to determine call routing and other functions. In order to ensure the continued effective and efficient operation of the network and the continued provision of the range of services to which subscribers have become accustomed, the Commission is of the view that interconnection of LEC CCS7 signalling networks is necessary.
36. Stentor submitted that interconnection of CCS7 signalling networks should take place at existing gateway STPs, which are equipped with the mediation software necessary for the protection of Stentor's CCS7 network. Alternatively, Stentor submitted that, if the Commission permits interconnection at non-gateway STPs for services other than call set-up and take-down, its member companies should be entitled to recover costs associated with equipping STPs with security software.
37. CCTA submitted that interconnection of CCS7 signalling should be required at both the local and gateway STPs.
38. The Commission considers that the costs of requiring CLECs to interconnect at the current ILECs' gateway STPs in Calgary and Toronto would be excessive, and thus would constitute a significant barrier to competitive entry. Requiring the Stentor companies to install mediation software in each of their STPs (as opposed to gateway STPs), on the other hand, and permitting CLECs to connect to the STPs of their choice could prove expensive for some or all concerned, depending on how the costs are allocated.
39. The Commission notes Stentor's alternative suggestion of providing a CCS7 POI in each ILEC's territory. Each ILEC would provide a point in its territory to which CLECs could bring their CCS7 links and be connected either to a gateway STP or an STP with mediation capabilities. This approach would offer the new entrants a less expensive means of interconnecting with the Stentor CCS7 network while permitting the Stentor companies to minimize their software costs. The Commission considers that a major drawback of the Stentor proposal is that the farther a CLEC is from the CCS7 POI, the greater the expense is for facilities. Further, such distance-related cost considerations could be a major factor with only one CCS7 POI per ILEC's territory.
40. While it would not be appropriate to require that ILECs provide a CCS7 POI in each exchange area, it would be reasonable, in the Commission's view, to mandate the provision of one ILEC CCS7 POI in each NPA. Similarly, each CLEC will be required to provide a CCS7 POI in each NPA in which it provides service. Given that the cost of links interconnecting the CLEC STP and the ILEC CCS7 POI will be shared, the Commission considers that this approach will result in more efficient and less expensive interconnection arrangements, to the benefit of all LECs and their customers. The Commission will request the CISC to provide recommendations concerning the location and implementation of LEC CCS7 POIs.
41. CCTA stated that the exchange of a full range of CCS7 messages should be mandated to ensure that all LECs can offer a full range of exchange and optional services. The Commission considers that it will be necessary to mandate a minimum set of CCS7 messages and that the most appropriate method for its establishment is through negotiations by participants in the context of an industry forum. Accordingly, the CISC will be asked to recommend a minimum set of CCS7 message types that must be exchanged between LECs.
F. Notification of Network Changes
42. Changes made in a network can affect terminals and interconnected networks. It was for this reason that the Commission in Notification of Network Changes, Terminal-to-Network Interface Disclosure Requirements and Procedures for the Negotiation and Filing of Service Arrangements, Telecom Letter Decision CRTC 94-11, 4 November 1994 (Letter Decision 94-11), established rules for telephone company notification of network changes with regard to interexchange networks and terminal equipment. Most parties that addressed this issue agreed that, with the advent of local competition, these rules should be extended to all LECs, insofar as local network interconnection arrangements are concerned.
43. The current procedures for providing disclosure of ILEC network changes that affect terminal equipment are intended to provide assurance that terminal equipment manufacturers will be aware of terminal interconnection specifications and not be disadvantaged in the terminal supply market as compared to other suppliers, some of whom may be affiliated with ILECs. The Commission is of the view that this existing requirement for notification of changes affecting terminal equipment by ILECs should continue since ILECs will remain in a dominant position. However, the Commission considers that it is not necessary to impose the terminal equipment notification obligation on CLECs who, in light of their non-dominant status, have minimal potential advantage in failing to notify.
44. Regarding changes to network-to-network interfaces, however, the Commission considers that notification by all LECs is clearly required, as such changes can affect interconnecting carriers. Failure to provide notification of proposed network changes could lead to disruptions in the networks, which would affect network users. In the Commission's view, the public interest requires that, in an environment of multiple interconnected networks, a very tight discipline be imposed on all carriers to ensure that no change is made without all interconnecting carriers having the opportunity to examine the proposed change, conduct tests and take action as required before the change comes into effect. The Commission agrees with parties that rules and procedures contained in Letter Decision 94-11 should be extended to CLECs for these purposes.
45. Accordingly, all LECs will be required to provide advance notification of any network modification that may affect the operation of the networks of other carriers to which they are interconnected, pursuant to the rules and procedures contained in Letter Decision 94-11. Further, any LEC proposing changes must be prepared to conduct technical tests of the proposed changes with all of the carriers to which it is interconnected.
G. Interconnection Trunking
46. Trunk circuits between LEC switches can be one or two-way. The type of trunking employed is based on considerations of network efficiency. Two-way trunking can be less costly, but if there is a need to measure traffic and it cannot be accomplished by other means, the use of one-way trunking may be necessary.
47. Stentor and Sprint argued that interconnecting trunks must be directionalized in the absence of traffic measurement at the switch. Stentor stated that only in this way can traffic be measured for the purpose of providing compensation to a LEC for terminating another LEC's traffic. Sprint argued that using one-way trunking for measuring traffic can be more efficient and less expensive than measuring the traffic through the switch. Other parties supported the use of two-way trunking because it would be less expensive.
48. As noted above, the Commission agrees that two-way trunking is generally more efficient, and should be used wherever possible. However, the Commission notes that one-way trunking will be necessary where traffic measurement capabilities are required but not available.
H. Integrated Digital Loop Carrier
49. The record of the proceeding indicates that, in certain circumstances, ILECs are increasingly using Integrated Digital Loop Carrier (IDLC) systems to provide local loops to their subscribers. IDLC equipment is functionally a part of the host switch; a portion of the loop serving an individual subscriber is implemented with, and integral to, a digital switching system. Stentor stated that, where an ILEC uses IDLC to provide loops to its subscribers, it may be unable to unbundle and furnish loops to competitors. Stentor noted that the costs of loops using IDLC were not included in generalized loop costs provided in its evidence. Stentor stated that where an ILEC is using IDLC so that extraordinary measures are required to unbundle loops, the ILEC could recover its costs through special facility tariffs.
50. The Commission notes that, in many instances, competitors will have no alternative to using ILEC unbundled loops. Though there may be some difficulties in providing loops for competitors where IDLC is used, the record identifies a number of ways in which it can be accomplished.
51. It is the Commission's view that the rate charged for a service provided to competitors should not vary as a result of the underlying technologies chosen by the ILEC to provide the service. Accordingly, the Commission finds that rates charged to competitors for unbundled loops are not to be varied according to the costs of unbundling a particular loop technology that is used in a particular location. ILECs may, however, include the costs of providing IDLC loops to CLECs in the overall loop costs underlying the revised local loop rates that the Commission is directing the companies to file in this Decision.
I. Carriage of 800/888 Calls
52. Interexchange (IX) carriers offer a variety of 800/888 services in which the called party pays for the calls. When a customer dials a call using one of these services, a LEC must route the call to the appropriate serving IX carrier. Currently, calls placed to 800/888 numbers are all received by an ILEC, which queries a database to identify and route the call to the IX carrier providing the service.
53. Parties generally supported Stentor's proposal to allow CLECs to direct all 800/888 traffic to the ILECs for determination of, and routing to, the appropriate carrier. The Commission agrees that, until other arrangements are made, the only way to route 800/888 calls to the appropriate service provider is through a Stentor member company that has access to the 800/888 service control point (SCP) where the database is located.
54. Stentor member companies are directed to file proposed tariffs, with supporting cost information, to provide for the routing of CLEC 800/888 calls by the ILEC within 45 days of this Decision.
55. The Commission will request the CISC to investigate alternative arrangements for the routing of 800/888 calls.
III COMPENSATION FOR TRAFFIC TERMINATION
56. While parties generally agreed that the originating LEC should pay for the cost of originating traffic, there were differing views on how LECs should be compensated for the costs of terminating traffic. Two basic approaches were proposed by parties to address compensation for costs of traffic termination: (1) mutual compensation; and (2) bill and keep.
57. In Stentor's view, mutual compensation would require that parties pay compensation on the basis of Commission-approved cost-based tariffs. This would require all LECs to measure terminating minutes in order to be compensated for the costs of traffic termination. Where LECs are unable to measure local minutes, they would use directionalized trunking and the per-minute rate would be converted into a per-trunk tariff charge. Other parties supporting mutual compensation argued that cost-based tariffs are necessary to ensure efficient traffic termination, as there is no guarantee that traffic will be balanced.
58. Several parties supported bill and keep, whereby the originating carrier bills its customer for the call and keeps the corresponding revenue; the originating carrier does not compensate the terminating carrier for call termination expense.
59. Parties favouring the bill and keep method argued that traffic between carriers would likely be balanced, and that traffic measurement and billing and collection costs, which would be significant when compared to the actual causal costs of terminating traffic, could be avoided with a bill and keep approach. In addition, until such local traffic measurement systems can be implemented, LECs would be required to interconnect via one-way trunks, rather than less costly two-way trunks, to allow an estimate of traffic volumes to permit the application of mutual compensation.
60. In the Commission's view, mutual compensation at cost-based rates would generally be more equitable than bill and keep if traffic volumes are unbalanced. As some parties argued, cost-based rates could also induce LECs to be more efficient, as they would pay the costs of terminating calls on other LECs' networks. However, the Commission notes that compensation for traffic termination would require that all LECs be able to measure such traffic.
61. The Commission considers that the reduced complexity and lower costs of bill and keep can be expected to reduce barriers to entry into the local exchange market. In the event that two interconnecting LECs serve differing serving areas, however, costs of terminating traffic could differ and under such circumstances, bill and keep would be inappropriate.
62. As noted above, LECs are to interconnect on an ILEC exchange basis and the Commission considers that termination costs within an exchange should be similar for all LECs. In light of the foregoing, the Commission considers that, if bill and keep is applied only within a given ILEC exchange, and if CLECs assume the cost for traffic interchanged in one exchange and terminated in another, the concerns that could arise from carriers having differing serving areas will be reduced.
63. In light of the above, the Commission concludes that mandating the bill and keep approach would be in the public interest at this time for traffic that is interchanged between and terminated within the same exchange.
64. The Commission also concludes that, in those instances where it is demonstrated that traffic between LECs is not balanced for a significant period of time, mutual compensation should be implemented and the rate should be capped at the ILEC rate. The Commission considers that since the interchange of traffic is necessary for the network of networks to function, the ILEC rate should be set at the mandated rate for essential facilities, set out in Part IV G. of this Decision. In addition, the Commision notes that CLECs will provide the same function and that their rates will be capped at the ILEC rates, and considers that this function should not be required to be costed by ILECs at tariff rates in the imputation test, as described in Part X of this Decision. Accordingly, the Commission directs the ILECs to file proposed rates for intraexchange termination based on the mandated pricing principle of Phase II plus 25%, within 45 days of this Decision.
65. CLECs will originate traffic in an exchange to be delivered to ILEC subscribers in other exchanges that have EAS to the originating exchange. There are various ways in which a CLEC could deliver this traffic, such as providing transport to the ILEC office serving the terminating customer or making delivery arrangements with third party providers. The Commission considers, however, that the costs to CLECs of requiring them to undertake such delivery arrangements in the early stages of competition would be significant and would slow competitive entry. The Commission requires, therefore, that in these circumstances the ILECs provide for delivery of such traffic by receiving the traffic from the originating CLEC and delivering the traffic to the ILEC subscriber in the terminating exchange. Accordingly, the Commission directs the ILECs to file proposed tariffs, with supporting information, to provide for the above within 45 days of this Decision. The Commission considers that the regulatory treatment applied to local loops in urban areas in Part IV F.1 of this Decision should also apply in this case. The Commission, therefore, directs ILECs to provide this traffic delivery function priced on the same basis as essential facilities for a five-year period. Also, the ILECs must cost this function at Phase II costs rather than at tariff rates in the imputation test.
IV ESSENTIAL FACILITIES AND MANDATORY UNBUNDLING
A. Background
66. In Decision 94-19, the Commission concluded that the unbundling of telephone company networks into discrete components would enable competitors to mix their own facilities with those of the telephone company in the most efficient manner, and thus stimulate the development of competition in telecommunications. The Commission also concluded that unbundling should extend beyond monopoly controlled bottleneck (i.e. essential) services to services that are subject to dominant supply by the telephone companies.
67. In the current proceeding, most parties submitted that without mandatory unbundling of essential facilities, competition will not be possible in local telecommunications markets. Such unbundling reduces the extent to which competitors are required to make prohibitively large capital investments to enter the market.
B. Definition of Essential Facilities
68. Most parties stated that the Commission must establish a definition of essential facilities in order to determine which facilities should be subject to mandatory unbundling and pricing.
69. In order to determine which facilities are required by competitors, Stentor suggested that the Commission adopt the "essential facilities" doctrine used in competition policy. On this basis, Stentor proposed to define an essential facility as one that is a monopoly-supplied facility, function, process or service that competitors require as an input in order to provide telecommunications services and which competitors cannot economically or technically duplicate. Stentor submitted that pursuant to this definition, the presence of a similar facility operated by a competitor in the relevant market would result in the ILEC's facility not being considered essential.
70. Stentor also submitted that a distinction should be made between an essential facility and a bottleneck facility because not all bottleneck facilities are essential. For example, in the case of local loops, once a customer is served by a particular carrier, the connection (local loop) to the customer represents a bottleneck since it is the only way to gain access to the customer. That loop would also be considered essential if there is no other source of supply or if it is uneconomic for a competitor to construct its own loop to that customer. However, whenever and wherever such an alternative source of supply is economic, the loop would not be considered an essential facility.
71. A number of parties argued that Stentor's proposed definition would inhibit rather than foster local competition. These parties argued that the appropriate test of essential facilities is not monopoly provision, but rather provision by dominant firms with power in a particular market. Sprint proposed that an essential facility be defined as a facility, function, process or service that competitors will use as an input in providing telecommunications services and that they cannot economically duplicate.
72. CCTA, supported by Microcell and AT&T Canada LDS, proposed that an essential facility be defined as a local telephone network service, function, or facility currently subject to some degree of monopoly control, that competitors cannot economically duplicate, but require access to in order to compete.
73. The Commission considers that either too narrow or too broad a definition of an essential facility may impair the development of competition. If it is too narrow, competitors may not be able to enter the market because of an inability to obtain the necessary network components. If it is too broad, giving overly generous access to ILEC inputs, CLECs may not have sufficient incentives to invest in their own facilities, and would enter and remain in the market primarily as resellers. The Commission is of the view that efficient and effective competition will be best achieved through facilities-based competitive service providers; otherwise, competition will only develop at the retail level, with the ILECs retaining monopoly control of wholesale level distribution.
74. In light of the above, the Commission concludes that ILECs should generally not be required to make available facilities for which there are alternative sources of supply or which CLECs can reasonably supply on their own. Accordingly, the Commission considers it inappropriate to define an essential facility as a facility that is provided by a dominant firm with market power because it would require facilities to be treated as essential even in the face of the demonstrated feasibility of alternative provision, including self-supply. The Commission concludes that to be essential, a facility, function, or service must meet all three of the following criteria: (1) it is monopoly controlled; (2) a CLEC requires it as an input to provide services; and (3) a CLEC cannot duplicate it economically or technically. Facilities that meet this definition shall be subject to mandatory unbundling and mandated pricing. As well, the tariffed rates for these facilities shall be treated as costs in the imputation test.
C. Market Definition
75. Stentor proposed that rate bands, based on loop length and density, be used to categorize the relevant geographic areas for the purposes of determining whether a particular facility is essential.
76. Some parties argued that the relevant market for determining whether a facility is essential should be defined more narrowly than the Stentor rate band. MFS, for example, submitted that, because local exchange competition will occur very gradually and will vary by area, the provision of a small quantity of facilities (e.g., local loops) by a CLEC in a particular area within a rate band does not imply that the facility can be economically duplicated throughout that rate band. CCTA argued that defining markets according to rate bands is at odds with the definition of market used by the Commission in Decision 94-19, which defined the relevant market for assessing competition as "essentially the smallest group of products in a geographic area in which a firm with market power can profitably impose a sustainable price increase".
77. The Commission notes that defining a relevant market for the purpose of assessing the degree of market power differs considerably from defining a relevant market for the purposes of determining whether particular facilities are essential. The determination as to whether a particular facility is essential relates to whether the facility is monopoly controlled and can be technically or economically duplicated. If there is competitive supply of a facility in a particular rate band, then it follows that it is not subject to monopoly control and also that it can be technically duplicated. If the facility is economically duplicable in one part of the rate band, then, in the Commission's view, it is likely to be so elsewhere in that band, given that the band itself is defined by reference to common characteristics.
78. In light of the above, the Commission finds that the Stentor proposed rate bands are the appropriate geographic areas for determining whether a facility, service or function is essential.
D. CLECs and Essential Facilities
79. While Stentor argued that both CLECs and ILECs should be required to unbundle essential facilities, most other parties agreed that CLEC facilities would not be essential since, at a minimum, ILEC facilities would present alternative sources of supply.
80. The Commission is satisfied that the CLECs' local exchange service facilities would rarely meet the test of essential facilities that the Commission has adopted above. By definition, such facilities would not be monopoly controlled, and the fact that other carriers would have similar facilities in place would demonstrate that such facilities could be technically or economically duplicated. Thus, the Commission concludes that there is no need at this time to require mandatory unbundling of CLEC facilities.
E. Facilities that are Essential
81. Parties generally agreed, and the Commission concurs, that the items listed below all meet the definition of essential facility, service or function:
- Central office codes (NXXs);
- Subscriber listings; and
- Local loops in certain bands.
F. Other Facilities
1. Local Loops
82. Stentor defined the local loop as the transmission path from the main distribution frame in the CO to the customer's premises. Stentor submitted that the local loop is not essential in all areas, since local loops are available from other service providers in various areas. Stentor stated that ILECs are willing to provide local loops in most areas where it may not be economically or technically feasible for competitors to provide local loops. In its model tariffs, Stentor listed bands in which it proposed to treat local loops as essential. These comprise Bands C and D (TCI, BC TEL, Bell), Bands B and C (Island Tel, MT&T), Band D (MTS) and Band B (NewTel). According to Stentor, none of NBTel's local loops would be considered essential facilities because there are no Bands C or D in NBTel's territory. The Commission notes that rate band classifications will be finalized in the proceeding initiated by Implementation of Price Cap Regulation, 1997 Contribution Charges and Related Issues, Telecom Public Notice CRTC 97-11, 25 March 1997.
83. Other parties, including CCTA, stated that all local loops in all bands should be considered essential. CCTA acknowledged that competitive supply of local loops is developing, but it is only available on a very limited basis to serve the business market; there is not yet any competitive supply of local loops to residential customers. CAC/FNACQ/NAPO submitted that certain ILEC non-essential facilities should be treated as essential during a reasonable transition period.
84. The Commission finds that local loops that are situated in small urban and rural areas meet the criteria set out in the Commission's definition of an essential facility. The loops subject to this finding conform to the list of loops that Stentor proposed be essential. In addition, Band B loops in NBTel's territory and Band C loops in MTS' territory are essential.
85. The Commission notes that, in the other bands, there is competitive supply but it is very limited. In the Commission's view, CLECs would not be able to provide a significant number of loops in these bands in the early stages of competition. The Commission therefore concludes that CLECs must have access to ILEC loops in these bands if they are to compete effectively in the short term. Accordingly, the Commission considers that, while local loops in these bands do not meet the criteria for essential facilities, they should nevertheless be unbundled and priced based on the rating principles for essential facilities. However, as these loops are not essential in accordance with the Commission's definition, ILECs will only be required to cost these loops at Phase II levels rather than at tariffed rates in the imputation test. In Part V below, the Commission has directed the ILECs to file revised demand estimates based on all companies' demand together with cost studies and rates for such local loops.
86. The Commission considers it appropriate to apply this modified treatment to local loops in the lower cost bands for a period of five years from the date of this Decision. After this five-year period, these facilities will not be subject to mandatory unbundling or essential facilities rating. In the Commission's view, this approach will permit entry at a pace that will better serve the public interest and, at the same time, provide incentives to CLECs to undertake construction or acquisition of facilities.
87. The Commission notes that loops may be provided using a variety of technologies ranging from simple metallic pairs to fibre optic systems. The Commission considers that, should the ILECs provide local exchange services that require a specific type of loop, that type of loop should be made availble on an unbundled basis.
2. Inside Wire
88. Stentor argued that the issue of inside wire need not be considered in this proceeding because the transfer of responsibility (or ownership in some cases) from the ILECs to subscribers has already occurred, except in the case of Island Tel, NewTel and NBTel. Some other parties argued that inside wire, when the LEC provides it and is responsible for it, should be unbundled.
89. Inside wire is obtainable from multiple providers and, therefore, does not meet the Commission's definition of an essential facility within the context of this Decision. In order to promote competitive entry and foster consumer choice, however, the Commission considers it reasonable to mandate that customers be permitted to connect the inside wire to the network of any LEC in whose serving area they are situated.
3. Local Switching
90. Several parties argued that local switching is an essential facility, particularly in less populated areas, because new entrants cannot be expected to reproduce immediately Stentor's entire local network. Competitors would not be able to justify the cost of switching equipment installation, housing, climate control, maintenance and operation in such areas.
91. Stentor submitted that local switching is not essential because there are a number of sources for local switching functionality, including lease from non-Stentor companies or self-supply. Stentor noted that significant evidence has been advanced that many competitors, such as CCTA, Clearnet, Microcell and toll resellers already possess or plan to acquire switching functionality. Stentor noted that CCTA and Microcell are willing to offer this functionality to other entrants.
92. In response to Sprint's and CCTA's concerns, Stentor argued that new entrants will never have to reproduce Stentor's entire network, but instead can reach minimum efficient scale, one switch at a time, using a variety of widely available modular switches that can be provisioned in various sizes. Stentor noted that the local market is the same as the toll market in this regard, in that many IX carriers and resellers provide their own switches.
93. In the Commission's view, the record indicates that switching equipment is readily available, in a wide variety of sizes and configurations, including host/remote or modular arrangements that would allow CLECs to compete with ILECs. In addition, the evidence indicates that a number of potential local competitors already possess switching functionality and that some of these will likely provide this functionality to other CLECs. Accordingly, the Commission finds that local switching is not an essential facility.
4. Transiting of Traffic
94. A LEC transits traffic when it receives the traffic from one carrier and switches it to another. Typically, the ILEC would switch traffic from one CLEC to another CLEC, or from a CLEC to an IX carriers or a WSP that is not a CLEC.
95. CWTA and Microcell argued that the Stentor companies are the only source of transiting facilities and that transiting by ILECs should be considered essential and unbundled. Clearnet argued that, without transiting, CLECs would have to connect directly to all ILEC and CLEC switches. Clearnet argued that ILECs would have little incentive to provide such functionality, and that alternative forms of interconnection would be expensive and economically inefficient.
96. Stentor stated that transiting functionality comprises switching and local transport services; it stated that neither is an essential facility because any local network provider with switches will be able to provide this functionality. It submitted that CLECs that provide their own switching will have an incentive to provide transiting service to others once interconnection arrangements are established.
97. The Commission notes that transiting can be provided by various means. The Commission also notes that, in addition to self-supply, a market is likely to evolve in the provision of transiting, whereby CLECs will offer their transiting capacity to other CLECs in order to increase the utilization and efficiency of their switches. In light of the evidence, the Commission concludes that transiting does not meet the definition of an essential facility or function.
98. The Commission is nonetheless of the view that, in the early stages of competition, mandatory provision of transiting would accelerate entry into the local exchange market by removing the burden on CLECs of having to provide trunks between themselves and every other CLEC, WSP and IX carriers. Thus, for reasons similar to those set out above in the discussion of local loop treatment in urban areas, the Commission directs ILECs to unbundle the CLEC-to-CLEC, CLEC-to-WSP and CLEC-to-IX carrier transiting function and to provide, for a period of five years from the date of this Decision, transiting services at rates based on the same principles as established in this Decision for essential services. During the same period, for purposes of the imputation test, ILECs will be required to impute transiting services at their Phase II cost rather than at tariff rates.
99. Given the range of potential transiting arrangements, the Commission will request the CISC to make recommendations as to what arrangements are appropriate. The ILECs will then be required to file transiting tariffs for the arrangements approved by the Commission on the basis set out above.
5. Signalling Networks
100. As described earlier in this Decision, CCS7 signalling is required for various call processing functions such as the setting up and taking down of calls and communicating with databases to determine call routing and other functions. The CCS7 system provides for efficient operation of the transmission network and permits the provision of a considerable range of services, such as caller identification, to subscribers.
101. Several parties stated that the CCS7 signalling network should be unbundled and that the ILECs should be required to provide a transiting service for CCS7 signalling. Otherwise, according to AT&T Canada LDS, CLECs would have to connect directly to every other LEC CCS7 network, which would be cost-prohibitive and an unnecessary and uneconomical duplication of facilities.
102. Stentor argued that transport capabilities, as well as all of the components that make use of the CCS7 signalling network for the routing of calls, are readily available to CLECs. Stentor also argued that signalling networks are not essential because CLECs can provide their own signalling systems. It noted, for example, that Microcell stated that it already owns STPs capable of switching CCS7 signalling, and that it would be willing to make its network available to other entrants.
103. With respect to the transiting of CCS7 messages, the Commission notes that there are alternate sources of supply of transport and, as indicated by Microcell's evidence, CLECs can obtain their own STPs. Thus, the Commission considers that, since all components are available to any LEC, neither the CCS7 signalling network nor the CCS7 transiting meets the Commission's definition of an essential function.
104. However, for the same reasons as those given regarding local traffic transiting and local loops in urban areas, the Commission directs ILECs to provide CLEC-to-CLEC, CLEC-to-WSP and CLEC-to-IX carrier CCS7 transiting and price it on the same basis as essential facilities for a five-year period. Also, as in those cases, ILECs will only be required to cost CCS7 transiting at its Phase II level, rather than at tariff rates in the imputation test.
105. As with section 4 above, the Commission will request the CISC to make recommendations as to what arrangements are appropriate. The ILECs will then be required to file tariffs for the arrangements approved by the Commission.
6. Directory Assistance Databases
106. CCTA, Clearnet, Microcell, MFS and Sprint submitted that access to the Stentor directory assistance (DA) databases should be an essential function or service.
107. The Commission notes that, in Telecom Order CRTC 96-1522, 23 December 1996 (Order 96-1522), it ordered the Stentor companies to file tariffs for the provision of mediated real-time access (MRTA) by 24 March 1997.
108. The Commission notes that, as indicated in the section following, CLECs will have access to directory listings, which provide the same information as found in the ILEC DA databases. Therefore, the Commission considers that access to the ILEC DA databases, including MRTA, does not conform to the definition of an essential facility as set out in this Decision.
7. Directory Assistance
109. Several parties submitted that DA should be provided to competitors as an essential service. Stentor argued that all CLECs will be able to purchase Stentor's listings through tariffs filed pursuant to Provision of Directory Database Information and Real-Time Access to Directory Assistance Databases, Telecom Decision CRTC 95-3, 8 March 1995, as amended by Order-in-Council P.C. 1996-1001 and as modified by Order 96-1522 (Decision 95-3 as amended), and provide their own DA service.
110. In Part XI of this Decision, the Commission finds that the general principles set out in Decision 95-3 as amended, are appropriate for the exchange of subscriber listings by LECs. The Commission considers that this information should also be available for use in providing DA. In addition, CLECs will have MRTA to the ILEC directory database. CLECs therefore will have the ability to provide their own DA service or purchase it from others. The Commission therefore finds that DA is not an essential service in accordance with the Commission's definition.
8. Directories
111. CCTA argued that ILEC white page directories are essential and should be available to CLECs in exchange for CLEC directory listing information. Stentor argued that directories are not essential, given the availability of listings and competing directories.
112. As noted above, the Commission has made subscriber listing information available such that CLECs can produce or acquire directories. Accordingly, the Commission finds that ILEC white page directories do not meet the definition of essential facility.
9. 9-1-1 Service
113. Several parties argued that 9-1-1 service should be treated as an essential facility. Stentor submitted that 9-1-1 service does not meet the criteria of an essential facility; however, it offered to make its 9-1-1 service available to CLECs.
114. The Commission considers Stentor's proposal to be appropriate.
10. Message Relay Service
115. Stentor submitted that Message Relay Service (MRS) does not meet the criteria of an essential facility. It noted that Cantel has been able to establish its own MRS.
116. The Commision notes that MRS is currently available through alternate sources of supply. Accordingly, the Commission does not consider MRS to be an essential facility. However, the Commission notes that Stentor is willing to unbundle MRS and to price it in accordance with its essential facilities pricing approach. The Commission considers Stentor's approach to be appropriate.
11. Access to Rights-of-Way and Support Structures
117. Rights-of-way and similar arrangements allow carriers to construct, maintain and operate transmission structures and cables on public and private property. Several parties submitted that access to rights-of-way and other similar arrangements should be considered as essential facilities.
118. The Commission notes that the Act provides a comprehensive framework for the provision of access to public and private property, including support structures. While, as CCTA noted, access to existing private rights-of-way will be subject to the terms of the original licence granting such rights-of-way, all LECs will have the ability to negotiate new public and private rights-of-way and other arrangements. Where negotiations fail to achieve access by a LEC to private or public property on suitable terms and conditions, the Commission notes that the Act provides a framework by which such access might be obtained. In light of these considerations, the Commission considers that access to rights-of-way and similar arrangements should not be treated as essential facilities, and that no specific access to such arrangements should be mandated at this time.
G. Pricing of Essential Facilities
119. Many parties agreed that the ILEC rates for essential facilities should be set at incremental costs plus a mark-up to compensate for fixed common costs. Stentor proposed a mark-up of 25% over Phase II incremental costs, arguing that 25% is consistent with past practice and that Phase III costs cannot be disaggregated to the service level so as to determine the exact amount of the appropriate mark-up.
120. Other parties agreed that there should be some level of mark-up but that it should be supported by evidence of what costs are, in fact, being recovered prior to Commission approval.
121. CCTA stated that prices should be based on a mark-up over Phase II costs of 10% for recovery of forward looking common costs. Clearnet, Microcell and CAC/FNACQ/NAPO supported mark-ups of 6% to 15% on total service long run incremental cost (TSLRIC).
122. The Director supported a pricing approach based on total element long run incremental cost (TELRIC), a variant of TSLRIC which, as Dr. Selwyn pointed out, is substantially similar to TELRIC. The Director stated that in a pricing approach using TELRIC, forward looking incremental costs are quantified for pricing purposes based on whether the whole "element", i.e. service is offered. As noted by the Director, "long run" means that TELRIC is determined by assuming that all of the firm's inputs can be varied so that all costs are variable. The Director was of the view that pricing in excess of forward looking economic costs may limit competitive entry.
123. Stentor argued that a mark-up on incremental costs to recover fixed common costs cannot be empirically justified at the service level because Phase III costs cannot be disaggregated to the necessary degree.
124. The Commission notes the Director's characterization of TELRIC as an approach in which all costs are variable, including fixed costs specific to the "element", so that all are part of long run incremental costs. The Commission also notes that, in the context of Phase II, fixed costs are not included with incremental costs and must be recovered through a mark-up. In principle, therefore, essential facilities and other facilities, to which mandated pricing is applied in this Decision, should be priced to recognize fixed common costs in addition to Phase II costs. These facilities should also be priced so as not to unduly deter facilities-based competitive entry.
125. Parties have not provided evidence to show that Phase II plus 25% would be higher or lower than TSLRIC or TELRIC, plus 15%, 10% or even 6%. In the Commission's view, therefore, there is no evidence to indicate that a 25% mark-up on Phase II is excessive, and further, given the differences between cost inclusions in TELRIC and those in Phase II, there is support for the proposition that it is not. Moreover, it is noteworthy that, generally, when each ILEC's total Utility segment Phase III costs are compared to its total Utility segment Phase II costs, the Phase III costs exceed the Phase II costs by more than 25%. In light of the above, the Commission finds that a 25% mark-up is not excessive.
126. Accordingly, based on the record of the proceeding, the Commission concludes that rates for essential facilities based on Phase II costs plus a 25% mark-up are appropriate.
V RATES AND PHASE II COSTS
127. Stentor filed costs studies in support of its proposed rates for a number of facilities and services which it considered were either necessary for competition to exist, or would be helpful to its development. These facilities and services included, for example, unbundled network components (loops, switching, signalling), 9-1-1 service, MRS and telephone numbers.
128. CCTA and MFS submitted that the price of unbundled facilities should be based on cost studies which include the demand of both the incumbents and the competitors. MFS also submitted that the differences between the costs of providing services to themselves as opposed to providing them to competitors are likely to be so small as to be insignificant.
129. Stentor submitted that utilizing the Phase II costs associated with providing unbundled facilities to the CLECs ensures that rates are established to recover the specific costs associated with providing those facilities thus avoiding resource misallocation and deterring uneconomic entry. Stentor argued that basing essential facilities costs on the demand of both ILECs and CLECs would encourage and sustain, over time, uneconomic entry by CLECs resulting in higher end-user rates.
130. Stentor made its proposal in the context of its proposed market-based imputation test. The Commission notes, however, that it is mandating a service-specific imputation test. Further, on the basis of competitive equity, the Commission is generally of the view that there should be a single tariff rate for any essential facility that a dominant carrier provides to itself and to its competitors. It is this rate that the dominant carrier charges its competitors and imputes to itself as a cost. Accordingly, in the context of this Decision, there is to be a single tariff rate for each essential facility that the ILEC must use to cost the facility in the imputation test. The Commission further notes, as indicated in Unbundled Rates to Provide Equal Access, Telecom Decision CRTC 97-6, 10 April 1997 that the use of the all-carrier approach for setting carrier rates provides a disincentive to engage in cost shifting, thus serving as a competitive safeguard and resulting in a reduced need for regulatory oversight.
131. The Commission notes that parties generally did not comment on specific cost elements. CCTA, however, took issue with the companies' loop costs and proposed rates. CCTA submitted that the proposed unbundled loop rates often exceed the telephone companies' own local retail rates, which include not only provision of a loop, but also costs for switching, sales, marketing, and customer service. As an example, it stated that Bell's current rates for individual business lines in Bands B and C are less than the proposed Bell rates for Type A local loops (2-wire copper loops) in Bands B and C.
132. The Commission notes, however, Stentor's evidence that, in urban rate bands, in most cases, rates for individual business line and trunk line services exceed the sum of the rates of all the unbundled components, including proposed Type A loop rates, that are required to provide these services.
133. The Commission notes that in Part IV of this Decision, it mandates that essential services be priced in accordance with a specified principle and that this principle be extended to certain other services. As these latter services have been proposed at rates not in conformity with the essential facilities pricing principle set out above, the Commission has adjusted these rates as required.
134. The Commission grants interim approval to the rates contained in Attachment A. The ILECs are directed to issue, within 21 days of the date of this Decision, tariff pages reflecting the rates in Attachment A as well as terms and conditions consistent with the determinations in this Decision.
135. In final argument, Stentor stated that there have been changes sufficient to warrant a re-examination of the proposed rates and charges filed on 3 August 1995, including changes in market share estimates, inclusion of demand from cellular providers, refinements to the methodology underlying the Phase II costs of some of the ILECs and changes in the timing of the economic studies from 1 January 1996 to 1 January 1998.
136. The Commission agrees that it is appropriate to consider, for the purposes of setting final rates, revisions to the rates for essential facilities. In addition, in view of the considerations set out above, the Commission considers that rates for essential services and for other services subject to the essential services pricing principle should be based on the combined demand of CLECs and ILECs. Accordingly, the ILECs are directed to file within 90 days of the date of this Decision, unless otherwise indicated, revised demand estimates based on all companies' demand, together with cost studies and rates for all services for which the Commission, in this Decision, has mandated unbundling and specific pricing limits.
VI START UP COSTS
137. Several parties proposed that start-up costs be recovered from all market participants, including the ILECs, since all customers stand to benefit from the introduction of competition. Stentor submitted that it had included in its start-up costs only those costs which were associated with activities that will benefit CLECs and their end customers, and had not included costs for activities that will benefit all market participants, including the Stentor companies. Stentor submitted that CLECs should be responsible for the recovery of those start-up costs identified in this proceeding since the related activities will benefit only the CLECs and their end customers, and not the Stentor companies and their end customers.
138. The Commission notes that in Telecom Order CRTC 97-591, 1 May 1997 with respect to LNP, it has concluded that the carrier specific costs associated with the implementation of LNP should be borne by the carriers incurring the costs. Noting that the LNP start-up costs are likely to be the most significant portion of total start-up costs, the Commission considers that approach to be appropriate for the start-up costs referred to in this proceeding. The Commission also indicated that it would shortly be initiating a proceeding to address the appropriate approach for the recovery by the ILECs of their costs.
VII ACCESSIBLE SERVICE IN A COMPETITIVE ENVIRONMENT
139. The advent of competition in all telecommunications markets raises the issue of the appropriate regulatory approach to the continued achievement of the policy objective set out in subsection 7(b) of the Act: "to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada".
140. In Local Service Pricing Options, Telecom Decision CRTC 96-10, 15 November 1996, the Commission stated that it considered the matter of service to high-cost areas to be an important one. The Commission also noted that it intended to consider the issue following the conclusion of this proceeding, to the extent that it has not been addressed in this Decision.
141. There was some discussion in this proceeding as to the meaning and significance for regulatory purposes of the terms "obligation to serve", "universal service obligation" and "carrier of last resort". The Commission notes that, at present, the ILECs' obligation to serve is not absolute. ILECs currently make service available through the physical extension or upgrade of plant under three conditions: first, as part of their normal provisioning process; second, at the specific request of an individual applicant or group of applicants; and third, through specific programs put in place in response to Commission decisions.
142. Stentor considered that, in a competitive environment, the obligation to serve becomes a carrier of last resort obligation, which it described as an obligation to stand ready to serve, not only its customers, but also competitors' customers. While Stentor was willing to continue with its current obligation, subject to receiving additional compensation, it also proposed that: (1) the ILECs be permitted to amend their Terms of Service to allow them to refuse service where suitable facilities and capacity are not in place; (2) unusual construction charges be deregulated; and (3) quality of service monitoring be eliminated.
143. Stentor submitted that there is no need for a carrier of last resort obligation in a competitive marketplace after essential facilities are unbundled and interconnection arrangements are finalized. Stentor argued that it must be compensated for any carrier of last resort obligation imposed on it. Stentor argued that, notwithstanding that carrier of last resort costs would be included in the Phase II costs on which rates are based, such costs should be calculated separately. If not, customers of competitors who provide service using their own facilities could avoid contributing to the recovery of carrier of last resort costs.
144. In CCTA's view, it is not necessary to designate a carrier of last resort, and CCTA disagreed that ILECs currently have such an obligation. CCTA argued that ILECs will not need an artificial incentive to stand prepared to take on new customers, and that a standby charge is inefficient as it would result in excess capacity due to the duplication of ILEC facilities to meet demand already being served by competitors. In its view, Stentor's carrier of last resort proposal amounts to a request for compensation for business loss created by competition.
145. B.C. submitted that the ILECs should be obliged to act as carriers of last resort. Certain other parties considered that it would be appropriate for ILECs to continue to act as carriers of last resort for a transitional period, but without additional compensation. They argued that carrier of last resort costs cannot be estimated reliably, and that a more practical approach would be to recover costs associated with the continued obligation to serve through their continued implicit inclusion in Phase II studies.
146. The Commission considers that it would not be appropriate, in markets characterized by effective facilities-based competition, to designate one carrier as having carrier of last resort responsibilities. However, the Commission considers it unlikely that such competition will develop in all areas in the near term. Even with a fuller realization of local competition, the Commission considers it likely that market forces will not, on their own, achieve the Act's accessibility objective in all regions of Canada. In establishing the rules to foster competition in all market segments, the Commission must therefore ensure it has regulatory tools through which to ensure the continued achievement of this objective.
147. The Commission considers that the most appropriate way to reach this goal is to maintain the ILECs' current obligation to serve, pending further investigation through a public process into an approach for serving high cost areas that is more suited to a fully competitive environment. The Commission also considers that the contribution regime put in place with this Decision will assist in achieving the objective of subsection 7(b) of the Act.
148. With respect to Stentor's request for compensation for this obligation, the Commission notes Stentor's acknowledgement that Phase II costs include costs associated with the obligation to serve. The Commission further notes that unrecovered costs associated with the extension of service on an applicant's request are anticipated to be minimal. Moreover, should the Commission review extension of service to a given area, it would also consider issues related to the recovery of the associated costs at that time.
149. In light of the above, the Commission finds that additional compensation for any costs of the obligations retained by the telephone companies pending the investigation of a regulatory approach more suited to a fully competitive environment is not warranted.
150. While Stentor considered that quality of service monitoring should be eliminated, there was a consensus among other parties commenting on this issue that quality of service should continue to be regulated for ILECs. The Commission considers it appropriate to maintain the current approach, as modified by the decision to be issued following the proceeding initiated by Review of the Quality of Service Indicators, Telecom Public Notice CRTC 94-50, 21 October 1994. It is important that the current level of service quality does not deteriorate with the introduction of local exchange competition and price cap regulation, and the Commission anticipates that the ILECs' level of service quality will be the benchmark against which subscribers will compare the quality of service offered by new entrants.
VIII CONTRIBUTION
A. Introduction
151. Contribution describes the flow of revenues from services with rates above cost to those, mainly basic local residential services, with rates below cost. Currently, there is one explicit contribution source: long distance services. In addition, generally certain local services, including business exchange and optional local services, generate revenues in excess of costs, thus providing implicit contribution to support residence rates which are below cost.
152. This proceeding raises the issue of how the current contribution scheme must be adjusted to accommodate the evolution of a competitive local exchange market. In the Commission's view, whichever contribution scheme is selected, support for universal access at affordable rates and, to the extent possible, competitive equity must be maintained. All local basic exchange customers, including residential and those in high cost/low revenue areas, must also, to the greatest extent possible, have the opportunity to realize the benefits of competition in terms of price, innovation, and services offered. At the same time, no undue barrier to competitive entry in any local exchange market sector and no unfair disadvantage to incumbents relative to competitors should result from the contribution scheme established. Finally, IX service providers must not be forced to fund local exchange competition to an unfair extent in order to facilitate competition.
B. Full Rate Rebalancing
153. Most parties agreed that the approach that would cause the least distortion in a competitive market place would be to end contribution requirements by implementing full rate rebalancing.
154. The Commission notes that in Decision 94-19 it stated that, at that time, the subsidy from toll services was substantially larger than necessary to maintain affordable access. The Commission went on to say that contribution should not be greater than necessary to promote affordable access. In that Decision, the Commission also expressed the view that the benefits of a more efficient regulatory framework based on price regulation could not be fully realized without bringing rates substantially closer to costs. The Commission notes that its views in that Decision did not reflect any intent to move all rates, for all services, to their costs.
155. In the Commission's view, such full rate rebalancing would constitute a change to current public policy toward residential rates. The Commission considers that full rate rebalancing could lead to significant rate increases in residential rates, particularly in the high cost areas. In the Commission's view, therefore, it is appropriate to maintain some level of contribution. That level of contribution should be set to ensure that residence rates in high cost areas continue to permit universality of access, while minimizing distortion of the competitive market. In Price Cap Regulation and Related Issues, Decision Telecom CRTC 97-9, 1 May 1997 (Decision 97-9), the Commission has taken specific steps to establish the appropriate level of IX contribution, including establishing targets towards which toll contribution rates will move prior to the beginning of the price cap regime.
C. Proposals
156. Stentor proposed two alternatives. Its preferred proposal (proposal #1) would require that local business exchange contribution become explicit, and that all CLECs collect toll contribution and remit both toll and local business exchange contribution to the ILECs. The CLECs would not receive any explicit contribution. The local business exchange contribution would be charged on each business network access service (NAS) provided by a CLEC, based on ILEC costs and revenues for business exchange services. Stentor did not propose that any explicit contribution be charged on optional local services.
157. In the event that the Commission settled on a portable subsidy system instead, Stentor proposed that CLECs be deemed to have received local business contribution at rates equal to ILEC-charged rates, that is, the difference between ILEC costs and revenues (proposal #2). Also, CLECs would charge toll contribution rates no higher than the ILECs' rates. Stentor said that, as part of any portable scheme, toll contribution must be de-averaged at least by rate band, such that toll contribution charges would be higher in high cost areas and lower in low cost areas. With respect to the use of direct access lines (DALs) to avoid paying contribution on originating traffic, Stentor submitted that originating toll contribution charges should be lower than the terminating charges. Stentor cautioned, however, that this could be done only after toll contribution rates had been reduced.
158. Under Stentor's proposal #2, the average subsidy requirement by residence NAS by band would be calculated based on Phase II costs plus 25%, minus the rate approved for the Band. For purposes of disbursement of the subsidy, toll and local contribution revenues would be prorated by band based on the average residence NAS subsidy requirement by band.
159. Each CLEC would calculate the difference between toll contribution received plus local contribution it is deemed to have received and the subsidy required. Any contribution the CLEC collected in excess of its subsidy requirement would be remitted to the ILEC in recognition of the subsidy the ILEC required to serve the remaining residence customers.
160. London Telecom proposed a per-circuit charge for CLECs, IX carriers, WSPs and resellers and any other person that interconnects with an ILEC's network either to originate or terminate traffic.
161. Most other parties also favoured portable subsidies, but involving a contribution fund in most cases. Typically, a funded approach would require that all LECs pay contribution revenues into the fund and these revenues would be disbursed to the LECs according to the number of residential NAS that they serve and the subsidy requirement associated with those NAS.
162. CCTA proposed that local subsidy sources be ignored. CCTA proposed that each CLEC collect toll contribution and, at the end of each billing period, calculate whether it owes the fund or vice-versa, based on its costs of, and revenues for, serving its residential NAS and its toll contribution receipts. Residence NAS costs would be geographically de-averaged based on Phase II costs plus a reasonable mark-up for common costs.
163. CAC/FNACQ/NAPO proposed that all LECs serving low cost areas pay local contribution into a fund and those serving high cost areas draw from the fund. It suggested that fixed business NAS-based contribution charges be established reflecting current implicit business-to-residence and low-cost to high-cost flows. Standard business contribution rates would apply in each ILEC's serving area, applicable to all NAS served by all certified carriers.
164. Several parties submitted that implicit subsidies should also be portable. They submitted that account must be taken of directory revenues, for example, flowing to ILECs in setting subsidy requirements. Failure to do so, in their view, would provide ILECs with a substantial advantage in the residential markets.
165. Clearnet and AT&T Canada LDS agreed that a portable subsidy should cover one line per household to reduce existing subsidy levels and encourage competitive entry. They also proposed that the method of portability should be through customer vouchers, with the amount being the difference between the economic cost of provision and the tariffed rate. Carriers would retain revenues from optional local services. However, Clearnet submitted that toll subsidies and directory revenues must also be made portable.
166. Sprint's proposed portable system would calculate the residence subsidy requirement by NAS by band. It would be the difference between residence exchange service Phase II costs plus optional local services costs and revenues from residence exchange service prices plus residence optional local services revenues. If a mark-up on residence exchange service Phase II costs is included, it should be set at the minimum level to recover forward-looking common costs.
167. Sprint submitted that, under its proposal, effective with price cap regulation, toll contribution would be subtracted from the total residence subsidy requirement, as would contribution flows from directory services and optional services not already reflected. The resulting residence subsidy requirement would be divided by forecast business NAS to provide a charge per business NAS. This charge would be applied to ILECs and CLECs. Revenues would be distributed by band based on the proportion in that band of total local and IX contribution collections to the total residence subsidy requirement. The balance of the requirement would be made up through self-funding provided by optional local and other sources, such as directories.
168. While agreeing that CLECs should not receive IX contribution, as it is based on the ILEC's Utility segment shortfall, B.C. differed with Stentor on local contribution. It stated that imposing local contribution on CLECs would be an inappropriate regulatory burden, particularly given that Stentor's evidence did not show that its method of calculating local contribution would accurately reflect what business services contribute. B.C. added that not having to pay local contribution would help enable CLECs to enter high cost areas, which would help offset their inability to retain IX contribution.
169. Most parties argued that competitive entry into the residence market would be economic only if both CLECs and ILECs have the opportunity to have access to the same revenue streams.
170. Disputing Stentor's contention that a natural competitive roll-out would focus on low-cost urban areas, CCTA stated that many of its members have their networks in high cost areas. CCTA stated that, consequently, competitive roll-out would have to extend to high-cost areas early on, requiring that subsidies be portable. CAC/FNACQ/NAPO contended that portable subsidies would be competitively neutral while permitting social objectives such as affordability and universality to be met.
171. In the event that the Commission decided in favour of a portable subsidy mechanism, Stentor submitted that its proposal #2 would motivate entrants to serve a broader customer mix than might otherwise be the case. Stentor submitted that, at the same time, where entrants target low cost areas, contribution they do not need in order to meet their own subsidy requirements would go to the ILECs, enabling them to continue serving customers for whom contribution is needed.
172. The Commission notes Stentor's concerns that it would continue to have to serve high cost areas in a competitive market while CLECs would target the low cost areas. The Commission's concern, however, is that Stentor's proposal #1 would perpetuate this pattern of entry because, given the level of ILEC rates in residential markets, there would be little, if any, opportunity for CLECs to serve residential subscribers in high cost areas without some level of subsidy.
173. The Commission agrees with the positions of most parties that there should be a portable contribution approach, in which all LECs would have access to sources of subsidy and in which contribution would be provided to any LEC that serves a subsidized subscriber. The Commission is of the view that providing access to subsidy sources will substantially reduce barriers to entry by CLECs into high cost areas, thereby ensuring that the benefits of competition are made available as widely as possible.
D. Portable Contribution - The Commission's Approach
1. Calculation of Subsidy Requirement
174. Several parties suggested that the use of current ILEC rates and costs is the most reasonable approach for calculating the subsidy requirement for each LEC. However, parties suggested variances in application of ILEC costs and revenues to arrive at subsidy requirements. Some parties, for example, suggested that ILEC exchange service costs should be set at Phase II levels, while others acknowledged that a mark-up for costing purposes is reasonable, although they disputed Stentor's recommended mark-up of 25%. For reasons similar to those given in the context of the mark-up for pricing of essential facilities and interconnection, the Commission finds that Stentor's proposed Phase II plus 25%, as a proxy cost for Phase III, is reasonable.
175. Parties that commented on this issue also argued that the subsidy requirement should be minimized to the greatest degree possible to reduce market distortion. The Commission considers that Sprint's proposal to take account of optional local contribution in calculating the subsidy requirement would decrease distortion of the market and be more reflective of customer demand.
176. Accordingly, the Commission has concluded that the residence subsidy requirement will be calculated, based on ILEC costs and revenues, by band, as: residential exchange costs (Phase II plus 25%), plus residential optional local costs (Phase II plus 25%), minus the associated revenues.
177. Several parties disputed Stentor's position that ILECs should receive amounts for special cost amortizations approved by the Commission, such as charges for downsizing and business transformation and, for TCI, shareholder entitlement and income tax deferral. They argued that competitors should not be forced to bear ILEC costs of doing business and of positioning themselves for competition. The Commission notes that TCI's shareholder entitlement requirement will be completed by the end of 1998. Given the expected level of competitive entry in 1998, the Commission considers that any negative financial impact will not be material.
178. With respect to the costs of downsizing and business transformation, the Commission notes that the savings that resulted from those activities have generally offset the amortized costs themselves. In view of this, the Commission considers that these special amortization costs need not be specifically accounted for in calculating the subsidy requirement.
2. Sources of Contribution
179. A number of parties proposed business exchange contribution as an explicit contribution source. The Commission notes Stentor's position that, with competitive entry, business exchange service prices would decrease. As these prices decrease, the level of contribution derived from these services would also decrease. As well, other measures have been undertaken in the past few years to restructure business exchange rates.
180. The Commission considers that a decision to exclude business exchange local contribution as an explicit contribution source would result in more immediate benefits from competition in the local exchange market in that there would be more room for price competition in business exchange services. In light of the above, the Commission finds that local business exchange service contribution should be excluded as an explicit subsidy source.
181. Several parties submitted that directory revenues provide ILECs with substantial contribution and therefore, this contribution source should be portable or full account should be taken of it in establishing any per NAS subsidy requirement. The Commission considers directory contribution to be portable. Where a CLEC provides a directory and captures directory market share, revenue and contribution are ported just as business exchange contribution is when a CLEC captures market share in that sector. The Commission considers that, since CLECs can provide, and realize contribution from, their own directories, it would be inappropriate to allow them to access any of the ILECs' directory contribution as well.
182. In light of the above, toll contribution will remain the only explicit source of subsidy for basic residential local services. Retaining IX contribution as the only explicit contribution source, in a competitive context, will maintain the comparative clarity and simplicity of the current regime.
183. The Commission notes that, in section B. above, it determined that a certain level of contribution should be set and maintained to ensure that rates in high cost areas permit universality of access while minimizing distortion of the emerging competitive local exchange market. In view of this and of the Commission's finding that the sole explicit contribution source is to be IX contribution, the Commission concludes that the IX contribution rates will be frozen for all the Stentor companies, except TCI, at the going-in rates, effective 1 January 1998, for the price cap period. As far as TCI is concerned, IX contribution rates will be frozen 1 January 1999, consequent on the particular treatment of its shareholder entitlement. These rates will be set in the follow-up proceeding as discussed in Decision 97-9.
184. The Commission notes that the residence subsidy requirements, which will be based on ILEC costs and revenues as described above, will be based on information to be filed in the follow-up proceeding as discussed in Decision 97-9. The Commission expects the subsidy requirements to be finalized by 1 January 1998 and, accordingly, the payment of subsidies to CLECs will commence as of that date.
E. Administration of the Central Fund
185. The portable contribution approach set out above will require all LECs to remit the toll contribution that they collect to a central fund. Periodically, these contribution revenues will be disbursed to LECs by pro rating the amount of contribution in the fund, based on the number of residential NAS served by the LECs in each band and the subsidy requirement associated with the band. Residential NAS shall be defined in terms equivalent to those in the ILEC tariffs.
186. The portable contribution approach set out above will require the establishment of a fund and the selection of a fund administrator. While it was suggested that the ILECs could be the fund administrators, most parties supported third party administration, in view of the fact that ILECs would be participants in, and beneficiaries of, the process. The Commission considers that the regime should involve the use of a third party central fund administrator. The Commission will request the CISC to make recommendations to the Commission regarding the appropriate procedures for selecting the third party administrator and for establishing and administering the fund.
187. The Commission notes that this will take time and is of the view that it would not be appropriate to require competitive entrants to await the establishment of the third party fund administration mechanism. To address concerns regarding delayed competitive entry, the Commission considers that the most efficient interim solution involves the ILEC acting as fund administrator. In this regard, the Commission notes that MFS and Sprint, while strongly objecting to long term ILEC administration of a fund stated that, in the short term, ILEC administration might be appropriate. Accordingly, the Commission directs that, on an interim basis, the ILECs are to act as central fund administrators.
IX COMPETITIVE SAFEGUARDS
A. Exclusive Arrangements
188. For purposes of this Decision, the term "exclusive arrangement" is limited to situations in which a LEC limits its customers' access to particular service providers with which the LEC has exclusive arrangements. For example, a CLEC might enter into an arrangement with a particular IX carrier in which the CLEC's customers are restricted to using the services of this particular IX carrier for long distance calls.
189. Several parties argued that exclusive arrangements involving non-dominant carriers would not lessen competition and therefore should be permitted. Several others, including AT&T Canada LDS, CAC/FNACQ/NAPO, CCTA, Sprint and Stentor, submitted that exclusive arrangements should not be permitted because they would compromise equal access and restrict customer choice. Many parties submitted that ILECs should not be permitted to enter into such arrangements under any circumstances.
190. The Commission notes that a number of parties who commented on this issue agreed that all LECs should be required to make equal access arrangements available to all IX service providers. The Commission considers that exclusive arrangements between CLECs and IX service providers would reduce consumer choice and therefore would not be in the public interest. Further, the Commission considers that it is in the public interest to require CLECs to provide equal access to all IX service providers, at terms and conditions that are equivalent to the terms and conditions contained in the ILECs' tariffs. Accordingly, the Commission will require CLECs to file proposed tariffs for IX equal access, and to justify any departure from the terms and conditions contained in ILECs' tariffs.
191. The Commission notes the current dominance of the Stentor companies in the IX market. As a result of this dominance, if an ILEC were to refuse to interconnect its IX network with that of a new entrant, competitive entry into the local exchange market could be effectively foreclosed. Accordingly, the Commission considers it to be in the public interest to require ILECs to interconnect their IX networks with those of CLECs.
192. The Commission is of the view that the above discussion with respect to IX service providers applies equally to WSPs providing public switched voice services, and accordingly concludes that CLECs must file proposed tariffs providing for WSP interconnection that are equivalent to the terms and conditions contained in the ILECs' tariffs, justifying any departure therefrom.
193. Stentor submitted that similar rules should apply to Enhanced Service Providers (ESPs), such as voice mail and Internet service providers.
194. In the Commission's view, the relationship between LEC and ESP, in terms of accessibility, is properly governed by section 27 of the Act. Pursuant to that provision, and based on their obligations as common carriers, LECs are prohibited from unjustly discriminating against, or conferring an undue preference on, any person. In these circumstances, the Commission considers that no specific condition of access need be mandated.
B. Bundling and Joint Marketing
195. In Cellular Radio - Adequacy of Structural Safeguards, Telecom Decision CRTC 87-13, 23 September 1987 and in Rogers Cantel Inc. v. Bell Canada - Marketing of Cellular Service, Telecom Decision CRTC 92-13, 29 June 1992, the Commission established a number of safeguards concerning the joint marketing of wireline and cellular services. These restrictions, which are currently under review in the proceeding initiated by Review of Joint Marketing Restrictions, Telecom Public Notice CRTC 97-14, 25 April 1997, were developed to guard against undue preference by preventing joint marketing, and related cross subsidies, and abuses arising from the use of competitively sensitive information that would unduly disadvantage competitors.
196. Many parties supported joint marketing and bundling arrangements, arguing that consumers may prefer to obtain all their telecommunications services from a single source or in a bundled package. Many parties also argued that restrictions on joint marketing and bundling by CLECs are unnecessary. The Director submitted that bundling of services may result in economies of scale and scope which should benefit subscribers. Mobility Canada argued that the telephone companies should be allowed to offer bundled services, subject to addressing concerns about bundling monopoly and competitive services.
197. The Commission is of the view that bundling and joint marketing by non-dominant carriers would not be anti-competitive because all such carriers have the opportunity to negotiate similar arrangements. Further, where arrangements entered into by non-dominant companies are not in the interests of subscribers, subscribers may switch to alternate carriers.
198. In Decision 94-19, the Commission stated that bundling by ILECs would be appropriate, subject to conditions, among others, that require bundled services rates to be set above their respective costs. However, the Decision did not permit bundling of network services and terminal equipment.
199. The Commission considers that the Stentor companies may continue to bundle their utility and other telecommunications services in accordance with Decision 94-19, including compliance with an imputation test, modified as described below in Section X.
C. Long Term Contracts
200. Sprint and MFS expressed concerns about ILECs locking up customers with long term contracts prior to the start of competition. MFS argued that new long term contracts, and revisions to contracts for tariffed services that increase either available discounts, the contract termination charges, or the length of the contract, should not be permitted.
201. The Commission has approved general tariffs that provide for long term contracts for a number of services provided by incumbent telephone companies. In some cases, however, the Commission has not permitted such contracts, on the basis that they were inconsistent with subsection 27(2) of the Act.
202. The Commission considers that its present approach to long term contracts offered by ILECs continues to be appropriate. The Commission notes that parties may file comments specific to any filing by ILECs for Commission approval of any change to their tariffed contract terms.
D. Customer Access to LECs
203. In Resale to Provide Primary Exchange Voice Services, Telecom Decision CRTC 87-1, 12 February 1987, the Commission allowed for resale to provide primary exchange voice services. The Commission noted that there were situations where landlords, who were acting as resellers, could physically preclude tenants from having access to the local services of the telephone companies directly. The Commission concluded that such a situation was inappropriate and accordingly established, as a condition of obtaining service under the resale tariff, that landlords must allow reasonable access by the telephone companies to individual tenants who wish to acquire local services directly from those companies. In a subsequent proceeding, the Commission ruled that this right of access also applied with respect to students in university residences. At issue in this proceeding is whether this obligation to ensure a tenant's right of access should extend to all LECs such that end-users in all situations have the right to have access to the services of any available LEC directly.
204. Most parties that addressed this issue stated that all LECs should have access to subscribers in multi-tenant buildings. Sprint stated that without such access a large percentage of customers who reside in, or conduct their business in, multi-tenant buildings would not have the ability to select the LEC of their choice. Sprint also argued that this would limit the benefits of competition.
205. The Commission is of the view that an important objective of local competition is to increase consumer choice. The Commission considers that, in order to facilitate such choice, it is in the public interest that end-users have the right and the means to have access to the LEC of their choice in all situations. The Commission notes that the nature of the local exchange network allows LECs to use another LEC's existing facilities to access end-users served by that LEC.
206. To ensure that these principles are served, the Commission requires that, as a condition of providing service, a LEC ensure that the end-users that it serves are able to have direct access, under reasonable terms and conditions, to services provided by any other LEC serving in that area.
X IMPUTATION TEST
A. Background
207. The Commission instituted an imputation test in Review of Regulatory Framework - Targeted Pricing, Anti-Competitive Pricing and Imputation Test for Telephone Company Toll Filings, Telecom Decision CRTC 94-13, 13 July 1994 (Decision 94-13), to prevent anti-competitive pricing by the Stentor companies in IX markets. The Commission revised and extended the application of the test in Decision 94-19. As currently specified, the test generally requires that, for each interexchange service offered by a Stentor company, the price be sufficient to recover: (1) the costs, at tariff rates, for essential facilities; (2) the Phase II costs for other service components; and (3) contribution, if applicable. The test is applied separately to each service.
B. The Need for an Imputation Test
208. Most parties submitted that an imputation test is necessary to prevent carriers with market power from setting anti-competitive prices in markets subject to entry by competitors. For example, absent an imputation test, an ILEC could reduce its retail rates below the sum of the rates for essential components charged to competitors and the incremental cost of the other components required to provide the service.
209. The Director argued that the various imputation tests proposed by parties were premised on geographic bands that do not correspond to the approach, focusing on geographic and product markets, that is used by the Director in determining whether anti-competitive behaviour exists.
210. The Commission is of the view, given the CLECs' need for essential facilities, that ILEC pricing, unconstrained by an imputation test, could impede the development of local exchange competition. Accordingly, the Commission concludes that an imputation test is required to prevent anti-competitive pricing.
C. The Structure of the Test
211. Stentor proposed that the imputation test be applied separately for residential and business services in each geographic band. It argued that residential services are close substitutes for one another, as are business services, and that the test should be applied at the market level to give the companies sufficient pricing flexibility to respond to entrants. To obtain the pricing flexibility, Stentor proposed a two-part test, with the price for each service at least equal to the Phase II incremental cost, and the revenue from all services in a market sufficient to recover the total of Phase II costs, the mark-up on essential facilities charged to competitors, and the contribution, if applicable.
212. Most parties argued that the test should be applied for each individual or specific service, and noted that, in Decision 94-13, the Commission stated that applying the test to each service is simpler, as only one test needs to be performed.
213. The Commission noted in Decision 94-13 that the correct application of a two-part test requires information which may not be readily available. In addition, the more aggregate nature of the Stentor test could still permit subsidy flows between services, allowing the ILEC to set prices for specific services subject to intense competition as low as its Phase II costs, while competitors would still have to price their services to recover, not only their incremental costs, but also their costs for essential facilities purchased from the ILEC. In light of the foregoing considerations, the Commission concludes that a service specific test is appropriate.
214. With respect to ILEC costing of essential services, the Commission notes that, in the IX markets, the imputation test requires the Stentor companies to cost essential services at tariffed rates. In the Commission's view, applying the same approach in the local market would put CLECs and ILECs on an equal footing, just as it does for IX carriers in the IX market. Accordingly, the Commission directs the ILECs to cost essential facilities at their tariffed rates as discussed in Part V. As noted by some parties, the imputation test must also include the ILECs' share of the costs for interconnection facilities.
215. Stentor proposed, and most others agreed, that the test be applied based on the proposed rate bands. Sprint disagreed, however, suggesting that this could permit anti-competitive pricing by the ILECs, since the test would be averaged over all exchanges in a band, thus giving the Stentor companies the flexibility to price below cost in some exchanges, and above cost in others. Sprint therefore suggested that the test be applied by exchange. In the Commission's view, however, the by-exchange approach would be burdensome and should not be imposed unless there are compelling reasons for doing so. The Commission concludes that, in order to prevent anti-competitive pricing, it will apply the imputation test so that it constitutes a floor price for a service in a given rate band.
D. Application of the Test
216. Stentor argued that all LECs will control access to their subscribers and may exploit that access for competitive advantage through excessive rates for call termination. Stentor submitted that all LECs should be subject to the imputation test unless rates that CLECs charge for call termination are capped at the rates charged by an ILEC. The Commission notes that, in Part III of this Decision, it directs that CLEC charges for terminating other LECs' traffic must not exceed charges for traffic termination approved for the ILECs. Under these circumstances, the Commission is of the view that CLECs need not file imputation tests.
217. Some parties submitted that imputation test results should accompany all ILEC tariff filings. Others stated that the test should be administered on a complaint basis; results would be filed only after an allegation of anti-competitive rates. They argued that this could reduce regulatory costs imposed on the ILECs.
218. Currently, imputation test results must accompany each relevant tariff filing. The Commission considers the test to be an important competitive safeguard, particularly in the local exchange market which will be emerging from a monopoly regime. Accordingly, for this market, the Commission directs ILECs to file imputation test results with all applications proposing the introduction of new services or applications proposing either explicit or implicit price decreases. Given that ILEC residential exchange services rates are generally below cost as a matter of public policy, the Commission does not consider it appropriate to require an imputation test for these services. However, as stated in Decision 97-9, the Commission has determined that price changes for services that are currently priced below costs should generally not move rates further from costs.
219. Consistent with the treatment of market trials and promotions in Decision 94-13, the Commission exempts market trials and promotions from the application of the imputation test on the condition that sufficient information is provided by the ILECs to demonstrate that the offering is a legitimate market trial or promotion of limited duration.
E. Imputation Test for Bundled Services
220. The Commission considers that, with the introduction of competition in the local exchange market, the following modifications to the bundling regime set out in Decision 94-19 are appropriate:
1. The Stentor companies should not be prevented from bundling forborne services with ILEC local exchange services. However, when a forborne service is included in a new bundled service, its Phase II costs must be filed as part of the imputation test, and the rates for the bundled service are to be filed for approval by the Commission.
2. If the Stentor member companies bundle below-cost single line residential exchange services with other telecommunications services, the Commission will deem that the cost of the residential exchange services is equal to the tariffed rate for the purposes of the imputation test.
F. Implementation
221. The Stentor companies are directed to submit within 45 days of the date of this Decision their methodology for the imputation test that complies with this Decision.
XI DIRECTORIES AND DIRECTORY ASSISTANCE DATABASES
A. Introduction
222. Currently ILECs possess all subscriber listings (name, address and telephone number) which appear in the telephone directory. As CLECs enter the market, the CLEC, rather than the ILEC, will possess the subscriber information for the customers lost by an ILEC. By the same token, the CLEC will not possess subscriber information on ILEC customers. Thus, the only way in which either or both can publish complete directories is if they exchange subscriber listings for their respective customers.
223. ILECs currently provide comprehensive directories that include listing information for all subscribers (save non-published numbers). The issues in directory provision are whether the continued availability of comprehensive directories should be mandated in a competitive market and whether such an obligation should be imposed on all LECs.
224. The Commission in Decision 95-3 as amended required ILECs to provide: (1) a Directory File Service whereby non-confidential, residential listing information, unbundled on an exchange-level basis is made available in machine-readable format to independent telephone directory publishers on condition that the listing information not be resold, rented or otherwise disposed of to any other third party; and (2) MRTA to non-confidential information in their directory databases, on condition that the information accessed is to be used only in the provision of directory assistance. This form of access prohibits the manipulation or amendment of information in the database and ensures that a subscriber's privacy is not violated.
B. Directories
(1) Subscriber Listings
225. The Commission notes that parties viewed subscriber listings as an essential facility but differed as to the appropriate compensation for their exchange.
226. Stentor proposed that listings be exchanged based on Decision 95-3 interim rates. Several other parties proposed a regime whereby ILECs continue to be the sole provider of directories and that copies of the directory be provided in exchange for CLEC subscriber listings.
227. The Commission finds the general principles established in Decision 95-3, as amended, to be an appropriate mechanism for the exchange of listings between LECs. However, the Commission considers that such listings should be available not only for the provision of directories but also for the provision of DA. Accordingly, the Commission directs all ILECs to issue tariff pages within 21 days of the date of this Decision implementing these findings. The CLECs will be required to file intercarrier tariffs for the provision of subscriber listings to LECs that contain rates capped at the rates approved for ILECs.
(2) Provisioning of Directories
228. Several parties submitted that ILECs should be the sole providers of directories. CCTA stated that it would take several years before CLECs attain sufficient scale to produce their own directories economically. Stentor submitted that Decision 95-3 permits CLECs to provide their own directories through various means. Several parties submitted that CLECs should not be obligated to provide their customers with directories as market forces would govern their provision.
229. The Commission's view is that there should be at least one complete directory made available so that any user of the local network is able to obtain information, as needed, to use the local network. The Commission notes that customers of ILECs are entitled to receive directories without charge. The Commission further notes that, in Decision 95-3 as amended, it did not find that changes to the ILECs' obligation to provide directories were warranted. The Commission concludes that ILECs must continue to provide comprehensive directories to their subscribers.
230. In the Commission's view, obliging the ILEC to continue to provide a comprehensive directory while leaving the CLECs to react to consumer demand is competitively equitable and is in the public interest. ILECs, in their dominant position for the foreseeable future, will realize Yellow Pages revenues in amounts unavailable to the CLECs. The CLECs, meanwhile, will be able to innovate in terms of pricing and packaging and may choose to offer directories based on consumer demand. Further, if a CLEC chooses to provide a directory, it has the choice of buying it from the ILEC, producing it directly, or having an independent directory provider produce the directory.
231. Several parties submitted that, in view of the ILECs' advantages related to their size and the association of directories with ILECs, the introductory pages of the ILEC directory should include information on each CLEC's service as complete as that currently provided by the ILEC with respect to its own services. The Commission considers that it should be left to the ILEC to decide whether or not it wishes to include competitor information in its introductory pages. In the Commission's view, given that CLECs are not obliged to provide directories while ILECs must provide complete and comprehensive ones that include CLEC subscriber listings, competitive equity requirements would not be served if ILECs were, in addition, compelled to include competitive provider information in their directories.
C. Directory Assistance Databases
232. Sprint and CCTA requested direct, on-line access to the ILEC DA databases, which would allow CLEC manipulation of data, access to confidential records, etc., similar to what the Federal Communications Commission (FCC) ordered in the United States. The Commission notes that Dr. Harris, a witness for Stentor, estimated that the FCC's order resulted in an expenditure of approximately $2 billion (US).
233. In Decision 95-3 as amended, the Commission found that it was in the public interest for ILECs to offer MRTA to non-confidential information in their databases, on condition that it be used solely for the purpose of providing directory assistance.
234. In the present proceeding, several parties indicated an interest in MRTA. Stentor submitted that, subject to certain conditions, the companies would be prepared to provide CLECs with MRTA. These conditions include, among other things, regulatory oversight of CLEC operator services, protection of privacy provisions and the establishment of reciprocal MRTA to CLEC DA databases.
235. Based on the record, the Commission considers ILEC provision of MRTA to CLECs for the purpose of providing directory assistance to be appropriate. This approach avoids the high cost of "firewalls" and database partitioning that on-line access would require in order to protect the integrity of the database. In the Commission's view, the availability of MRTA and the opportunity to create a separate database through the purchase of subscriber listings adequately address competitors' requirements.
236. A number of parties expressed the view that it would be in the industry's best interest to have a centralized DA database administered by a neutral third-party or, in the alternative, by an ILEC. Stentor, on the other hand, stated that it would be appropriate for all competitors to maintain their own DA databases. The Commission notes Stentor's concerns that the management of a national common database would be highly contentious, administratively burdensome and expensive. The Commission considers this matter to be an issue of industry efficiency and is of the view that the public interest does not require that the Commission mandate such a common database at this time.
XII RESALE
A. Introduction
237. The Commission is of the view that resale can promote the development of a competitive market while allowing competitors time to construct their own facilities. While resale competition can help promote the development of a competitive market, it is the Commission's view that the full benefits of competition can only be realized with facilities-based competition.
238. In the local market, ILEC services also provide for discounted prices based on volume and contract term, such as Centrex, Megalink, Digital Exchange Access and Digital Network Access services. ILEC tariffs currently permit the resale of these bulk services, available in the business sector. There are no similar offerings for residential services.
239. Certain parties advocated resale of unbundled facilities and resale of local retail services. Sprint, in particular, proposed that ILECs should be required to develop wholesale tariffs for all existing and new bundled local exchange services and for all proposed unbundled services and facilities. Sprint also proposed that services provided on a resold basis to end-users be identified to those users as the services of the reseller, and not as the services of the underlying service provider.
B. Resale of Unbundled Components
240. Most parties submitted that all services provided by ILECs should be available for resale. Noting that essential and certain other ILEC services will be made available to CLECs on an unbundled basis, the Commission is of the view that a wider provision of unbundled components could provide additional opportunities for competitors in the local market. Therefore, the Commission concludes that the ILECs must allow for the unrestricted resale by CLECs of unbundled components, other than subscriber listings.
C. Resale of Retail Services
1. Sprint's Proposal
241. Sprint proposed that local services be made available for resale through a wholesale tariff. Such a tariff would allow competitors to compete based on the margins between the wholesale and retail rates. Sprint proposed that the wholesale rates be based on retail rates less avoidable costs and that competitors receive additional discounts for new entry and quality of service. Sprint's proposal for a new entrant discount would be analogous to the discount provided by the Commission to new entrants in the IX market 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).
242. Under Sprint's proposal, the wholesale tariff rates would be offered to resellers at ILEC retail rates less the costs of the functions not provided to the wholesale customers, that is, avoidable costs related to functions such as marketing, advertising and customer services. Sprint proposed that resellers receive in addition a transitional discount of 15% from the wholesale tariff until such time as the ILECs provide the resellers with access equivalent to the ILECs' own access to various ILECs' operational support systems.
243. Sprint submitted that allowing resale of wholesale services would promote the development of local exchange competition and hasten the construction of alternative local exchange facilities because market share gained in a resale environment would help competitors acquire the capital needed to build facilities.
244. Many parties, including CBTA, supported the Sprint proposal, arguing that rates discounted to reflect avoidable costs would give rise more rapidly to a competitive market.
245. CBTA stated that it does not favour Sprint's proposal with respect to service branding. It also proposed that Stentor members be required to provide at wholesale tariff rates local directory assistance, operator services, 9-1-1 service and access to certain routing databases.
246. Stentor submitted that Sprint's proposal would require costly and complex changes to the operational support systems to ensure their continued integrity. Stentor also argued that Sprint's proposal would inevitably require the continuous regulatory involvement of the Commission in every aspect of local exchange service pricing and would seriously impede the necessary efforts to restructure and rebalance local rates.
247. The Commission notes that, under Sprint's proposal, the wholesale rate would be equal to the retail rate less the costs avoided in providing the service on a wholesale basis. According to Sprint, the avoided costs would be the costs of retail functions required for providing services at the retail level but not at the wholesale level. While the Commission agrees with Sprint that the costs of some retail functions could be avoided when providing services on a wholesale basis, many administrative and order process functions would remain. Also, the ILECs would incur additional costs to develop the wholesale service and to administer it as a service distinct from the retail service. It is the Commission's view that the net cost reductions resulting from the provision of a wholesale service would be negligible.
248. The Commission notes that market forces have led to the development of discounted rates for certain business services where such services are provided in bulk and pursuant to long term contracts. The rates for these services generally provide a positive contribution to the local/access shortfall. In these circumstances, the Commission has found the discounts to be appropriate.
249. The situation in the residence market is significantly different in that the costs for these services almost always exceed the associated rates. It is noted that the Commission has approved a number of applications to rebalance and restructure residence rates so that the rates better reflect costs. The Commission notes Sprint's view that individual subscribers would not be attracted to a wholesale service because it would be stripped of retail functions. The Commission, however, is not persuaded that the lack of retail functions would be a significant deterrent and is of the view that end-users would be attracted to the service. In this regard, the Commission is of the view that implementing wholesale service, as proposed by Sprint, would be inconsistent with the Commission's objective to move residential exchange service rates closer to costs.
250. In light of the above, the Commission finds that it would not be appropriate to require ILECs to file tariffs providing for the resale of local services at wholesale rates as proposed by Sprint.
251. Sprint proposed that ILEC services that are resold be identified as the reseller's service rather than the ILEC's. This branding would apply to repair and maintenance services and operator services. The Commission considers that the costs associated with the service branding proposal would outweigh any potential benefits. The Commission is also of the view that there would be extensive regulatory involvement both in the implementation of such a system and in its ongoing operation. The Commission considers, therefore, that mandating reseller branding would not be in the public interest.
252. In addition to an avoidable cost discount, Sprint proposed that new entrants in the local resale market receive a new entrant discount analogous to the discount granted in Decision 92-12 to new entrants in the IX market. The Commission notes that the discount given to competitors was on the rate of contribution that all IX providers had to pay toward the telephone company shortfall. It was not a discount on rates for services received from the telephone companies. In addition, many of the business rates in the local market are close to cost and almost all residence exchange services are below cost and there is a need to bring the residence rates closer to their associated costs. As a consequence, the Commission is of the view that a new entrant discount would not be appropriate.
253. Sprint proposed that the ILECs be required to provide resale competitors with access to the ILEC databases and operational systems on the same basis as provided to the ILEC retail operations. The Commission is of the view, however, that providing access to ILEC databases and on-line systems would be complex and could be costly to all parties because of the necessity to ensure the integrity of these systems. While the Commission does not consider it appropriate to mandate such specific database access arrangements at this time, it will request that the CISC investigate arrangements for electronic data interchange among LECs that will be most efficient for all parties.
254. The Commission notes that access to some systems may be developed by the ILECs with CLECs and other customers on a business case basis reflecting costs detailed above, including costs to maintain the integrity of the databases, much like the access now provided to certain systems for Centrex customers and IX carriers.
255. The Commission notes that, in view of its conclusion regarding access to ILEC systems, the Sprint proposal for a quality of service discount is not relevant.
2. Other Approaches to Resale of Retail Services
256. The opportunities for resale of bulk services to provide exchange services that are presently available in the local basic services market include Megalink, Digital Exchange Access, and Centrex service. Individual business line service can also be resold and Centrex service is essentially equivalent to business line service with discounts based on volume and contract duration. The discounts for Centrex are up to 50% off the individual line rate. The Commission notes that there is presently some Centrex resale occurring.
257. With respect to residential services, the Commission notes that, under current tariffs, resellers are considered to be business customers, and as such they may not lease residential services even if they wish to resell them to provide a residential service. The Commission considers that it would be appropriate to allow such resale. While this would provide no pricing margins, it may provide some limited opportunities for one stop shopping and other similar arrangements. Accordingly, the ILECs are directed to issue revised tariffs, within 21 days of the date of this Decision, to allow the resale of residential exchange services to provide residential services. These tariff revisions should allow customers to retain their telephone numbers when subscribing to a reseller's service.
XIII REGULATORY FRAMEWORK FOR NEW ENTRANTS
258. Pursuant to subsection 34(1) of the Act, the Commission may forbear where it would be consistent with the telecommunications objectives set out in section 7 of the Act. Subsection 34(2) of the Act requires that the Commission refrain from exercising certain of its powers and performing certain duties where it finds that a telecommunications service or class of services is or will be subject to competition sufficient to protect the interests of users. As the ILECs will be dominant in the local market for some time to come, forbearance from the regulation of ILEC-provided local exchange services is not appropriate at this time.
259. The Commission must determine, however, whether it would be appropriate for it to refrain from exercising its powers and performing its duties in relation to the rates, terms and conditions of services or classes of service that CLECs will provide.
260. Most parties argued that competition is the best safeguard for preventing anti-competitive abuses. They argued that because CLECs will not have any market power, the Commission should forbear from regulating CLEC services, particularly with respect to the requirement to file tariffs. These parties submitted that market forces will best ensure that new entrants price their services in a just and reasonable manner. Many parties submitted that CLECs should only be required to meet certain minimum public interest standards.
261. Stentor agreed that the Commission should forbear from regulating new entrants, subject to a variety of conditions, including imposing maximum rates for terminating local calls and originating and terminating long distance calls.
262. The Commission considers that, based on the record, market forces will discipline rates under which CLECs offer local telephone services to customers at the retail level. Lacking market power, CLECs will have every incentive to provide end-user customers with reasonable rates. The Commission, therefore, finds as a matter of fact that to refrain from exercising its powers and performing its duties, as set out below, with respect to the provision of retail telecommunications services by CLECs to end-users would be consistent with the Canadian telecommunications policy objectives found in the Act.
263. The Commission also finds as a matter of fact that retail services provided by CLECs to end-users will be subject to competition sufficient to protect the interests of users, subject to the following.
264. Several parties indicated that they would expect the Commission to retain its powers under section 24 of the Act to impose conditions of service, such as service obligations, consumer safeguards and interconnection obligations on new entrants, while others suggested that these matters should be left to the market.
265. The Commission considers that it is in the public interest that it exercises its powers under section 24 of the Act in order to impose on CLECs a variety of terms and conditions (e.g. consumer safeguards) set out in this Decision as well as those that may prove necessary in the future.
266. The Commission is of the view that access to competing carriers' facilities enhances the efficiency and competitiveness of the Canadian telecommunications industry, and thus serves the public interest. The Commission, therefore, considers it necessary to ensure that competing LECs do not unjustly discriminate against other service providers or subscribers, or confer any undue or unreasonable preference with respect to access to networks and resale and sharing of services. Accordingly, the Commission will retain its powers and duties under subsections 27(2), (3) and (4) of the Act so that it can respond to complaints alleging unjust discrimination and undue preference in relation to services provided by CLECs both to end-users and to other carriers.
267. With regard to section 31 of the Act which deals with limitation of a Canadian carrier's liability, the Commission notes that several obligations that would be imposed on CLECs would in effect be similar to those imposed on the ILECs, such as the provision of 9-1-1 service. However, the Commission also notes that it is forbearing from rate regulation of a very large measure of CLEC offerings in the local market, while most ILEC services will continue to be regulated. The Commission is of the view that, under these circumstances, it would not be in the public interest to provide CLECs with the regulatory protection that ILECs receive in respect of limitation of liability to end-users.
268. The Commission notes that a CLEC will control bottleneck facilities, which will be the only access to that particular CLEC's subscribers. The Commission therefore considers it necessary to mandate the provision of interconnection by CLECs. Several parties argued that CLECs should also be required to provide for co-location. Due to the non-dominant position of the CLECs, the Commission is of the view that it is unnecessary to mandate co-location for CLECs.
269. The Commission considers that it must retain and exercise its powers in order to impose on LECs competitive safeguards to protect other LECs and IX carriers and, ultimately, end-users. These competitive safeguards comprise conditions required for interconnection, including rates for interconnection and call termination, as well as other arrangements and agreements between LECs and other telecommunications service providers such as IX service providers.
270. Accordingly, the Commission will retain its powers pursuant to section 25 of the Act with respect to services provided by a CLEC to other carriers as well as pursuant to section 29 of the Act with respect to intercarrier agreements.
271. The Commission notes that under section 31 of the Act, the ILEC's liability to other carriers may be limited. The Commission considers that consistent treatment for ILECs and CLECs is appropriate, and that, therefore, the same protection should be extended to CLECs. Accordingly, the Commission retains its powers under section 31 of the Act, in respect of CLECs' provision of services to, and agreements with, other Canadian carriers.
272. Consistent with the determinations set out above, the Commission will refrain from exercising its powers and performing its duties pursuant to sections 25 and 31 and subsections 27(1), (5) and (6) of the Act in relation to CLEC retail telecommunications services provided to end-users, including resellers.
273. Pursuant to subsection 34(3) of the Act, the Commission finds, as a matter of fact, that to refrain from exercising its powers as set out herein, in respect of retail telecommunications services provided by CLECs to end-users, would not likely impair unduly the establishment or continuance of a competitive market for these services.
274. In light of the foregoing, pursuant to subsection 34(4) of the Act, effective the date of this Decision, sections 25, 29 and 31 and subsections 27(1), (5) and (6) of the Act do not apply in respect of retail telecommunications services provided by CLECs to end-users, to the extent that those sections are inconsistent with the Commission's determinations in this Decision.
XIV ENTRY OBLIGATIONS FOR COMPETITIVE LOCAL EXCHANGE CARRIERS
A. Introduction
275. In this proceeding, a process of certification was proposed for the purpose of establishing the bona fides of potential CLECs prior to their actual market entry. In the forms contemplated by the CCTA, CAC/FNACQ/NAPO and Stentor, various informational requirements and other explicit obligations would need to be satisfied before the Commission would authorize entry by any potential CLEC.
276. Stentor proposed that the Commission require all CLECs to undergo a Commission certification process to ensure, as a pre-condition of entry, that each will meet certain well-defined obligations and provide certain services to customers and other service providers. Stentor's view was that such certification is needed in view of LECs' control of access to their customers by other carriers and their control of customer information and responsibility for the privacy of customers. Stentor proposed 18 appropriate certification requirements or entry obligations.
277. CCTA and CAC/FNACQ/NAPO supported a certification process, although their list of CLEC obligations differed somewhat from Stentor's. CAC/FNACQ/NAPO proposed varying obligations for three different categories of service providers. CCTA and CAC/FNACQ/NAPO preferred certification to enforcement through ILEC interconnection tariffs. CCTA indicated that enforcement of CLEC service obligations through ILEC tariffs, thus casting the ILEC, a competitor, in the role of regulator, would be inappropriate.
278. Other parties, including CWTA and the Director, suggested that requirements such as Terms of Service, customer information and minimum quality of service for new entrants should be left to the market.
B. Conclusions
279. The Commission has concluded in its regulatory framework for new entrants section that CLECs are required to file tariffs for services provided to other LECs and intercarrier agreements. With respect to obligations to end-users, CLECs shall be bound by the obligations set out in this Decision, but no tariffs will be required. The Commission notes that resellers providing local exchange services will meet certain of the service requirements that the Commission imposes on LECs, such as 9-1-1 and MRS, by virtue of the underlying LECs' obligations.
280. Based on the record, the Commission finds that it is in the public interest that, as a condition of offering service, CLECs must satisfy each of the requirements set out below.
1. Access - Other Carriers and Services
281. As discussed in Part IX above, CLECs are to provide for WSP interconnection and equal access to IX service providers offering service in the territories served by the CLECs.
2. LEC-to-LEC Interconnection
282. To give appropriate effect to its conclusions on interconnection, reciprocal technical interconnection is required of all LECs, and provision for such is to be included in tariffs and agreements as appropriate. In addition, all LECs will be required to implement local number portability as approved by the Commission.
3. Access to Operator Services
283. The Commission notes that a number of parties indicated their intention to provide Operator Services using their own personnel and facilities. Subject to the exceptions outlined directly below, the Commission does not consider it necessary to mandate the provision of, or terms and conditions for, Operator Services provided by CLECs.
284. The Commission considers that, by virtue of CLEC non-dominance, market forces will be sufficient to discipline the provision of these services. However, the Commission will request the CISC to continue establishing industry guidelines, processes and procedures for the provision of Operator Services within a multiple service provider environment.
285. Several parties submitted that all LECs, directly or through other means, must provide access to emergency 9-1-1 service and MRS. Others, including Stentor, submitted that a requirement to provide these services is not necessary. Stentor submitted that CLECs need only disclose the extent of their offerings of these services. Others argued that, because of the non-dominance of new entrants, market forces will be sufficient to ensure that end customers are provided access to these services.
286. The Commission concludes that it is in the public interest to require CLECs to provide 9-1-1 service and MRS. With regard to 9-1-1 service, all service providers must ensure, to the extent technically feasible, that the appropriate end-user information is provided to the Automatic Location Identification database to the same extent as that provided by the ILEC.
287. The Commission notes that a CISC working group is considering 9-1-1 service. The Commission will request that the CISC make recommendations concerning the appropriate arrangements for the provisioning of 9-1-1 service reflecting the competitive framework established in this Decision.
4. Privacy Protection
288. LECs are required to satisfy all existing and future regulatory requirements designed to protect customer privacy. These include: (1) delivery of the privacy indicator when invoked by an end customer; (2) provision of automated universal per-call blocking of calling line identification; (3) provision of per line call display blocking to qualified end customers; (4) disallowance of Call Return to a blocked number; (5) enforcement of the Commission's restrictions on Automatic Dialing-Announcing Devices, Automatic Dialing Devices, and unsolicited facsimiles applicable in the ILEC territory where they operate; and (6) provision of universal Call Trace.
289. In addition, the Commission agrees with those parties who supported Stentor's proposal that all CLECs should be required, at a minimum, to abide by Commission rules regarding the confidentiality of customer information established in Review of the General Regulations of the Federally Regulated Terrestrial Telecommunications Common Carriers, Telecom Decision CRTC 86-7, 26 March 1986, as amended by Telecom Order CRTC 86-593, 22 September 1986 and as modified from time to time.
5. Protection of Carrier Information
290. Certain parties considered that the protection of carrier information should be required in a form similar to that which was put in place to protect IX carrier information following Decision 92-12. Others considered that no safeguards are required unless CLECs are vertically integrated. In the Commission's view, such safeguards may be required for CLECs that are affiliated with a long distance service provider and this matter will be considered on a case by case basis.
6. Other Obligations
291. The Commission notes some parties' positions that CLECs should be obliged to file serving area maps with the Commission. The Commission notes that serving area maps are necessary for the provisioning of CO codes and for determining liability for contribution payment. Accordingly, CLECs must provide to the Commission serving area maps for information purposes and make such serving area maps available upon request at their business offices.
292. The Commission agrees with those parties that submitted that consumers should be able to obtain from any service provider information about the company and its services. Accordingly, CLECs must provide, upon request, the following information:
(1) local calling area boundaries;
(2) details of all service options, with applicable prices;
(3) details of all potentially applicable service charges;
(4) policy on access to enhanced service providers;
(5) available special needs services; and
(6) information respecting privacy, including the company's responsibilities with regard to protecting the confidentiality of customer records.
293. Further, CLECs must provide customers with the following information, prior to contracting for service:
(1) billing frequency and payment policy;
(2) disconnection policy;
(3) security deposit policy;
(4) policy on directories;
(5) the name and address of the company providing service to the customer;
(6) a toll-free telephone number from which the customer can obtain further information or lodge a complaint;
(7) billing date;
(8) due date for payment;
(9) interest rate applicable to late payments;
(10) the information contained in section 3 above with respect to access to 9-1-1 service and MRS, including customer charges, if any; and
(11) the information contained in section 4 with respect to safety and privacy protection.
294. The Commission notes that all LECs will be subject to a proceeding to be initiated regarding the provision of billing information and billing inserts in alternative formats accessible to visually-impaired subscribers contained in Telecom Order CRTC 96-1191, 29 October 1996.
C. Entry Procedures
295. CLECs wishing to enter the market shall conform to the following procedures:
(1) The CLEC must attest in writing that it understands and will conform to the obligations set out in this Decision and shall provide a map of its proposed serving area to the Commission;
(2) The documentation filed with the Commission pursuant to (1) shall be served on all other Canadian carriers providing service in exchanges where the CLEC is proposing to provide service, and all other persons who have proposed to provide service in compliance with these entry procedures;
(3) The CLEC shall file its proposed interconnection agreements and tariffs for Commission approval; and
(4) The CLEC must provide the Commission with all of the customer information identified in Part XIV, 6 above.
Allan J. Darling
Secretary General
This document is available in alternative format upon request.
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ATTACHMENT A
MONTHLY RATES
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BC TEL
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Bell
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Island Tel
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MTS
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MT&T
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NBTel
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NewTel
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TCI
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LOCAL NETWORK INTERCONNECTION
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CCS7 Signalling Interconnection
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-- CLEC Switch to Stentor Gateway STP, each link
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N.A.
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$1,611.05
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N.A.
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N.A.
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N.A.
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N.A.
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N.A.
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$1,727.15
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CCS7 Cross-Connection
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-- CCS7 Cross-Connection, per Cross-Connection
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N.A.
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$127.20
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N.A.
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N.A.
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N.A.
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N.A.
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N.A.
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$116.40
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NETWORK COMPONENT UNBUNDLING
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Local Loops
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Type A Local Loop
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-- Rate Band A
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$17.40
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$24.30
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$17.30
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$13.90
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$20.40
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$36.45
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$34.70
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$16.00
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-- Rate Band B
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$23.70
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$38.30
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$21.20
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$18.35
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$23.95
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$46.90
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$46.65
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$21.10
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-- Rate Band C
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$27.90
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$42.55
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$33.80
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$22.85
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$37.70
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N.A.
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N.A.
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$19.55
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-- Rate Band D
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$32.35
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$53.60
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N.A.
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$26.55
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N.A.
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N.A.
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N.A.
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$23.55
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-- Rate Band E
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Type B Local Loop
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-- Rate Band A
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$17.70
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$26.70
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$17.60
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$14.05
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$20.70
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$37.35
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$35.45
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$16.00
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-- Rate Band B
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$23.95
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$43.20
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$21.50
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$18.60
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$24.30
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$48.05
|
$48.85
|
$22.25
|
|
-- Rate Band C
|
$28.15
|
$47.65
|
$34.35
|
$23.10
|
$38.20
|
N.A.
|
N.A.
|
$18.80
|
|
-- Rate Band D
|
$32.35
|
N.D.
|
N.A.
|
N.D.
|
N.A.
|
N.A.
|
N.A.
|
N.D.
|
|
-- Rate Band E
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local Loop Connecting Links
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Companies, except Bell
|
|
|
|
|
|
|
|
|
|
-- Connecting Link A, per 100 Links
|
$5.15
|
See below
|
$1.65
|
$2.30
|
$1.70
|
$5.10
|
$1.25
|
$1.85
|
|
-- Connecting Link B, per 100 Links
|
$5.15
|
See below
|
$1.65
|
$2.30
|
$1.70
|
$5.10
|
$1.25
|
$1.85
|
|
|
|
|
|
|
|
|
|
|
|
Bell Only
|
|
|
|
|
|
|
|
|
|
-- Connecting Link A (w-IDF), per 100 Links
|
N.A.
|
$40.55
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
|
-- Connecting Link A (w/o-IDF), per 100 Links
|
N.A.
|
$9.40
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
|
-- Connecting Link B (w-IDF), per 100 Links
|
N.A.
|
$40.55
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
|
-- Connecting Link B (w/o-IDF), per 100 Links
|
N.A.
|
$9.40
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
|
|
|
|
|
|
|
|
|
|
|
Riser Space, per metre, per cable (Connecting Links A and B only)
|
$0.40
|
$0.40
|
$0.32
|
$0.32
|
$0.32
|
$0.25
|
$0.30
|
$0.65
|
|
|
|
|
|
|
|
|
|
|
|
Relay Service
|
|
|
|
|
|
|
|
|
|
-- Relay Service, monthly rate, per NAS
|
$0.14
|
$0.15
|
$0.17
|
$0.18
|
$0.17
|
$0.05
|
$0.08
|
$0.07
|
|
|
|
|
|
|
|
|
|
|
|
Emergency Service (9-1-1)
|
|
|
|
|
|
|
|
|
|
Province-wide 9-1-1 Service:
|
|
|
|
|
|
|
|
|
|
-- Access by CLEC end customers, per NAS
|
N.A.
|
$0.32
|
N.A.
|
N.A.
|
$0.61
|
$0.40
|
N.A.
|
N.A.
|
|
-- Trunks between CLEC Switch & 9-1-1 Tandem Switch
|
N.A.
|
$43.70
|
N.A.
|
N.A.
|
$97.35
|
$35.20
|
N.A.
|
N.A.
|
|
|
|
|
|
|
|
|
|
|
|
Legend: N.A.: Not Applicable
N.D.: No Demand
|
|
Légende : SO : sans objet
SD : sans demande
|
|
SERVICE CHARGES
|
|
|
BC TEL
|
Bell
|
Island Tel
|
MTS
|
MT&T
|
NBTel
|
NewTel
|
TCI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCS7 Interconnection:
|
|
|
|
|
|
|
|
|
|
-- CLEC Switch to Stentor Gateway STP, each link
|
N.A.
|
$71,800.00
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
$65,400.00
|
|
|
|
|
|
|
|
|
|
|
|
Local Loops
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type A Local Loop (all Bands)
|
|
|
|
|
|
|
|
|
|
-- Service Charge, per order
|
$166.00
|
$152.00
|
$140.00
|
$98.25
|
$145.00
|
$143.00
|
$153.00
|
$27.75
|
|
-- Service Charge, per Loop
|
$82.50
|
$171.00
|
$114.00
|
$141.00
|
$118.00
|
$132.00
|
$76.50
|
$79.25
|
|
|
|
|
|
|
|
|
|
|
|
Type B Local Loop (all Bands)
|
|
|
|
|
|
|
|
|
|
-- Service Charge, per order
|
$166.00
|
$152.00
|
$140.00
|
$98.25
|
$145.00
|
$143.00
|
$153.00
|
$27.75
|
|
-- Service Charge, per Loop
|
$82.50
|
$171.00
|
$114.00
|
$141.00
|
$118.00
|
$132.00
|
$76.50
|
$79.25
|
|
|
|
|
|
|
|
|
|
|
|
Local Loop Connecting Links
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Companies, except Bell
|
|
|
|
|
|
|
|
|
|
-- Connecting Link A, per 100 Links, per metre
|
$43.75
|
See below
|
$24.25
|
$34.25
|
$25.00
|
$25.50
|
$41.25
|
$11.75
|
|
-- Connecting Link B, per 100 Links, per metre
|
$43.75
|
See below
|
$24.25
|
$34.25
|
$25.00
|
$25.50
|
$41.25
|
$11.75
|
|
|
|
|
|
|
|
|
|
|
|
Bell Only
|
|
|
|
|
|
|
|
|
|
-- Connecting Link A (w-IDF), per 100 Links, per metre
|
N.A.
|
$94.25
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
|
-- Connecting Link A (w/o-IDF), per 100 Links, per metre
|
N.A.
|
$67.00
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
|
-- Connecting Link B (w-IDF), per 100 Links, per metre
|
N.A.
|
$94.25
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
|
-- Connecting Link B (w/o-IDF), per 100 Links, per metre
|
N.A.
|
$67.00
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
|
|
|
|
|
|
|
|
|
|
|
CO Code Administration (Codes obtained by CLECs):
|
|
|
|
|
|
|
|
|
|
-- Administration, per CO Code
|
$2,380.00
|
$1,930.00
|
$987.00
|
$5,890.00
|
$1,630.00
|
$1,690.00
|
$3,960.00
|
$2,050.00
|
|
-- Industry Notification, per CO Code
|
$130.00
|
$148.00
|
$86.00
|
$46.25
|
$90.50
|
$108.00
|
$93.75
|
$63.00
|
|
|
|
|
|
|
|
|
|
|
|
Relay Service
|
|
|
|
|
|
|
|
|
|
-- Relay Service set-up
|
$158.00
|
$182.00
|
$108.00
|
$108.00
|
$114.00
|
$130.00
|
$162.00
|
$136.00
|
|
|
|
|
|
|
|
|
|
|
|
Emergency Service (9-1-1)
|
|
|
|
|
|
|
|
|
|
Province-wide 9-1-1 Service:
|
|
|
|
|
|
|
|
|
|
-- Trunks between CLEC Switch and 9-1-1 Tandem Switch
|
N.A.
|
$431.00
|
N.A.
|
N.A.
|
$372.00
|
$300.00
|
N.A.
|
N.A.
|
|
|
|
|
|
|
|
|
|
|
|