ARCHIVED -  Telecom Order CRTC 97-1078

Telecom Order

Ottawa, 8 August 1997

Telecom Order CRTC 97-1078

On 4 March 1997, BC TEL filed for the Commission's approval a facilities exchange agreement (the Agreement) between BC TEL and BC TEL Mobility Cellular (BCTMC).

File No.: 32560.98

1. The Agreement, which is proposed to run for an initial term of 10 years, with a provision for subsequent renewal periods, provides, among other things, for the following: (i) the construction by BC TEL of a fibre optic facility within its operating territory, part of which would be owned by BCTMC (the BCTMC Span) and the remainder of which would be owned by BC TEL (the BC TEL Supplementary fibres); (ii) that BC TEL would perform ongoing operation, testing, and maintenance services on the BCTMC Span in return for a set annual fee from BCTMC; and (iii) that BCTMC would provide BC TEL with the use of spare capacity on the BCTMC Span, measured in T-1 kilometres, in exchange for equivalent amounts of T-1 kilometres throughout BC TEL's network.

2. The Agreement further provides that in consideration for the various prescribed costs associated with the construction of the BCTMC Span, BC TEL would receive from BCTMC a one-time payment.

3. In separate comments dated 2 April 1997, Westel Telecommunications Ltd. (Westel) and Clearnet Communications Inc. (Clearnet) opposed BC TEL's application for approval. By letter dated 14 April 1997, Rogers Cantel also opposed the application. Reply comments dated 24 April 1997 were received from BC TEL.

PARTIES' POSITIONS

4. BC TEL submitted that the Agreement would provide the following specific and public benefits: (i) reduce the costs to BCTMC of obtaining underlying facilities from BC TEL; (ii) contribute to the orderly and economic development of the parties' respective networks; (iii) optimize the use of both BC TEL's and BCTMC's networks to avoid the uneconomic duplication of transmission facilities; and (iv) free up valuable facilities to be put to other productive uses in the public interest.

5. BC TEL also asserted that it would be prepared to enter into similar facilities exchange arrangements with other carriers, provided they could meet "similar jurisdictional and business practice criteria as those of BC TEL and BCTMC" and could also demonstrate "comparable public benefit in the utilisation of their facilities and networks."

6. Westel asserted that the Agreement was anti-competitive and should be denied, or alternatively, that BC TEL ought to be required to file a Special Facilities Tariff. Among other things, Westel argued: (i) neither the cost of the BCTMC Span nor the annual operation, maintenance and testing fees had been cost justified; and (ii) the definition of the term "exchange capacity", enabling both BC TEL and BCTMC to use, or commit to use - without actually using the others' exchange capacity, could lead to capacity being reserved for use under the trading mechanism and being denied to competitors, leading to capacity shortages.

7. Clearnet also argued the Agreement was anti-competitive on the basis that BCTMC would be able to acquire fibre facilities at cost from BC TEL rather than at the tariffed rates which all other BC TEL customers must pay. Clearnet submitted that BC TEL recognized the discrimination inherent in the Agreement by purporting to make the same offer available to other carriers. Clearnet argued that BC TEL's offer should be disregarded by the Commission since the meanings of the preconditions noted above are unclear and would grant BC TEL total discretion to decide who, if anyone, qualifies for similar treatment.

8. Rogers Cantel also asserted that the Agreement confers an undue preference contrary to section 27(2) of the Telecommunications Act by reason, among others, that it provides transmission facilities and associated services at preferential and non-tariffed rates to an affiliate contrary to prior Commission initiatives to ensure appropriate separation between telephone companies and their wireless affiliates.

9. BC TEL denied that the Agreement is anti-competitive in reply comments. BC TEL noted that all fixed and annual charges under the Agreement are compensatory and include a mark-up. BC TEL also noted that the Agreement is similar in form and purpose to an arrangement entered into between AGT Limited and AGT Mobility Inc. in 1994 (the AGT Agreement), and approved by the Commission in Telecom Order CRTC 94-726 dated 27 June 1994 (Order 94-726). BC TEL rejected the interveners' assertions regarding the vagueness of its offer to enter into similar arrangements, stating the Agreement was not intended to establish conditions for other agreements and that any proposed arrangements would be considered in the context of the benefits to the Company.

CONCLUSIONS

10. The Commission notes that the Agreement provides for the trading of exchange capacity measured in T-1 kilometres, and, in effect, the service that is being provided is interoffice transmission facilities which are available under the General Tariff.

11. The Commission further notes BC TEL's assertion that part of the rationale underlying the Agreement was BCTMC's desire to reduce the costs of its underlying facilities and, in particular, the cost of facilities obtained from BC TEL.

12. The Commission considers that the effects of the Agreement would, as noted by the interveners in this proceeding, indeed be that BCTMC would be offered and would acquire transmission facilities from BC TEL at rates lower than the General Tariff rates that competitors must pay.

13. The Commission is of the view that BC TEL appears to have recognized the potential undue preference being conferred on BCTMC under the proposed Agreement relative to competitive carriers by indicating a willingness to consider entering into similar arrangements with others, subject to the satisfaction of the preconditions noted above.

14. The Commission has several concerns regarding these preconditions. The Commission notes that the terms "similar jurisdictional criteria", "similar business practice criteria as BC TEL and BCTMC" and "comparable public benefit in the utilisation of their facilities and networks" have not been defined in the Agreement, nor did BC TEL attempt to provide definitions. The Commission is of the view that such terms are vague and that customers would likely not be aware of the criteria to be satisfied in order to qualify for a similar arrangement.

15. Accordingly, under the circumstances, the Commission is of the view that the Agreement confers an undue preference by providing BCTMC with transmission facilities under an arrangement at rates significantly less than the tariffed rates available to other BC TEL customers and by effectively making this arrangement available only to BCTMC, its cellular affiliate.

16. The Commission notes BC TEL's reference in reply that the AGT Agreement is similar in form and purpose to the Agreement.

17. The Commission considers, however, that the circumstances surrounding the Commission's approval of the AGT Agreement are distinguishable from those associated with the Agreement. For example, the Commission notes that Telecom Order CRTC 94-726 was approved prior to the announcement of the splitting of the rate base in Telecom Decision CRTC 94-19, 16 September 1994, The Review of Regulatory Framework (Decision 94-19). The information filed in support of the AGT Agreement addressed the impact of the service on the company as a whole. In contrast, under the Decision 94-19 filing requirements, no such analysis is required by the Commission and none was provided by BC TEL. Under the Decision 94-19 regulatory framework, the primary considerations in the assessment of the Agreement are whether the rates are compensatory and not unjustly discriminatory.

18. Accordingly, and on the basis of the foregoing, BC TEL's application is denied.

Laura M. Talbot-Allan
Secretary General

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