ARCHIVED -  Telecom Order CRTC 97-1345

 Telecom Order

 Ottawa, 22 September 1997

 Telecom Order CRTC 97-1345

 On 30 May 1997, Bell Canada (Bell) filed ex parte applications for approval of promotional campaigns under its General Tariff Items 3310, Real Plus Extra Savings SmartTouch Win-Back Promotion; 3320, Real Plus Extra Savings SmartTouch Promotion; and 3315, Real Plus Extra Savings Promotion.

 File Nos.: Tariff Notices 6017, 6018 and 6019

1.  On 2 July 1997, the Commission directed Bell to place the abridged versions of the tariff applications on the public record as it considered it inappropriate to proceed with the applications on an ex parte basis.

2.  The proposed tariff revisions received interim approval on 14 July 1997 under Telecom Orders CRTC 97-961, 97-962 and 97-963 respectively.

3.  On 22 July 1997, AT&T Canada Long Distance Services Company (AT&T Canada LDS) filed comments requesting that the Commission act on an expeditious basis to deny final approval of the tariff filings, and that Bell be ordered to desist from providing similar bundled local/long distance service offerings at least until competitors are in the position to provide competitive bundled local and long distance service offerings.

4.  By way of letter dated 1 August 1997, the Commission granted approval to an expedited process and ordered Bell to provide reply comments within five business days.

5.  AT&T Canada LDS in its submission stated that the bundled local and long distance service packages offered by Bell under the tariff filings are in breach of subsection 27(2) of the Telecommunications Act (the Act). AT&T Canada LDS asserted that the filings are unjustly discriminatory as they give Bell an undue preference and alternate providers of long distance services (APLDS) an undue disadvantage given that they cannot offer a similar bundled local/long distance service package. AT&T Canada LDS noted that in Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994 (Decision 94-19), the Commission considered that regulation is necessary to ensure that service is affordable where market forces are not sufficient to provide that assurance, and to address issues of undue preference and unjust discrimination that arise due to the vertically integrated nature of the telephone companies.

6.  AT&T Canada LDS asserted that the Commission's condition that the resale of the bundled service be permitted has not been complied with. AT&T Canada LDS submitted that the specific arrangements to permit the resale of the bundled service, including local service features, have not yet been finalized. AT&T Canada LDS stated that even if APLDS could offer a similar bundled offering, they could not make any margin giving away the local components for free if they are required to buy them from Bell at business service rates for resale to residential customers.

7.  AT&T Canada LDS stated that it is not aware of what transfer prices Bell is using internally to pay its Utility segment operations for the right to give away local calling features. AT&T Canada LDS submitted that whatever the transfer charge used internally, the tariffs will remain unjustly discriminatory to APLDS until practical arrangements are finalized to permit resale of all the local service features bundled into the package and that those features should be priced to them at the same price that Bell charges itself internally.

8.  AT&T Canada LDS submitted that the necessary practical arrangements are not yet in place to implement the unbundling and resale of local services mandated by the Commission in Local Competition, Telecom Decision CRTC 97-8, 1 May 1997 (Decision 97-8).

9.  AT&T Canada LDS asserted that it will take some time before the arrangements are in place that will make effective competition a reality. Until such arrangements are in place, such offerings place APLDS' at an undue and unreasonable disadvantage. AT&T Canada LDS submitted that section 27(4) of the Act requires Bell to discharge the evidentiary burden providing clear evidence that all arrangements and preconditions are in place and satisfied to allow competitors to bundle local calling features, by way of resale or otherwise, with its long distance service offerings, and that Bell did not provide such evidence.

10.  AT&T Canada LDS noted that optional services and features have been priced to maximize contribution and contribute to the reduction of the Utility Segment shortfall. AT&T Canada LDS submitted that provision of optional local calling features for free as part of a competitive long distance service offering is a blatant cross-subsidization of Competitive service from the Utility Segment. This is inappropriate and contrary to the Commission established regulatory principles for Utility Segment consumers and competitors to make contribution payments to cover the Utility Segment shortfall to cross-subsidize Bell's competitive service offerings. AT&T Canada LDS submitted that Bell's action in giving away free Utility Segment optional calling service to its own long distance customers, but not making them equally available free of charge to competitors and customers of competitors, are clearly self-preferential and disadvantageous to competitors and their customers.

11.  AT&T Canada LDS submitted that the massive promotional advertising campaign undertaken by Bell is causing serious damage to AT&T Canada LDS and to the concept of a level playing field in both the long distance and local marketplace.

12.  Call-Net Enterprises Inc. (Call-Net) filed an intervention on 23 July 1997 with similar arguments. Call-Net asserted that the bundling of local services with other services is anti-competitive and that the filings are unjustly discriminatory against Bell's competitors and confer an undue preference and advantage on Bell vis-à-vis its competitors who cannot currently bundle local services with their telecommunications services. Call-Net noted that optional local services are not available for resale on a viable basis at this time. Call-Net also submitted that Bell's advertising campaign is having a chilling effect on the launch of local competition.

13.  Call-Net noted that in the proceedings initiated by Telecom Public Notices CRTC 97-14, (25 April 1997), Review of Joint Marketing Restrictions and 97-21, (6 June 1997), Review of Bundling and Joint Marketing Restrictions, which address issues of joint marketing and bundling, the Director of Investigation and Research, Competition Act, submitted that vertical foreclosure by incumbent telephone companies ceases to be a competition policy concern only when all stages of the telecommunications industry are open to effective competition, and that prior to that stage, care must be taken to ensure that competitors are able to compete on a equal basis with the incumbents. At the present time, the incumbent telephone company is the sole major source of local telecommunications services in its area. If it is allowed to bundle local service while others cannot, it will have a major and artificial advantage in offering integrated services.

14.  Call-Net asserted that Bell has relied on the promotion exemption findings 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), Decision 94-19 and Decision 97-8 in support of the filings, and that the exemption to the imputation test does not apply, and has never applied, to a promotion package that involves a bundling of monopoly and competitive services. Call-Net submitted that the competitive impact of the bundled services radically changes what was assumed in the Decisions, and that they cease to be legitimate promotions aimed at stimulating service usage; they are anti-competitive tools and should be subject to the imputation test.

15.  The Canadian Cable Television Association (CCTA) submitted comments on 24 July 1997 stating that by prematurely authorizing bundling, harm is not only done to the performance of competitive markets, but an important lever is also lost in the very difficult task of implementing local services competition.

16.  CCTA submitted that the telephone companies should not be permitted to joint market monopoly and competitive services until the same opportunities are available to other market participants. This condition would provide an incentive to the telephone companies to provide fully competitive interconnection and unbundled facilities which are required to open the monopoly local market.

17.  CCTA agreed with AT&T Canada LDS that the tariff filings represent an anti-competitive initiative which allows the bundling of local/long distance service packages that none of its competitors are able to provide prior to the launch of local service competition.

18.  Bell submitted reply comments on 4 August 1997, amended on 8 August 1997, stating that the interveners have provided no evidence of harm to long distance or local competition; that the tariff filings do not involve basic services and are not of the type that would be widely promoted; that different competitors can offer different bundles which may not be available to Bell; and that it is in the public interest to remove regulatory barriers which exclude the Stentor companies from offering bundled services.

19.  Bell denied that the filings are unjustly discriminatory or provide undue preference to the company relative to its competitors under subsection 27(2) of the Act. Bell noted that the wording contained in National Services Tariff (NST) Item 635.4(b)(4) refers to charges to be paid when competitors lease local switching from the company and that pursuant to Decision 97-8, the company is no longer offering local switching and as such the item has been deleted from the NST.

20.  Bell submitted that resellers purchasing local residential services from the company can purchase residential options and features for resale at tariffed rates for these services, that facilities-based competitors can obtain similar functionality on the open market, and that the functionality required for competitive local exchange carriers (CLECs) to provide similar services is available from major switch vendors. Bell asserted that there are no impediments to resellers or CLECs to replicate the proposed promotional offerings.

21.  Bell suggested that competitors are able to, and do, provide other types of bundles and joint marketing which are of comparable interest to customers, and that some of these packages include monopoly sold services or are otherwise unavailable to the company pursuant to restrictions regarding the joint marketing of services with the company's cellular affiliate. Bell submitted that this clearly demonstrates that there is no unjust discrimination or unreasonable preference.

22.  Bell denied that the filings violate the Commission's rules regarding bundling of monopoly and competitive service. Bell submitted that the filings are short term toll promotions within the established guideline for a promotion and do not require an imputation test pursuant to Decision 94-13. Bell also noted that the SmartTouch services are not basic local services, and in light of Decision 97-8, optional services are available for resale and can also be offered on CLEC facilities.

23.  Bell submitted that the Competitive Segment will be paying the tariffed rate to the Utility Segment for the services provided and that the impact will be reflected in the company's Split Rate Base results. Bell asserted that, as a result, the Utility Segment is not disadvantaged nor is the Competitive Segment provided with any undue preference.

24.  Bell denied that the promotions impede the development of competition, and stated that there has not been any aggressive advertising campaign, therefore there cannot possibly be harm of the degree alleged.

25.  The Commission considered in Decision 97-8, that it would be appropriate to allow for the resale of residential services. The Commission indicated that while this would provide no pricing margins, it may provide some limited opportunities for one-stop shopping and other similar arrangements. The incumbent local exchange carriers (ILECs) were directed to issue revised tariffs to allow for the resale of residential exchange services. On 22 May 1997, the companies complied and tariffs were filed which amended the terms and conditions relating to resale and sharing to allow for resale of residential services.

26.  The Commission notes that Bell has clarified that resellers purchasing residential services from the company can purchase residential options and features for resale at tariffed rates for those services.

27.  In Decision 94-19, the Commission considered that the bundling of monopoly elements with competitive elements is generally acceptable subject to three conditions:

 (1) the bundled service must cover its cost, where the cost study for the bundled service includes:

 (a) the bottleneck component(s) costed at the tariffed rate(s) (including, as applicable, start-up cost recovery and contribution charges); and

 (b) the Phase II causal cost for components not covered in (a);

 (2) competitors are able to offer their own bundled service through the use of stand-alone tariffed bottleneck components in combination with their own competitive elements; and

 (3) resale of the bundled service is permitted.

28.  In Decision 97-8, the Commission considered that the ILECs could continue to bundle their utility and other telecommunications services in accordance with Decision 94-19, including compliance with the imputation test. The Commission also stated that, consistent with the treatment of market trials and promotions in Decisions 94-13, market trials and promotions were exempt from the application of the imputation test on the condition that sufficient information is provided by the ILEC to demonstrate that the offering is a legitimate market trial or promotion of limited duration.

29.  The Commission notes that in response to interrogatory SRCI(Clearnet)2Jul97-12 TN 487 Stentor Resource Centre Inc. (Stentor), on behalf of Bell, stated that the existing residential tariff rates for features and options apply where a CLEC wishes to purchase residential primary exchange services including features and options for purposes of resale to residential customers. Stentor noted that it is not possible for a CLEC to purchase features and options without purchasing the residential primary exchange service. Thus, in order to resell these optional services, a reseller must also resell the associated residence primary exchange service. Prior to the barriers to facilities-based local competition being largely eliminated, the Commission is of the view that this requirement confers an undue advantage on Bell.

30.  The Commission notes that the promotional offers associated with Tariff Notices 6017, 6018 and 6019 expired 31 August 1997.

31.  The Commission considers that given the circumstances associated with the promotions offered under these Tariff Notices it would be inappropriate to order Bell to take corrective action.

32.  The Commission is of the view that until interconnection agreements are in place to permit facilities-based local competition in accordance with Decision 97-8, prior to approving future applications by Bell or the other Stentor owner companies that involve the bundling of optional local and toll services, the companies should be required to make the optional local services available for resale at residential rates on a stand-alone basis. With any such future applications, the companies are to address whether the resale of the local service being bundled is available such that the resale of the primary exchange line is not required.

33.  In light of the foregoing, the Commission orders that:

 Final approval of the proposed tariff revisions is denied.

 Laura M. Talbot-Allan
 Secretary General

 This document is available in alternative format upon request.