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Telecom Order

Ottawa, 14 November 1997
Telecom Order CRTC 97-1666
The Commission received an application from the Ontario Telephone Association (OTA) on 10 June 1997, pursuant to section 34 of the Telecommunications Act (the Act), requesting that the Commission forbear from regulating the Internet services (IS) offered by the following member companies: Durham Telephones Limited (Durham), Huron Telecommunications Co-Operative Limited (Huron Tel), Lansdowne Rural Telephone Co. Ltd. (Lansdowne), Roxborough Telephone Company Limited (Roxborough), The South Bruce Rural Telephone Company Limited (South Bruce) and Wightman Telephone Limited (Wightman).
File No.: 8640-02-01/97
1. The OTA requested that the Commission refrain from exercising all powers and performing all duties under sections 24, 25, 29 and 31, as well as subsections 27(1), 27(5) and 27(6) of the Act.
2. The IS in question are currently provided pursuant to the companies' respective General Tariffs.
3. The OTA submitted that its member Internet service providers (ISPs) require pricing flexibility to address competitive pressures and remain an affordable alternative. The OTA argued that its members are disadvantaged by the current regulatory regime which requires that they file for tariff approval, while their competitors are free to price their IS in response to market demand and competitor strategies.
4. The OTA considered that, for the purposes of its application, the relevant market is the IS market in its members' respective operating territories.
5. The OTA submitted that the IS markets of its members are competitive and will likely become more so as the cost of technology declines and more innovative technologies are introduced. The OTA provided the Commission with a list of competing ISPs.
6. The OTA argued that none of its members are dominant ISPs and estimated that the market shares held by its members range between 4.5% and 20.7%.
7. The OTA submitted that there are no barriers to entry into the IS market of its members.
8. The OTA submitted that there is rivalry among ISPs in its members' territories.
9. The OTA noted that the transmission facilities required to offer IS are readily available from its members at tariffed rates.
10. The OTA argued that its members have no incentive to price their IS at an unreasonably high level, as their customers would simply change ISP. The OTA further argued that its members have no incentive to engage in predatory pricing as they are not permitted to cross-subsidize the losses incurred in the provision of IS with revenues generated in their capacity as a telephone company. So doing would therefore result in a net loss.
11. The OTA submitted that forbearance with respect to the IS of its members would be consistent with the telecommunications policy objectives set out in the Act.
12. The Commission notes that it forwarded a copy of the OTA's application to the Canadian Association of Internet Service Providers (CAIP). The CAIP informed Commission staff that it would not be intervening. No other party commented on the OTA's application.
13. The Commission is of the view that the IS markets under consideration exhibit all the characteristics of highly competitive markets.
14. The Commission is further of the view that barriers to entry into the OTA members' IS markets are minimal, and that numerous ISPs are competing in these markets.
15. The Commission finds that the necessary components to enter the IS market are readily available, in particular, that all the underlying telecommunications transmission facilities are available at tariffed rates.
16. The Commission is concerned however that the OTA members are not subject to adequate safeguards to protect against the potential for predatory pricing and cross-subsidization of IS from revenues generated in the members' monopoly segment.
17. Given the potential for cross-subsidization of IS with revenues generated in the monopoly sector, the Commission finds that forbearance must be conditional upon the OTA members establishing an accounting separation for IS.
18. Conditional upon the establishment of such an accounting separation for IS, the Commission finds that it would be appropriate to forbear from the IS provided by Durham, Huron Tel, Lansdowne, Roxborough, South Bruce and Wightman with respect to sections 25, 29 and 31 and subsections 27(1), 27(5) and 27(6) of the Act.
19. The Commission finds that it would not be appropriate to refrain from exercising all of its powers and duties under section 24 and subsections 27(2), 27(3) and 27(4) of the Act.
20. The Commission considers it necessary to retain powers with respect to section 24 of the Act in order to maintain and impose certain duties on the provision of underlying telecommunications services to ISPs, namely to ensure that existing conditions regarding confidential information continue to apply, and to retain the power to impose conditions on the offering and provision of IS as may be necessary in the future.
21. Upon the coming into effect of the forbearance, the existing conditions concerning customer confidentiality are to be included where appropriate, in all contracts or other arrangements with customers for the provision of IS.
22. The Commission is of the view that it is important for it to retain subsections 27(2) and 27(4) in regard to issues related to access to the underlying network components of the services forborne from in this proceeding.
23. The Commission is further of the view that retaining subsections 27(2) and 27(4) of the Act would provide an additional safeguard against the OTA members granting any undue preference to their IS.
24. The Commission considers it necessary to retain subsection 27(3) to the extent that it does not refer to compliance with the powers and duties forborne from in this Order.
25. Pursuant to subsection 34(1) of the Act, and subject to an appropriate accounting separation being in place, the Commission finds as a question of fact, that to refrain from exercising powers and performing duties under sections 25, 29 and 31 and subsections 27(1), 27(5) and 27(6) of the Act, and under section 24 and subsection 27(3) to the extent set out in this Order, with respect to the IS provided by the OTA members under consideration would be consistent with Canadian telecommunications policy objectives.
26. Pursuant to subsection 34(2) of the Act, and subject to an appropriate accounting separation being in place, the Commission finds as a question of fact that the provision of these services is subject to sufficient competition to protect the interests of users.
27. Pursuant to subsection 34(3) of the Act, the Commission finds that to refrain from exercising the powers and performing the duties to the extent and on the conditions set out in this Order would not be likely to impair unduly the establishment or the continuance of a competitive market for these services.
28. In light of the foregoing, the Commission orders that:
a) Pursuant to subsection 34(4) of the Act, effective upon approval by the Commission of a filing by each company indicating that it has complied with the requirement to separate competitive IS assets, revenues and expenses from its rate base and shortfall determination, sections 24 (in part), 25, 29 and 31 as well as subsections 27(1), 27(3) (in part), 27(5) and 27(6) of the Act do not apply to the IS provided by Durham, Huron Tel, Lansdowne, Roxborough, South Bruce and Wightman to the extent that they are inconsistent with the Commission's determinations herein.
b) Each company is directed, upon approval by the Commission of the filing referred to in a) above, to issue tariff pages withdrawing the tariffs for its IS.
Laura M. Talbot-Allan
Secretary General
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