ARCHIVED -  Telecom Order CRTC 97-590

 Telecom Order

 Ottawa, 1 May 1997

 Telecom Order CRTC 97-590

 By Scope of IX Contribution Paying Services, Telecom Public Notice CRTC 96-19, 23 May 1996, the Commission initiated a proceeding, as it stated it would in Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994 (Decision 94-19), to examine the issues relating to a broadening of the base of interexchange (IX) contribution paying services, including the appropriateness of the existing treatment of Direct Access Lines (DALs).

File no.: 96-2134

1.  On 29 May 1996, London Telecom Network Inc. (London Telecom) requested clarification of whether this proceeding would examine all services which access the Public Switched Telephone Network (PSTN) or would be confined to IX services only, leaving the consideration of other services accessing the PSTN to other proceedings.

2.  By letter dated 16 July 1996, the Commission confirmed that the issues to be examined in this proceeding relate to any and all IX services that access the PSTN.

3.  On 22 July 1996, the following parties filed submissions: AT&T Canada Long Distance Services Company (AT&T Canada LDS), BCE Mobile Communications Inc. (BCE Mobile), Canadian Business Telecommunications Alliance (CBTA), Canadian Wireless Telecommunications Association (CWTA), Clearnet Communications Inc. (Clearnet), fONOROLA Inc. (fONOROLA), LanSer Wireless Inc. (LanSer), Microcell Telecommunications Inc. (Microcell), Mobility Canada, Rogers Cantel Inc. (Cantel), Shadow Tel Communications Corporation, Teleglobe Canada Inc., Vidéotron Télécom ltée (Vidéotron) and Stentor Resource Centre Inc. (Stentor) on behalf of BC TEL, Bell Canada, The Island Telephone Company Limited, MTS NetCom Inc., Maritime Tel & Tel Limited, The New Brunswick Telephone Company, Limited, NewTel Communications Inc. and TELUS Communications Inc. (the telephone companies).

4.  In a letter dated 7 October 1996, Stentor sought, among other things, clarification as to whether the issue of contribution payments on Canada-United States and Canada-Overseas circuits would be part of this proceeding.

5.  By letter dated 18 October 1996, the Commission advised that this issue was outside of the scope of this proceeding.

6.  AT&T Canada LDS, The Province of British Columbia, Canadian Association of Internet Providers (CAIP), Cantel, Clearnet, CWTA, Distributel Communications Ltd. (Distributel) on behalf of the Canadian Line Side Resellers Group, Fédération nationale des associations de consommateurs du Québec and National Anti-Poverty Organization (FNACQ/NAPO), fONOROLA, LanSer, London Telecom, Rogers Network Services (RNS), Stentor, Vidéotron and Westel Telecommunications Ltd. (Westel) filed comments on 10 October 1996.

7.  AT&T Canada LDS, BCE Mobile, CAIP, Cantel, Clearnet, CWTA, fONOROLA, FNACQ/NAPO, London Telecom, Microcell, Mobility Canada, Stentor and Westel filed reply comments on 25 October 1996.

8.  The principal issues in this proceeding were the appropriateness of the existing treatment of DALs and whether contribution should be payable with respect to the following uses or services: paging; wireless e.g., cellular, enhanced switched mobile radio and personal communications services (PCS); Alternate Providers of Long Distance Services' (APLDS') internal administrative use of line-side connections; data service provided through line-side connections (excluding Internet); Internet; and Centrex one-hop services.

9.  The Commission notes that, with respect to its determinations set out below, there are differences in the contribution regime set out in Regulatory Framework for Québec-Téléphone and Télébec ltée, Telecom Decision CRTC 96-5, 7 August 1996 (Decision 96-5), and Regulatory Framework for the Independent Telephone Companies in Quebec and Ontario (Except Ontario Northland Transportation Commission, Québec-Téléphone and Télébec ltée, Telecom Decision CRTC 96-6, 7 August 1996 (Decision 96-6), for the independent telephone companies.

10.  The contribution regime for the independents set out in Decisions 96-5 and 96-6 recognized the unique circumstances of those telephone companies and endorsed a broader scope of contribution paying services that had been approved by the previous regulator in order to reduce the very high contribution rates in the independents' territories.

11.  With respect to paging services, AT&T Canada LDS submitted that contribution should only apply to these services when paging companies offer services beyond the local free calling area and when such services utilize local PSTN line-side connections to initiate a page.

12.  Stentor submitted that the interconnecting circuits used to provide access from the paging system to the local PSTN should be subject to contribution except where the paging system uses interconnecting circuits that are connected solely to an IX service provided by Stentor, such as 800/Vnet, for which the rates already reflect contribution.

13.  The Commission is of the view that, in principle, contribution charges should apply to paging services that access the PSTN through line-side connections when those services are provided beyond the local free calling area.

14.  However, the Commission notes that Cantel stated that 85% of all pages are received within the local calling area of the originator of the page, and that this statement was not contradicted in this proceeding.

15.  Given this, the Commission finds that the vast majority of pages are local services, and therefore are outside the scope of this proceeding.

16.  The Commission further notes that paging services provided beyond the local free calling area through the use of 800/Vnet services already pay contribution through the retail tariffs for these services.

17.  The Commission notes that Cantel indicated that the average trunk holding time for a page is 27 seconds, and that this was not contradicted in this proceeding.

18.  Given the average holding time of pages and the small volume of paging services that are provided beyond the local free calling area and do not already pay contribution, the Commission considers that the cost of assessing and collecting contribution would outweigh the benefits of requiring these services to pay contribution.

19.  Based on the evidence in this proceeding, the Commission concludes that paging services should not be subject to contribution charges at this time.

20.  The Commission notes, however, that, in the future, with the evolution of technology, paging providers may be able to offer a wider range of services from pagers and that this issue may be revisited at a future time.

21.  With respect to wireless services, CWTA and the wireless service providers (WSPs) submitted that contribution charges should not apply to wireless services because, among other things, (1) WSPs supply specialized, complementary services that do not erode IX traffic from the toll network, (2) the volume of wireless IX traffic that accesses the PSTN is very small, (3) exempting wireless services from paying contribution would not adversely affect local rates, (4) the definitions of wireless calling areas and roaming make it difficult to map local and toll calls to wireline boundaries, and (5) the WSPs connect to the PSTN via interconnection services tariffs which include a 25% mark-up above incremental costs, which according to these parties, may over contribute to the Access and Common Phase III category costs.

22.  BCE Mobile stated that to apply contribution based on wireline calling areas would be technically and administratively complex and that it would be costly to develop the required tracking software.

23.  Cantel, CWTA and Mobility Canada submitted that, if contribution charges were to apply to wireless services, then the restrictions on cellular carriage of long distance service between fixed land line stations enunciated in Radio Common Carrier Interconnection With Federally Regulated Telephone Companies, Telecom Decision CRTC 84-10, 22 March 1984 (Decision 84-10), should be removed.

24.  Stentor submitted that contribution should apply to the interconnection arrangements to the local PSTN provided to cellular service providers, PCS service providers and future wireless services to help offset the local/access shortfall.

25.  The Commission notes that wireless to wireless IX traffic is beyond the scope of this proceeding.

26.  To the extent that the WSPs require or make use of connections to the PSTN for carrying IX traffic, those services should contribute on the same basis as the IX services of wireline carriers, and therefore, the Commission considers that wireline to wireless IX traffic, and wireless to wireline IX traffic should be subject to contribution.

27.  The Commission notes that cellular service providers that interconnect to the PSTN through 800/Vnet services currently pay contribution in the retail tariffs for these services.

28.  At the same time, the Commission considers that it would be inappropriate to impose contribution on wireless service providers without providing them with the opportunity to offer similar services to those offered by other contribution paying service providers and concludes that the restrictions in Decision 84-10 on cellular carriage of long distance service between fixed land line stations should be removed as of 1 January 1998.

29.  The Commission notes that in the event that WSPs provide competitive IX services pursuant to 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), the relevant tariffs would apply.

30.  Given that wireless calling areas do not coincide with existing wireline local calling areas, the Commission considers that there is an administratively simpler method of determining contribution on wireless to wireline IX traffic, and wireline to wireless IX traffic.

31.  The Commission intends to implement, effective 1 January 1998, a surcharge on the interconnecting circuits leased by wireless carriers to access the PSTN.

32.  Given the Alberta contribution mechanism approved in Contribution Regime in Alberta, Telecom Decision CRTC 95-22, 27 November 1995, and given that an Alberta contribution rate will be set effective 1 January 1998, the surcharge will also apply to the interconnecting circuits of TELUS Communications (Edmonton) Inc. (TCI Edmonton) that are leased by wireless carriers.

33.  In order to determine the per-circuit surcharge, the Commission requires (1) the WSPs to conduct a four-week study during May and June 1997 to estimate, on an annual basis in the operating territories of each telephone company and TCI Edmonton, (i) the number of toll minutes, excluding 800/Vnet traffic, and (ii) the number of 800/Vnet minutes and (2) the telephone companies and TCI Edmonton to conduct a four-week study during May and June 1997 to estimate the number of trunks connecting wireless carriers to the local switches.

34.  These studies, along with detailed assumptions, are to be filed by 7 July 1997 in order to determine (1) the per-circuit surcharge effective 1 January 1998 and (2) the impact of this surcharge on the telephone companies' and TCI Edmonton's local/access shortfalls and the resulting contribution rates that will be effective 1 January 1998.

35.  The Commission has set out a process in this Order to give parties an opportunity to examine these studies.

36.  With respect to DALs, AT&T Canada LDS submitted that DALs that do not connect directly to a local switch should not pay contribution charges.

37.  fONOROLA submitted that competitor DAL usage has consistently decreased due to both the capital intensive nature of DALs and the steady decrease in the annual contribution requirement and argued that the 2% surcharge should be decreased or eliminated as DAL usage decreases.

38.  RNS suggested that, because minutes carried on DALs cannot be measured, a per-minute contribution mechanism would not be possible; on the other hand, a per-circuit charge would be arbitrary and would lead to contribution avoidance if not estimated correctly.

39.  Vidéotron submitted that the current treatment of DALs is the only method that is administratively and operationally viable.

40.  Stentor submitted that DALs should either be excluded entirely from paying contribution, or contribution should be applied to traffic on DALs on a consistent, measured and equitable basis for all included services and service providers.

41.  Stentor stated that its preferred approach is to apply a per-circuit mechanism to measure contribution on all DAL traffic.

42.  In Decision 92-12, the Commission determined that, while directly applying a contribution charge to traffic carried on DALs of APLDS would be administratively difficult, a 2% contribution surcharge on all switched minutes would compensate for contribution revenues lost through DAL usage, recognizing that the average amount of traffic travelling over DALs was likely to be significantly less than over switched lines.

43.  In Decision 94-19, the Commission considered that reducing contribution by rate rebalancing would reduce incentives to bypass and that possible modifications to the contribution regime may also reduce the incentives for bypass and contribution avoidance.

44.  The Commission notes that one of the possible modifications identified in Decision 94-19 included differential contribution charges for access to and egress from the PSTN.

45.  In this proceeding, Stentor estimated that DAL traffic by APLDS represented about 12% in 1996, whereas the APLDS stated that the percentage was closer to 7%.

46.  Based on the evidence in this proceeding, the Commission considers that the decline in contribution rates has not provided the necessary incentive to reduce contribution avoidance on traffic carried over DALs.

47.  Further, the Commission considers that the 2% contribution surcharge, which was intended to provide a reasonable level of compensation to the telephone companies for the APLDS' IX traffic carried over DALs, does not adequately account for such traffic.

48.  The Commission concludes that the existing treatment of DALs for contribution purposes should be replaced with a contribution mechanism that discourages contribution avoidance through DAL usage.

49.  Accordingly, the Commission considers that a differential contribution rate based on originating and terminating IX traffic, such that the terminating rate is higher, would be more appropriate.

50.  The Commission concludes that the current contribution mechanism is to be modified for the telephone companies and TCI Edmonton to reflect de-averaged contribution rates for peak and off-peak minutes and originating and terminating minutes, effective 1 January 1998.

51.  The Commission will finalize the details of the new contribution mechanism and the resulting contribution rates 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 (PN 97-11).

52.  With respect to APLDS' internal administrative use of line-side connections, Stentor submitted that such access circuits should attract contribution and proposed that an exemption from line-side contribution for administrative use should be permitted only where the line-side connections are associated with a stand-alone administrative location or system which is not directly connected to the service provider's network.

53.  AT&T Canada LDS submitted that Stentor's proposal was unreasonable and would in effect require interexchange carriers (IXCs) to arrange their internal networks in a manner that is less efficient than any other large business customer with multiple sites.

54.  The Commission notes that contribution does not currently apply to line-side connections which are used for APLDS' internal administrative purposes and which are directly connected to their IX networks, but that contribution currently applies to administrative IX traffic carried on trunk-side connections.

55.  The Commission considers that APLDS' administrative IX traffic which accesses the PSTN should be subject to contribution charges regardless of whether the traffic is carried on line-side or trunk-side connections.

56.  Therefore, the Commission concludes that the line-side connections used by APLDS for internal administrative use and directly interconnected to a service provider's IX network will be subject to contribution charges, effective 1 January 1998.

57.  This is consistent with the treatment afforded to the telephone companies' administrative IX traffic.

58.  The Commission also concludes that exemptions from contribution for the above that were granted by the Commission up to and including 31 December 1997 will no longer be valid as of 1 January 1998.

59.  The Commission further notes that line-side connections associated with stand-alone administrative locations or systems which are not directly connected to the APLDS' network will not be required to pay contribution but that applications for exemptions will continue to be required for this category.

60.  With respect to data service providers, Stentor, AT&T Canada LDS and fONOROLA agreed that contribution should apply to PSTN line-side connections.

61.  AT&T Canada LDS submitted that contribution should be recovered regardless of whether the eligible service is carrying voice or data traffic, because both make use of direct local connections to the PSTN.

62.  Stentor argued that the contribution should apply to data services using line-side connections because the actual usage can be measured and contribution can be applied on the same basis that it applies to other line-side interconnections.

63.  LanSer submitted that data circuits that do not access the PSTN should remain exempt from paying contribution.

64.  fONOROLA submitted that switched rather than dedicated data should be contribution eligible.

65.  Vidéotron argued that requiring companies that make heavy use of data services to pay contribution would have a major negative impact on the viability of those companies.

66.  The Commission notes that data service providers may, currently, apply for an exemption from contribution on line-side connections used to connect to IX data networks.

67.  The Commission also notes that, currently, a monthly interconnection access charge (IAC) equal to 25% of the monthly rate for a business trunk line applies on each line-side connection.

68.  The Commission further notes that contribution currently applies to trunk-side connections to IX data circuits.

69.  The Commission considers that IX data traffic should be subject to per-minute contribution charges regardless of whether the traffic is carried on line-side or trunk-side connections.

70.  Therefore, the Commission concludes that, effective 1 January 1998, (1) line-side connections to the PSTN which are used to connect to IX data networks will be subject to contribution and (2) the IAC will no longer apply to these connections and the telephone companies are to make the appropriate changes to their tariffs with respect to the IAC.

71.  The Commission also concludes that exemptions from contribution for line-side connections used to connect to IX data networks granted by the Commission up to and including 31 December 1997 will no longer be valid as of 1 January 1998.

72.  The Commission notes that line-side connections to local data networks will not be required to pay contribution as these services are not IX services accessing the PSTN and that applications for exemption from contribution will continue to be required for this category.

73.  With respect to Internet traffic, Stentor submitted that, because it is difficult to distinguish line-side local traffic from IX traffic, all voice and data services should be subject to contribution charges, unless the Internet Service Provider (ISP) can demonstrate that the traffic is not interexchange.

74.  Stentor was of the view that, if the Commission determines that line-side data attracts contribution, then ISPs should also be required to pay contribution charges.

75.  AT&T Canada LDS stated that all Internet traffic originated over public dial-up access or through line-side connections should be contribution-eligible as it is likely IX traffic.

76.  fONOROLA stated that ISPs should pay contribution based on the number of switched minutes.

77.  The Commission notes that ISPs typically lease line-side connections to the PSTN such as local business lines, Centrex or ISP Link services in order to provide access from customers to the ISP and that traffic from the ISP outward to the Internet is carried on dedicated facilities to and from the data backbones of the Internet.

78.  The Commission notes that parties provided limited evidence addressing the appropriateness of applying contribution charges to Internet services; for example, most parties did not address the argument that ISPs are customers of the IXCs as opposed to being resellers of leased facilities.

79.  Further, the impact of Internet usage on the PSTN is rapidly evolving as a result of, among other things, the development of new technology, including separate networks, used to deliver a greater number of services over the Internet.

80.  In the circumstances, the Commission is not persuaded that it is appropriate at this time to extend the application of the existing contribution scheme to Internet Services.

81.  The Commission considers, however, that given the rapid evolution of Internet services, the above determination may have to be revisited in the future.

82.  The Commission notes that, where the Internet network is used as the underlying transmission facility by a service provider to provide public switched IX voice or data services, the service provider is to register as a reseller and to pay contribution.

83.  With respect to Centrex one-hop service, Stentor submitted that because such arrangements displace the telephone companies' long distance services and use and benefit from the local network, Centrex one-hop services should pay contribution.

84.  The Commission notes that in Bell Canada - Application to Deny Resale of Centrex III Service by Distributel Communications Limited, Telecom Decision CRTC 89-2, 7 February 1989, one-hop resale was determined to be a local service.

85.  The Commission remains of the view that Centrex one-hop services are local services and, as such, are not within the scope of this proceeding.

86.  During this proceeding, AT&T Canada LDS submitted that the integrated telephone companies should be subject to the full extent of the requirement to pay contribution explicitly, including the requirement to finance these costs, rather than enjoy the implicit benefit derived from simply treating the payment as a book-keeping entry.

87.  Accordingly, AT&T Canada LDS proposed a 10% contribution discount for potential and existing APLDS.

88.  The Commission notes that in Implementation of Regulatory Framework - Splitting of the Rate Base and Related Issues, Telecom Decision CRTC 95-21, 31 October 1995 (Decision 95-21), one of the objectives of splitting the rate bases was to simulate structural separation.

89.  In Decision 95-21, the Commission accepted the position of parties that the issue of allocating economies of scope between the Utility and Competitive segments is essentially a question of the appropriate assignment of the costs of jointly-used facilities, irrespective of whether those facilities result in economies of scope.

90.  The Commission remains of the view expressed in Decision 95-21 that, with respect to the implementation of a special charge on the dominant integrated telephone companies, there is little or no evidence to support this approach.

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

 (a) AT&T Canada LDS' request for a 10% contribution discount for APLDS is denied.

 (b) The IAC will no longer apply on line-side data connections, effective 1 January 1998 and, where applicable, the telephone companies are to issue, by 1 December 1997, revised tariff pages to reflect this change.

 (c) Exemptions granted by the Commission up to and including 31 December 1997 will no longer be valid as of 1 January 1998 for (1) line-side connections used by APLDS for internal administrative use and directly connected to a service provider's IX network and (2) line-side connections to the PSTN that are used to connect to IX data networks.

 (d) The telephone companies are to issue revised tariff pages, by 1 December 1997, to reflect the fact that line-side connections used by APLDS for internal administrative use and directly interconnected to a service provider's IX network and that line-side connections to the PSTN which are used to connect to IX data networks will be subject to contribution, effective 1 January 1998.

 (e) The current contribution mechanism for the telephone companies and TCI Edmonton is to be modified to reflect de-averaged contribution rates for peak and off-peak minutes and originating and terminating minutes, effective 1 January 1998 and will be finalized in the proceeding initiated by PN 97-11.

 (f) The restrictions in Decision 84-10 with respect to the cellular carriage of long distance service between fixed land line stations are removed, effective 1 January 1998.

 (g) Effective 1 January 1998, a contribution surcharge will apply to interconnecting circuits of the telephone companies and TCI Edmonton that are leased by wireless carriers to access the PSTN.

 (h) The WSPs are directed to conduct a four-week study during May and June 1997 to estimate, on an annual basis in the operating territories of each telephone company and TCI Edmonton, (i) the number of toll minutes, excluding 800/Vnet traffic, and (ii) the number of 800/Vnet minutes, and the telephone companies and TCI Edmonton are directed to conduct a four-week study during May and June 1997 to estimate the number of trunks connecting wireless carriers to their local switches.

 (i) The studies, along with supporting detailed assumptions, are to be filed with the Commission by 7 July 1997. At the same time, the telephone companies and TCI Edmonton are to file (1) the details to be used to calculate a per-circuit surcharge, effective 1 January 1998 on the interconnecting circuits leased by wireless carriers to access the PSTN and (2) the impact of the additional revenues on the local/access shortfall. The above information is to be served on parties as set out pursuant to the following paragraphs.

 (j) A process is hereby established to give interested parties an opportunity to address the matters referred to in sub-paragraph 91(i). The telephone companies, TCI Edmonton and the WSPs are made parties to this process.

 (k) Other parties wishing to participate in this process must notify the Commission of their intention to do so by writing to Mr. Allan J. Darling, Secretary General, CRTC, Ottawa, Ontario, K1A 0N2, fax: (819) 953-0795, by 2 June 1997. Parties are to indicate in the notice their Internet email address, if available. If parties do not have access to the Internet, they are to indicate in their notice whether they wish to receive disk versions of hard copy filings. The Commission will issue a complete list of parties and their mailing addresses (including Internet email address if available), identifying those parties who wish to receive disk versions.

 (l) Any information filed pursuant to this process will form part of the record of the proceeding initiated by PN 97-11 and the Commission's determinations with respect to this information will be made in the decision to be issued pursuant to that proceeding.

 (m) Parties may address interrogatories to the telephone companies, TCI (Edmonton) or the WSPs on the matters referred to in sub-paragraph 91(i). Any such interrogatories must be filed with the Commission and served on the party or parties in question by 28 July 1997.

 (n) Responses to interrogatories addressed pursuant to sub-paragraph 91(m) are to be filed with the Commission and served on all parties by 11 August 1997.

 (o) Requests by parties for further responses to their interrogatories, specifying in each case why a further response is both relevant and necessary, and requests for public disclosure of information for which confidentiality has been claimed, setting out the reasons for disclosure, must be filed with the Commission and served on the party or parties in question by 14 August 1997.

 (p) Written responses to requests for further responses to interrogatories and for public disclosure must be filed with the Commission and served on the party making the request by 20 August 1997.

 (q) The Commission will issue a determination with respect to requests for disclosure and for further responses as soon as possible, and intends to direct that any information to be provided pursuant to that determination be filed with the Commission and served on all parties to this proceeding by 29 August 1997.

 (r) All parties may file comments with the Commission with respect to the matters referred to in sub-paragraph 91(i), serving copies on all parties, by 8 September 1997.

 (s) All parties may file replies to any comments, serving copies on all other parties who filed comments, by 15 September 1997.

 (t) Where a document is to be filed or served by a specific date, the document must be actually received, not merely sent, by that date.

 (u) In addition to hard copy filings, parties are encouraged to file with the Commission electronic versions of their submissions in accordance with the Commission's Interim Telecom Guidelines for the Handling of Machine-Readable Files, dated 30 November 1995. The Commission's Internet email address for electronically filed documents is public.telecom@crtc.gc.ca. Electronically filed documents can be accessed at the Commission's Internet site at http://www.crtc.gc.ca.

 Allan J. Darling
Secretary General

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