ARCHIVED -  Telecom Order CRTC 97-648

Telecom Order

Ottawa, 16 May 1997

Telecom Order CRTC 97-648

The Commission received a letter dated 4 December 1996 from NBTel interActive (1994) Inc. (NBTI) [copied to The New Brunswick Telephone Company, Limited (NBTel)] applying for an exemption from contribution charges with respect to facilities used to provide data and dedicated services.

File Nos.: 96-2125 and 96-2502

1. The application was the result of a Fundy Cable Ltd. (Fundy) Part VII application dated 17 May 1996 (Fundy's Part VII application) concerning the inter-corporate and pricing transactions of NBTel.

2. NBTI attached [pursuant to Applications for Contribution Exemptions, Telecom Decision CRTC 93-2, 1 April 1993 (Decision 93-2)] an affidavit confirming that it is managing its resale business so that it only provides data and dedicated network configurations.

3. NBTI attached confidential schematic diagrams regarding its network configurations and included relevant confidential billing information with respect to the exemption requested.

4. NBTI requested an effective date from the date the circuits were first installed.

5. NBTI submitted that it has from the outset received co-location and associated equipment, installation, and network services from NBTel and it is clear from the information provided that these services have been, and continue to be, data and dedicated services, and that NBTI has caused no harm to any other party in its oversight with respect to reseller registration and the contribution exemption application.

6. By letter dated 18 December 1996, Fundy provided its comments.

7. By letter dated 18 December 1996, AT&T Canada Long Distance Services Company (AT&T Canada LDS) [then Unitel Communications Inc.] stated that it filed comments on 17 June 1996 in Fundy's Part VII application suggesting that, based on the evidence provided by Fundy, the Commission initiate an inquiry into the activities of NBTel and its affiliates.

8. AT&T Canada LDS submitted that the Commission will benefit from the input of various parties as it makes its determinations, and accordingly stated that it was filing additional comments with respect to this matter.

9. AT&T Canada LDS considered that NBTel's responses to the Commission's interrogatories revealed a systematic disregard for the Commission's regulations as they relate to NBTel's relationship with its affiliates and/or subsidiaries.

10. AT&T Canada LDS submitted that these alleged oversights provide NBTel and NBTI with undue and anti-competitive advantages over competitors in the market for telecommunications services in New Brunswick, in contravention of subsection 27(2) of the Telecommunications Act (the Act) and that the Commission cannot allow these discretions to continue.

11. By two letters dated 20 December 1996, NBTel provided its reply.

12. The Commission issued interrogatories on 20 November 1996.

13. In reply to the first interrogatory, NBTel stated that NBTI is an affiliate which is reselling NBTel data and dedicated services to (1) the health industry (data and on-line information), (2) the education industry (data and internet services), (3) the pharmacy industry (data services), and (4) interactive voice response service bureaus for a variety of clients.

14. In reply to the second interrogatory, NBTel stated that NBTI, a subsidiary of Bruncor Inc. (Bruncor), is registering as a reseller coincident with this response and stated that NBTI is not registered as a reseller at this time due to an oversight with respect to affiliate filing requirements.

15. In reply to the third interrogatory, NBTel acknowledged that NBTI had not paid contribution to NBTel and requested that exemption should be from the date the circuits were first installed; NBTel provided a confidential report showing the amount that was outstanding and not yet paid to it by NBTI.

16. In reply to the fourth interrogatory, NBTel stated that NBTI had filed its contribution exemption application on 4 December 1996 (the application being considered in this Order).

17. In letters dated 21 March 1997 and 11 April 1997 (2), the Commission established a further process to consider additional information to be filed by NBTel. In letters dated 18 April 1997 (2), NBTel filed the requested information. This information together with the submissions of Fundy (dated 23, 28, 29 April 1997) and AT&T (dated 23 April 1997) was also considered in this proceeding.

18. Based on the evidence filed by parties, the Commission considers that there are seven issues in the context of NBTI's application.

19. The first issue is whether an audit is required by an independent party with respect to inter-corporate transactions.

20. AT&T Canada LDS stated that the effect of NBTel's anti-competitive behaviour is obvious when one observes that NBTel maintains over 90% of the competitive long distance market in its province - substantially greater than all other Stentor-member companies.

21. AT&T Canada LDS submitted that NBTel's actions are serving to impede the growth of competition in New Brunswick, thereby denying choice in long distance service to customers in the province.

22. AT&T Canada LDS submitted that the Commission cannot allow these deliberate abuses of regulatory rules to continue and that the Commission should initiate a comprehensive audit, by an independent party, of all inter-corporate transactions between NBTel and all of its affiliates and/or subsidiaries.

23. The Commission is of the view that this issue is outside the scope of the contribution exemption application and that it will be addressed in the Commission's determination covering the remaining issues in Fundy's Part VII application.

24. The second issue is NBTI's failure to register with the Commission until 4 December 1996.

25. Fundy stated that NBTI's failure to register as a reseller or to request a contribution exemption, for services it obtained from NBTel as far back as 1992, is reason to question the appropriateness of granting this application retroactively.

26. AT&T Canada LDS questioned NBTel's claim that NBTI's failure to register with the Commission as a reseller was due to an administrative oversight.

27. AT&T Canada LDS submitted that NBTel should be well aware of the Commission's regulations in this respect, and that the Commission should be concerned with the disregard of regulations shown by NBTel.

28. AT&T Canada LDS stated that, absent Fundy's intervention, which caused the Commission to examine NBTel's practices concerning affiliates and/or subsidiaries, it is unlikely that NBTI would have registered as a reseller.

29. AT&T Canada LDS stated that it is clear that, in order to prevent these abuses from continuing in the future, more stringent scrutiny must be brought to bear on NBTel's relationship with affiliates and/or subsidiaries.

30. The Commission finds that NBTel has failed to enforce its tariffs pursuant to which resellers must register with both the Commission and the telephone company in whose territory they operate.

31. The Commission finds that NBTel's behaviour is contrary to its own tariffs as well as the Act and is, in the circumstances, completely unacceptable.

32. The Commission also finds that given NBTI's relationship with NBTel, NBTI's explanation for its failure to comply with its tariffs is not sustainable.

33. The third issue is whether clarification is required for circuits used by NBTI in 1992.

34. Fundy submitted that clarification should be provided with respect to circuits used by NBTI in 1992 when, as an NBTel subsidiary, it was offering Talkmail service and introducing throughout 1992, and 1993, other well publicized services like Screen Talk.

35. Fundy further submitted that clarification is required to ensure that NBTI is requesting contribution exemption for all line-side connection circuits obtained since its creation, regardless of whether it is an NBTel or a Bruncor affiliate.

36. Fundy submitted that, based on the record, this would mean that contribution was due as far back as the fall of 1992 when NBTI leased facilities for the provision of Talkmail service.

37. Commission staff issued a letter dated 11 April 1997 requesting that NBTel provide the detailed calculations for contribution due and the associated late payment charges in addition to those provided in the response to interrogatory NBTel(CRTC)21Mar97-1.

38. NBTel replied that NBTI was wound up in late 1994 and subsequently replaced by NBTI (1994) Inc. and that any liabilities at that time became those of NBTel.

39. NBTel stated that it does not have billing details for services for the period 1992 to 1994.

40. The Commission finds that, in the circumstances, no further action is required on this particular issue.

41. The fourth issue is whether clarification of Integrated Voice Response (IVR) Equipment using 800 and 900 service trunks is required.

42. Fundy noted that Attachment 1 of NBTel's evidence, and the response to interrogatory NBTel(CRTC)20Nov96-1 (Attachment 3), indicated that NBTI had been employing IVR technology.

43. Fundy submitted that NBTI should be required to address how IVR equipment is terminated using 800 and 900 service trunks, for services like those referenced in NBTI's Attachment 1, and in response to interrogatory NBTel(CRTC)20Nov96-1.

44. Fundy stated that if this is the case, those connections would be trunk-side rather than line-side and therefore would not qualify for contribution exemption.

45. AT&T Canada LDS noted that in response to interrogatory NBTel(CRTC)20Nov96-1, NBTel had indicated that NBTI also provides a variety of IVR services for specific clients.

46. AT&T Canada LDS noted that, as one of many customer options, IVR services are often configured such that a live attendant can be reached.

47. AT&T Canada LDS stated that once this access is available to customers, any call routed in this manner becomes a switched voice call and should be subject to applicable contribution payments.

48. AT&T Canada LDS stated that this is true regardless of whether it is carried over the same facilities as data traffic.

49. AT&T Canada LDS submitted that this concern must also be addressed in NBTI's contribution exemption to ensure that such call routing is not possible.

50. AT&T Canada LDS also submitted that this provides further justification for the Commission to request that a full technical audit accompany NBTI's contribution exemption application.

51. NBTel did not specifically reply to Fundy's and AT&T Canada LDS' submissions.

52. With reference to NBTI's confidential schematic diagrams, the Commission is of the view that no contribution is applicable on the line-side circuits since the calls are either dedicated voice and/or data.

53. The Commission finds that the network essentially carries interexchange data and to the extent that live voice is carried because of the need for operator support, such voice is dedicated and hence, not subject to contribution.

54. The Commission considers that NBTI has provided an adequate description of how the IVR equipment is terminated using 800 and 900 service.

55. The Commission finds that no further clarification is required with respect to the IVR equipment using 800 and 900 services.

56. The fifth issue is the requirement for a technical audit.

57. Fundy submitted that not only is there a very strong suspicion that NBTI is providing switched long distance voice services, through offerings such as Healthnet, but other services provided by NBTI, such as IVR, supply 800 trunks which irrespective of the traffic, either data or voice, are contribution bearing trunks since they are only available on a trunk-side basis.

58. Fundy submitted that until NBTI furnishes and receives approval of a complete technical audit of its service offerings and any other control procedures or audit information that the Commission deems necessary and appropriate, contribution should be applied on all of NBTI's traffic consistent with the treatment of other exemption applications.

59. Fundy submitted that the mix of line-side and trunk-side connections complicate the contribution exemption issues and call into question NBTel's ability to determine the applicability of contribution charges to circuits.

60. AT&T Canada LDS stated that the affidavit submitted by NBTI is insufficient to merit the contribution exemption sought for data and dedicated services.

61. AT&T Canada LDS submitted that an affidavit stipulating that no voice services are being provided would only be sufficient for the Commission to grant a contribution exemption in the case of a data-only service provider.

62. AT&T Canada LDS stated that in the case of NBTI, however, it is not possible for the Commission to verify, absent a technical audit, that the other allegedly dedicated facilities do not carry switched voice traffic, and that any facilities carrying voice traffic are dedicated to a single customer and are partitioned and separate from the data network of NBTI.

63. NBTel responded that it had reviewed NBTI's 4 December 1996 application to the Commission, Application for Contribution Exemption Pursuant to Telecom Decisions CRTC 92-12 and 93-2, and provided carrier verification that the configurations in question are provisioned as such and qualify for an exemption from contribution payments.

64. NBTel noted that it has provided from the outset network services, central office co-location and associated equipment, and installation services for NBTI.

65. NBTel confirmed that NBTI is a provider of data and dedicated services as described in the referenced application and that it is able to verify this information as it controls the configurations used by its affiliate.

66. NBTel noted that in Telecom Order CRTC 96-1472 dated 17 December 1996 (Order 96-1472), the Commission recognized that such control exists.

67. The Commission notes that NBTel has provided carrier verification that the line-side configurations in question are provisioned correctly and is of the view that they qualify for an exemption from contribution payments.

68. The Commission notes that carrier verification and an affidavit (provided by NBTI) are two of the three types of evidence required by the Commission to support contribution exemption applications (Decision 93-2).

69. Consistent with previous orders, the Commission considers that verification by NBTel is sufficient in this case.

70. In the circumstances, the Commission finds that NBTel and NBTI have correctly filed carrier verification and an affidavit (respectively) to support the exemption application, and that an independent technical audit is not required.

71. The sixth issue is the request for retroactive exemption and the requirement for NBTI to pay contribution to NBTel.

72. Fundy noted that NBTI has requested its exemption retroactively to the date the circuits were installed.

73. Fundy noted that in Effective Date of Contribution Exemptions, Telecom Public Notice CRTC 95-26 dated 12 June 1995 (PN 95-26), the Commission stated that generally an applicant should be entitled to an exemption effective the date of application.

74. Furthermore, Fundy stated that the Commission indicated that, absent special circumstances, contribution exemption should not be made back to the date of installation.

75. Fundy suggested that to grant this exemption retroactively would be unjustified, and would serve to reinforce that it is acceptable for telephone companies to confer a preference upon an affiliate, while penalizing competitors.

76. Fundy disagreed with NBTI's claim that no party has been harmed by its failure to pay contribution or for its failure to register as a reseller.

77. Fundy submitted that it is inconceivable that NBTel would have neglected to bill an interexchange carrier (IXC) for example, contribution for such an extended period of time based solely on the IXC's assertion that the circuits should be exempted from contribution requirements.

78. Fundy further submitted that NBTI has not presented any evidence, compelling or otherwise, to support its request for retroactive exemption and that for this reason alone, the application should be denied.

79. AT&T Canada LDS generally supported Fundy's submissions.

80. AT&T Canada LDS also noted NBTel's statement that, irrespective of the fact that NBTI should have been paying contribution in the past, it should not be levied late payment charges since NBTel had never billed it for contribution and submitted that this argument is unacceptable.

81. AT&T Canada LDS stated that NBTel would obviously have billed any other competitive service provider absent a contribution exemption.

82. NBTel supported NBTI's request for exemption from the date the circuits were first installed.

83. NBTel argued that neither party has quantified its claim that harm has been caused by NBTI and that the inference that a data-only service provider has necessarily impacted the market share of the competitive long distance market in the province and has impeded competition is without merit.

84. Consistent with Telecom Orders CRTC 96-828 and 96-829 (both dated 2 August 1996), the Commission considers that there are no special circumstances in this instance to justify making the exemption effective the date of the installation of the circuits.

85. The Commission disagrees with NBTel's argument that simply because contribution was not billed, late payment charges should not apply and finds that this argument would effectively enable NBTel to confer an undue preference by failing to comply with its tariffs requiring it to bill for contribution absent exemption.

86. The Commission considers that late payment charges are applicable.

87. The Commission notes that NBTel has filed the amounts owing, including late payment charges, in confidence, in response to interrogatory NBTel(CRTC)21Mar97-1.

88. The Commission is of the view that the total amount set out in the interrogatory response should be charged by NBTel to NBTI.

89. The Commission notes that this amount relates almost entirely to 1995 and 1996.

90. The Commission further notes that in Review of Regulatory Framework, Telecom Decision CRTC 94-19 dated 16 September 1994, the Commission stated that "should the Utility segment achieve earnings above the upper limit of the allowed ROE range, the excess earnings will be applied to a deferral account to be cumulated over the transition period. At the end of the transition period, the Commission will determine, as part of the price cap implementation proceeding, how to deal with the deferral account."

91. Accordingly, the Commission: (1) denies NBTI's request for retroactive exemption for the period between the date of installation and 4 December 1996; (2) directs NBTel to charge NBTI the amount shown in the response to interrogatory NBTel(CRTC) 21Mar97-1, including the late payment charges, within 30 days of the Order; and (3) directs NBTel to place into the deferral account for each of the years 1995 and 1996 any amount that should have been paid after 1 January 1995 and to include consideration of these amounts in response to interrogatory NBTel(CRTC)1 May 97-401D pursuant to Implementation of Price Cap Regulation, 1997 Contribution Charges and Related Issues, Telecom Public Notice CRTC 97-11, 25 March 1997.

92. The seventh issue is ongoing exemption.

93. The Commission is of the view that NBTI has filed evidence consistent with the Commission's requirements as set out in Decision 93-2 (carrier verification and affidavit) and approves the application effective the date of application, 4 December 1996.

Allan J. Darling
Secretary General

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