Telecom Decision

Ottawa, 18 December 1997

See also: 97-19-1

FORBEARANCE - REGULATION OF TOLL SERVICES PROVIDED BY INCUMBENT TELEPHONE COMPANIES

File No.: 96-2333

I GENERAL CONCLUSIONS

1. The Commission finds that to refrain from regulation for toll services (which includes basic toll and discount toll services) and toll free services (or so-called 800/888 services) would be consistent with the Canadian telecommunications policy objectives, and that toll and toll free services are, or will become, subject to a level of competition sufficient to protect the interests of users. The Commission is of the view that it is appropriate to forbear, as described more particularly below, from regulation in respect of both the toll and toll free markets of the Stentor member companies (except Sask Tel) (the Stentor companies) and Sogetel inc. (Sogetel), and, subject to proving compliance with the equal access implementation condition detailed below, to forbear to the same extent from the regulation of toll and toll free services of Québec-Téléphone and Télébec ltée (Télébec).

2. Based upon an evaluation of the factors identified in Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994 (Decision 94-19 or the Regulatory Framework Decision) to define the relevant service market, the Commission finds that toll services are comprised of the following two markets: (i) toll services; and (ii) toll free services, and that the toll and toll free markets are national, rather than regional or local in scope.

3. In general terms, both the toll and toll free markets manifest the indicators of workably competitive markets. Both are characterized by: (i) a number of competitive suppliers; (ii) subscribers who have demonstrated a willingness to switch to competitive suppliers; (iii) an adequate supply of switching and transmission facilities; and (iv) low barriers to entry. Furthermore, both markets show extensive evidence of rivalrous behaviour, including falling prices, vigorous and aggressive marketing activities, and an expanding scope of activities.

4. The telephone companies subject to this Decision will no longer require prior Commission approval of tariffs and rates under section 25 of the Telecommunications Act (the Act) for the toll and toll free services which they provide. As an imputation test will no longer apply, the toll and toll free services of these companies will no longer be required to be priced above the floor levels prescribed under the Commission's service-specific imputation test. The Commission will also forbear from exercising its power under section 31 of the Act to authorize limitations of liability in relation to the toll and toll free services of the telephone companies.

5. In view of the Commission's concerns about the extent of workable competition in areas of the country not served by equal access switches (non-equal access areas), and the concern that revenues from basic toll services could be used to subsidize below cost pricing to the detriment of workable competition in more competitive segments of the toll and toll free markets, the Commission will continue to exercise its powers to impose certain conditions under section 24. The Commission will continue to apply, in modified form, an upward pricing constraint on basic toll services. The Commission will also continue to exercise, in part, its powers in respect of just and reasonable rates and unjust discrimination under section 27, and its powers to approve certain agreements or arrangements under section 29 of the Act.

II BACKGROUND

6. On 24 July 1996, the Commission issued Forbearance from Regulation of Toll Services Provided by Dominant Carriers, Telecom Public Notice CRTC 96-26 (PN 96-26), initiating a public process to consider the appropriate time and extent to which the Commission should, pursuant to section 34 of the the Act, forbear from the regulation of some or all of the toll services offered by the Stentor companies, the Quebec independent telephone companies, and Ontario Northland Transportation Commission (the telecommunications operating division of which is now known as O.N. Tel) (referred hereinafter collectively as the Incumbent telephone companies).

7. In Decision 94-19, the Commission stated that in general, it supported forbearance for the Stentor companies with respect to toll services. However, the Commission indicated that the following conditions must be met before it could forbear from the regulation of such services: (1) full technical and operational implementation of equal access; (2) resolution of 800 access related issues; (3) comparable access for competitors including the resolution of unbundling and co-location (local competition) issues; (4) implementation of the imputation test; (5) the splitting of the rate base and the implementation of the Carrier Access Tariff (CAT); and (6) evidence of rivalry in the relevant market.

8. In Forbearance - Services Provided by Non-Dominant Canadian Carriers, Telecom Decision CRTC 95-19, 8 September 1995 (Decision 95-19 or the Non-Dominant Carriers Decision), the Commission declined to forbear from the regulation of the Stentor companies' toll and toll free services as part of its consideration of forbearance from regulation of the services provided by the non-dominant long distance carriers. In so doing, the Commission stated in part: "Specifically, the Commission finds that a degree of forbearance for the Stentor companies greater than that contemplated in Decision 94-19 would be likely, at this time, to impair unduly the continuance of a competitive market."

9. In PN 96-26, the Commission noted that conditions 1, 2, 4, and 5 identified above in Decision 94-19 had been satisfied by the Stentor companies, and that condition 3 would be addressed in various proceedings dealing with issues such as interconnection, unbundling and co-location with anticipated implementation in 1997. Accordingly, the Commission, in PN 96-26, sought comment on, among others, the following issues:

(i) Is or will there be sufficient competition in each of the Basic Toll, Toll-free and Discount Toll market segments to justify forbearance, and, if so, what should be the extent of forbearance and should it be conditional or unconditional?

(ii) Should the current imputation test be maintained as a test to resolve complaints in a de-tariffed environment?

(iii) In the event the Basic Toll market segment rates continue to be regulated, is there a continued requirement for an upward pricing constraint in this segment, and, if so, what, if any, changes should be made to the current regulatory safeguards?

10. The Commission received submissions from the following parties: Stentor Resource Centre Inc. (Stentor) (on behalf of BC TEL, Bell Canada (Bell), The Island Telephone Company Limited (Island Tel), MTS NetCom Inc., Maritime Tel & Tel Limited, The New Brunswick Telephone Company, Limited (NBTel), NewTel Communications Inc. (NewTel), and TELUS Communications Inc. (TELUS)), TELUS (on its own behalf), the Director of Investigation and Research under the Competition Act (the Director of Investigation), ACC TelEnterprises Ltd. (ACC), AT&T Canada Long Distance Services Company (AT&T Canada LDS), the B.C. Old Age Pensioners' Association et al. (BCOAPO et al.), Call-Net Enterprises Inc. (Call-Net), the Canadian Business Telecommunications Alliance (CBTA), the Canadian Cable Television Association (CCTA), the Consumers' Association of Canada, La Fédération nationale des associations de consommateurs du Québec and the National Anti-Poverty Organization (CAC/FNACQ/NAPO), fONOROLA Inc. (fONOROLA), Fundy Cable Ltd. (Fundy), O.N. Tel, the Province of Saskatchewan Department of Intergovernmental Affairs and Westel Telecommunications Ltd. (Westel). London Telecom Network (London Telecom), the Province of British Columbia Information and Technology Access Office, NBTel, and the Province of Manitoba also filed submissions during the comment and reply phases of the proceeding. The Government of Quebec Minister of Culture and Communications participated in the interrogatory phase of the proceeding only.

11. Parties' forbearance proposals ranged from submissions that the Commission should forbear completely and unconditionally, to submissions that the Commission ought not to forbear.

III SPECIFIC CONCLUSIONS

A. Market Definition

12. The Commission established, in Decision 94-19, the analytical framework for determining whether to forbear from regulation pursuant to section 34 of the Act. In that Decision, the Commission adopted the concept of market power as the standard by which to determine whether a market is, or is likely to become, workably competitive.

13. An accepted definition of market power is the ability of a firm to impose unilaterally and profitably a significant, non-transitory price increase within the relevant market.

14. As noted in Decision 94-19, the definition of the relevant service market requires consideration of both demand and supply factors. Demand factors include: (i) the ability of customers to switch to other service suppliers; (ii) the availability of practicable substitutes; and (iii) the ease with which customers are able to switch between the products or services offered by competitors. Supply considerations include: (i) the supply expansion responses of firms to price increases; (ii) the ability of competitors to enter the market; and (iii) the presence of barriers to entry.

15. Parties expressed a broad range of views on the definition of the relevant toll services market or markets. Alternative providers of long distance services (APLDS) generally asserted that the basic, discount, and toll free market segments identified by the Commission in Decision 94-19 and in PN 96-26 have evolved into the following three markets: (i) residential toll; (ii) business outbound toll; and (iii) business inbound toll service. This argument rests, among other things, upon the view that business and residential services are distinguishable on the basis of off-peak discounts, the magnitude of discounts, the presence of minimum billing levels, and the availability of provincial or national aggregation.

16. CCTA argued that toll services are comprised of just two markets, basic toll and non-basic toll, and submitted that basic toll is not yet subject to sufficient competition to warrant forbearance.

17. In contrast, the Director of Investigation, Stentor and TELUS argued that toll services constitute just one market, since the same plant, technology, switches and conduit are used to transmit all toll messages, and since basic toll, discount toll and toll free are merely different billing arrangements for the same service.

18. The Commission finds that the relevant service markets for the purposes of determining whether to forbear are as follows: (i) the toll market (which includes basic toll and discount toll services); and (ii) the toll free market.

19. The Commission considers that the toll free market continues to be a market separate and distinct from the remainder of the toll market on the basis that customers of toll free services would incur significant costs and customer dislocation if required to migrate to other toll services, and because subscribers of toll free service would likely not view other toll services as substitutes for toll free service.

20. The Commission further considers that basic and discount toll services constitute one market distinct from the toll free market. The Commission notes that discount services are ready substitutes for basic toll services, and, in contrast with toll free services, there are no meaningful barriers preventing subscribers of basic toll services from switching to discount toll services.

21. The Commission is of the view that it would not be appropriate to segment the toll markets into business and residence categories as proposed by APLDS since basic toll service is used by both residence and business customers and the same rates apply. Further, the purported distinction between residence toll and business toll service arises substantially by virtue of the definitions of business and residence service currently prescribed in the Stentor companies' tariffs. These classifications are presently under consideration in the proceeding initiated by Definition of Business and Residence Service for Stentor Member Companies, Telecom Public Notice CRTC 97-30, 7 August 1997.

22. Regarding the geographic scope of the toll and toll free markets, the Commission notes that the majority of parties agreed that the markets are national in scope.

23. The Commission notes, however, that several parties disagreed with the Commission's view expressed in PN 96-26 regarding the full implementation of equal access. They argued that as there are areas of the country where equal access is not yet operational, non-equal access areas should be considered as separate and less mature markets for the purpose of the forbearance analysis, and that such areas should therefore be excluded from any forbearance determination.

24. The Commission agrees with the majority of parties that the geographic scope of the toll and toll free service markets is national rather than regional or localized in scope. The Commission notes that most toll and toll free services are available nationally, the Stentor companies and their competitors market many of their services nationally, and service advertizing does not generally distinguish between intra and inter-company or inter-regional toll calling.

25. As discussed more fully in section D below, the Commission considers that certain safeguards applicable in non-equal access areas are necessary reflecting the lower degree of competition to protect the interests of users in these areas, while allowing for some degree of forbearance. In the Commission's view, such a national forbearance determination provides an appropriate balance between the Act's objectives of ensuring that regulation is efficient and effective, while, at the same time, promoting reliable and affordable telecommunications services accessible in both urban and rural areas in all regions of Canada.

B. Competition and Market Power

26. In assessing whether carriers possess market power, the Commission considers a number of factors: (i) market shares of the dominant and competing firms; (ii) demand conditions; (iii) supply conditions; (iv) likelihood of entry into the market; (v) barriers to entry; and (vi) evidence of rivalrous behaviour.

(i) Market Share

27. The record indicates that as of year-end 1996, the Stentor companies had, on average, across their combined territories, approximately 70% of the combined toll and toll free markets calculated on the basis of minutes of traffic, and that APLDS had approximately 30% of these combined markets. It is estimated that APLDS will have captured approximately 34% of the combined toll and toll free markets in the Stentor companies' territories by year-end 1997.

28. The Commission remains of the view expressed in Decision 94-19 that it would be inappropriate to adhere to a particular market share as a basis for determining whether to forbear.

(ii) Demand Conditions

29. In its review of demand conditions, the Commission considers the following factors: (i) the ability and willingness of customers to switch to another supplier or to reduce consumption in response to a price increase by the dominant supplier; (ii) the availability of economically feasible and practical substitutes; (iii) costs to customers of switching suppliers; and (iv) whether the product is an essential input.

30. APLDS expressed concerns regarding the willingness or ability of low volume residential toll users to switch suppliers. They argued that the inconvenience of obtaining pricing information and of dealing with multiple service providers for toll and local service often outweighs the potential savings on long distance services available to toll users who switch to an APLDS. APLDS also noted that customer inertia among low volume residential toll users is exacerbated by the practice of assigning new customers of local telephone service to the telephone company's toll service where the customer has not made an active decision to switch to an APLDS at the time of the initial service order. APLDS also stated that price elasticity of demand is not high enough to limit significantly the exercise of market power.

31. Stentor noted the Commission's statement in Customer Balloting to Select a Long Distance Service Provider, Telecom Decision CRTC 95-12, 8 June 1995, that it is primarily the responsibility of new entrants to overcome problems such as customer inertia due to a lack of information. Stentor also argued that APLDS have started to compete very actively for the low volume segment of the market, as evidenced by the availability of a number of discount plans which do not involve fees, and the introduction of discount plans not requiring minimum spending levels in order for the subscriber to qualify for discounts.

32. The Commission is of the view that the record, particularly evidence of growing traffic volumes and steadily increasing market share among APLDS, indicates that both toll markets generally manifest the demand indicators associated with a competitive market identified by the Commission in Decision 94-19, particularly evidence that subscribers are able and willing to change suppliers.

33. The Commission considers, however, that the basic toll segment of the toll market has exhibited consumption characteristics marked by a greater degree of customer inertia than for the toll market as a whole. This would appear to reflect a significant number of customers whose volume of toll use is at such a low level as to not warrant switching to a discount plan. It is also noted that the rates for the basic toll segment have remained unchanged or been subject to relatively minor price reductions since facilities-based toll competition was introduced in 1992.

(iii) Supply Conditions

34. Supply expansion responses of firms to price increases or other developments affecting the relevant market are a further factor considered to evaluate market power. The easier it is for rivals to expand output in response to a price increase by the dominant firm in the market, the lower is the dominant firm's market power.

35. The record indicates a general consensus that there is an adequate supply of toll switching facilities. However, parties were divided as to whether the supply of toll transmission facilities is sufficient to discipline a price increase by one or more of the Stentor companies.

36. APLDS argued that, while there is adequate fibre capacity in the Québec City to Windsor and Vancouver to Edmonton corridors, capacity in the rest of Canada, particularly in Atlantic Canada and across the Prairies, is severely constrained. APLDS noted that AT&T Canada LDS' backbone across the Prairies and into Atlantic Canada is a digital radio system which is currently fully utilized, and that expansion of this system would not be economical because of radio spectrum scarcity and limitations of the technology. APLDS therefore asserted that their existing transmission capacity is insufficient to discipline the market and prevent Stentor from raising rates.

37. APLDS noted that the fONOROLA-Ledcor Industries Ltd. fibre facility from Vancouver to Toronto currently under construction, would not be operational until at least early-1999. The construction of a competitive trans-Canada fibre transmission facility was among the necessary pre-conditions to toll forbearance proposed by many APLDS.

38. Stentor and TELUS argued that APLDS have a sufficient supply of switching and transmission facilities that is workably competitive and expected to intensify over time.

39. The Director of Investigation submitted that there is not yet sufficient facilities-based capacity in the hands of competitors in some cross-sections to accommodate existing traffic levels. The Director of Investigation indicated that this lack of facilities has not, however, prevented competitive entry into markets utilizing these cross-sections.

40. The Commission considers that the record regarding the supply of transmission capacity does not preclude a forbearance determination.

41. The record indicates that APLDS have opted to construct facilities in the high use Windsor to Québec City and Calgary/Edmonton to Vancouver corridors.

42. In the Commission's view, the absence of ubiquitous competitor-owned transmission facilities across Canada does not necessarily demonstrate there is a shortage of transmission facilities. The Commission notes that although APLDS have not yet constructed facilities in all corridors, service providers may lease additional capacity from the Stentor companies in areas where they do not own transmission facilities.

43. In the Commission's view, the fact that many APLDS have experienced steadily increasing annual long distance traffic volumes, with a network configuration which has blended leased and self-owned facilities, demonstrates that such a blended approach is not inconsistent with workable competition.

44. The Commission notes that, whereas it determined in Decision 94-19 that effective facilities-based competition is a pre-condition for private line forbearance, this condition does not apply to toll forbearance.

45. The Commission considers that APLDS could lease additional transmission capacity from the Stentor companies to accommodate increased traffic caused by the migration of customers from the Stentor companies in the event of a significant price increase by one or more of the Stentor companies. As described more fully in section D below, the Commission considers that the continued exercise of certain of its powers under subsection 27(2) of the Act, similar to that prescribed in respect of the non-dominant carriers in Decision 95-19, would serve to ensure that continued access to the Stentor companies' toll and toll free services is available and that these services are made available on a non-discriminatory basis for resale and sharing.

(iv) Market Entry

46. The likelihood of entry is a further indicator of market competitiveness. The analysis of this factor includes an examination of the following indicators: (i) whether entry occurred in the past; (ii) whether current attempts are being made to enter; and (iii) whether firms marketing related products or firms from other geographic markets have considered expanding into the relevant market.

47. The Commission considers that the evidence indicates substantial levels of entry in the toll and toll free markets. The Commission notes evaluations of the Canadian toll sector by the Yankee Group in its September 1996 White Paper, Yankee Watch Telecommunications, predicting stability for the Canadian toll sector, stronger earnings, and healthy outlooks for, amongst others: AT&T Canada LDS, Sprint Canada Inc. (Sprint), fONOROLA, ACC and London Telecom.

48. In addition, the September 1996 Yankee Group White Paper notes the growth of the wholesale segment comprised of new rebillers and resellers, which it states may be more prevalent in Canada than in the U.S. and which, it says, increases the commoditization of the industry and helps to promote strong retail price competition.

(v) Barriers to Entry

49. Barriers to entry is a further factor considered in the assessment of market dominance. The presence of essential bottleneck facilities that competitors cannot duplicate, regulations or policies preventing or limiting entry by competitors, lengthy construction periods, and high sunk investment costs are among possible barriers noted by the Commission in Decision 94-19.

50. APLDS identified factors such as high sunk costs, lengthy construction periods, economies of scale and scope, and foreign ownership restrictions as barriers to entry in the long distance markets. APLDS argued that because bypass restrictions prevent alternative carriers from using U.S. telecommunications facilities for the transmission of Canada-Canada calls, the scarcity in transmission capacity can only be eliminated through the construction of fibre links by APLDS between Edmonton and southern Ontario and from Québec City into Atlantic Canada. APLDS also argued that lengthy timeframes involved in the planning, financing, and construction of facilities, as well as the uncertainty of possible anti-competitive responses by the telephone companies, all serve to limit the entry of viable facilities-based competitors.

51. Stentor, TELUS and the Director of Investigation disputed the APLDS' assertion that toll markets are characterized by barriers to entry. TELUS noted that foreign ownership restrictions and bypass restrictions do not prohibit entry into the toll markets, and that the presence of ACC, which is not a Canadian carrier and which indicates it has no intention of constructing and owning its own facilities, provides ample evidence of the absence of barriers to entry.

52. The Director of Investigation argued that barriers to entry, whether regulatory, technical or financial, are relatively low. Among other things, the Director of Investigation noted that AT&T Canada LDS and Sprint have access to technical support through their alliances with U.S. carriers.

53. In the Commission's view, the record indicates that there are no significant barriers to entry into the toll and toll free markets.

(vi) Rivalrous Behaviour

54. Evidence of rivalrous behaviour, including falling prices, vigorous and aggressive marketing activities, or an expanding scope of activities by competitors in terms of products, services and geographic boundaries, is an important indicator in the Commission's consideration of the extent to which a market is, or may become, workably competitive.

55. Many APLDS conceded that the toll and toll free markets are generally characterized by falling prices and vigorous and aggressive marketing activities. However, APLDS asserted that overall market prices continue to be determined by the Stentor companies, and noted that any rivalrous behaviour has occurred in the presence of several important regulatory safeguards, including the requirement that proposed telephone company rates satisfy a service-specific imputation test and the principle of route-averaged pricing.

56. Stentor indicated that prices offered by APLDS are typically 15-20% lower, and in some cases, 20-30% lower than the prices of Stentor company services such as Advantage Outbound and Advantage Vnet. Stentor also stated that Bell's switched toll rates have declined by about 26% since the issuance of Resale and Sharing of Private Line Services, Telecom Decision CRTC 90-3, 1 March 1990, and about 18% since the issuance of 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), and that BC TEL's switched toll rates have declined about 31% since 1991 and about 25% since the issuance of Decision 92-12.

57. The Yankee Watch September 1996 White Paper on Telecommunications described the Canadian business telecommunications market from 1992 to 1996 as raucous, and marked by heavy discounting. The report stated that the price of long distance calling has dropped primarily because of volume discounts. Citing the example of a direct distance dialled call of five minutes in duration from Montréal to Toronto, the publication noted that, with the applicable discounts for $10,000 in monthly calling, Stentor companies' prices have dropped almost 42% since 1991, whereas Sprint's price for the same five minute call has fallen 30%.

58. The Yankee Watch Report indicates average toll free prices have fallen approximately 33% from 1993 to 1996. The Yankee Group, the report's publishers, predicted that by year-end 1996, Stentor's market share in the toll free market would have fallen to 77% nation-wide. It estimated that Stentor's market share will continue to fall before stabilizing in the low 60% range by the end of 1999.

59. The Commission considers that, other than the basic toll sector of the toll market, the record indicates both the toll and toll free markets exhibit virtually all of the indicators of rivalry identified above.

60. The less developed level of rivalry and competition in the basic toll market segment is confirmed, in the Commission's view, in part, by the relatively minor price reductions for these services which have taken place since the introduction of competition compared with other sectors of the toll and toll free markets. The Commission notes, with the exception of price reductions in a few select distance bands by just two of the eight Stentor companies, that the basic toll rates applicable to intra-company, Canada-Canada and Canada-U.S. long distance calling for the Stentor companies are unchanged since the advent of facilities-based competition in their respective territories.

61. The relatively static level of basic toll rates compared with the price reductions in Stentor companies' discount plans, as well as the fact that some discount plans are generally marketed such that customers must enrol to qualify for savings off the basic toll rates, suggests, in the Commission's view, that the basic toll sector of the toll market is not subject to as intense a level of price competition as are the toll market as a whole and the toll free market.

C. Forbearance Determination

62. Based on the record, including the evidence: (i) of entry into the relevant markets; (ii) indicating the ability and willingness of customers generally to switch to APLDS; and (iii) of rivalrous behaviour, the Commission considers that the toll and toll free markets satisfy the criteria under section 34 of the Act for a forbearance determination and that it would be appropriate to forbear.

63. In particular, the Commission finds that a determination to forbear from regulation of the services provided by the Stentor companies listed in the Appendix of this Decision would, under subsection 34(1) of the Act, be consistent with the Canadian telecommunications policy objectives, including section 7(c) of the Act - to enhance the efficiency and competitiveness of Canadian telecommunications, and section 7(f) of the Act - to foster increased reliance on market forces for the provision of telecommunications services and to ensure that regulation, where required, is efficient and effective. In addition, the Commission is of the view that it would be appropriate under subsection 34(2) of the Act to forbear as it finds that the toll and toll free markets are subject to a level of competition sufficient to protect the interests of users of toll and toll free services. Finally, the Commission finds that to forbear would not impair unduly the establishment or continuance of a competitive market for toll or toll free services.

D. Scope of Forbearance for the Stentor Companies

64. The Commission notes that subsections 34(1) and (2) of the Act both empower the Commission to forbear in whole or in part, conditionally or unconditionally from the exercise of any power or the performance of any duty referred to therein. The scope of the Commission's forbearance determination is set out in detail below.

(i) Section 25 - Tariff Filings

65. The Commission notes that in Decision 95-19 it determined to forbear from the exercise of its powers under section 25 (filing and prior Commission approval of tariffs specifying rates) in respect of the non-dominant carriers. The Commission considers that it would be appropriate, given the robust competition manifested generally in the toll and toll free markets noted above, to do likewise in respect of the Stentor companies.

66. To continue to require the Stentor companies to obtain prior Commission approval of tariffs for toll and toll free services would, in the Commission's view, generally place the Stentor companies at a competitive disadvantage relative to APLDS.

67. Absent certain safeguards, however, forbearance from the requirement to file and receive prior approval of tariffs under section 25 could leave basic toll and toll subscribers in non-equal access areas vulnerable to price increases. As discussed below, the Commission considers that these concerns can be appropriately addressed through various conditions of service and through partial forbearance in respect of the Commission's powers relating to just and reasonable rates and unjust discrimination under section 27.

(ii) Section 24 - Conditions

68. In Decision 95-19, the Commission retained its powers under section 24 (conditions on the offering and provision of telecommunications services) governing the treatment of customer confidential information and restricting the bypass of Canadian services and facilities to require that existing conditions continue to apply in respect of the non-dominant carriers. In addition, the Commission stated that it would retain its powers under section 24 to impose further conditions on the non-dominant carriers in the future if circumstances should require it. In addition to those section 24 conditions described elsewhere in this Decision, following is a list of the section 24 conditions which the Commission considers to be appropriate to apply to toll and toll free services offered or provided by the Stentor companies.

(a) Basic Toll Service and Non-Equal Access Areas

69. As stated above, the Commission considers that the basic toll sector of the toll market is not subject to as intense a level of price competition as are the toll market as a whole and the toll free market.

70. In PN 96-26, the Commission requested comment upon whether there is a continued requirement for an upward pricing constraint in the basic toll market segment, and, if so, what, if any, changes should be made to the current regulatory safeguards. Parties' positions on the issue were varied. Stentor, TELUS and the Director of Investigation proposed the abolition of the upward pricing constraint, while APLDS favoured its retention.

71. Stentor advocated the discontinuance of the cap on a number of grounds, including: (i) the arbitrary distinction between basic toll and discount toll service; (ii) the inappropriateness of applying differing regulatory regimes to the Stentor companies' toll services and those of APLDS, given that the companies' basic and discount toll services compete against similar services offered by competitors; (iii) the fact that the same Stentor company resources are used to serve low and high volume subscribers and the only difference is the cost of doing so; and (iv) even if the APLDS do not presently compete in the low volume segment of the market, if the Stentor companies' basic toll prices are excessive relative to those for high volume users, this will create opportunities for resellers and specialized carriers.

72. TELUS argued that the cap on basic toll rates should be discarded and asserted that the overall toll market was sufficiently competitive to protect the interests of users.

73. APLDS advocated the retention of the cap for a variety of reasons. APLDS noted the continued presence of significant numbers of inert basic toll and low volume residential subscribers, notwithstanding substantial reductions in the level of toll contribution charges, as evidence that market forces are insufficient to discipline the Stentor companies' pricing in this market sector. ACC recommended that the Commission establish a maximum rate schedule for residential customers equal to the current basic toll rates.

74. In Decision 94-19, the Commission indicated that the discount toll and toll free market segments exhibited sufficient competitive pressures to obviate the need for upward pricing constraints. However, the Commission found that an upward pricing constraint would be appropriate in respect of the basic toll rates because of a reduced ability to rely on market forces to discipline pricing.

75. The Commission considers that the retention of a ceiling on basic toll rates would be appropriate. A ceiling would preclude the Stentor companies from generating increased revenues from the basic toll sector of the toll market which could be used to finance below cost pricing in areas of the market which are highly competitive. The retention of a ceiling would also provide consumers in the less competitive non-equal access areas with an additional safeguard against unjust or unreasonable rate increases in a de-tariffed environment.

76. The Commission notes that the price ceiling implemented in Decision 94-19 operates such that increases are permitted to rates in any of the North American basic toll schedules, provided that the weighted-average rate for the schedules considered on an aggregate basis remains unchanged.

77. The Commission notes that under the forbearance regime established in this Decision, the Stentor companies will be able to make changes to basic toll rates without the prior approval of the Commission. The Commission considers that to protect basic toll subscribers in less competitive areas, it is appropriate to modify the existing cap so that it would apply separately for each basic toll rate schedule. Thus, price changes to a schedule will be permitted, provided that rate increases within a schedule are offset by corresponding decreases in the same schedule, so that there is no change to the weighted-average rate for each schedule.

78. The Commission notes that the record indicates that the roll out of equal access capable switches varies across the Stentor companies, with NBTel and TELUS having converted 100% of their respective switches to equal access, whereas only 30% of NewTel's switches were equal access capable as of December 1996. By the end of 1997, Stentor estimated that 100% of Network Access Services (NAS) in the territories of Island Tel, NBTel and TELUS will be served by such switches, whereas only 77.6% of NewTel NAS will be served by such switches. The other Stentor companies forecast that 97% or more of their respective NAS will be served by equal access capable switches by year-end 1997.

79. The Commission considers that in a forborne environment in which prior Commission tariff approval is no longer required, subscribers in non-equal access areas do not yet have the ability to switch to comparable services provided by APLDS, and thus require certain regulatory protection.

80. The Commission considers that, without the necessity of obtaining prior Commission approval of tariffs, the Stentor companies could, in the absence of safeguards, route de-average basic toll rates in high-cost remote areas where there is no effective competition, and raise rates for such subscribers.

81. To protect the interests of users, including users in high-cost remote areas, and in light of the Canadian telecommunications policy objectives, the Commission considers it appropriate to adopt the following additional conditions applicable to the offering or provision of toll services:

(i) The Stentor companies shall provide to the Commission, and make publicly available, rate schedules setting out the rates for basic toll service. These schedules are to include the 50% discount currently applicable to calls which originate from, and are billed to, the residence service of a registered certified hearing or speech-impaired Telecommunications Devices for the Deaf (TDD) user. The Stentor companies shall update their respective schedules within 14 days of any change to the rates for basic toll service.

(ii) The Stentor companies shall provide reasonable direct notice in writing to subscribers in advance of any increase to basic toll rates.

(iii) The Stentor companies shall not route de-average basic toll rates.

(iv) The cap on overall North American basic toll rates implemented by the Commission in Decision 94-19 shall continue to apply in modified form. Changes within any of the North American basic toll schedules will be permissible, provided any rate increases within a schedule are offset by corresponding decreases within the same schedule such that there is no change to that schedule's weighted average rate.

(v) The Stentor companies shall ensure that all toll customers and applicants for toll services in their respective serving territories can choose basic toll service at the rates set out in the rate schedules noted above.

82. The Commission intends to review the continued need for the foregoing five conditions in conjunction with its review of the four-year price cap regime.

(b) Customer Confidential Information

83. The Commission is of the view, consistent with its determination applicable to the non-dominant carriers, that it would be appropriate in respect of the Stentor companies to retain existing conditions protecting customer confidential information on a going forward basis. The Commission considers that, in the absence of such a condition, commitments to protect confidential information would be voluntary and may not be sufficient to adequately protect such information. Accordingly, on a going-forward basis, the existing conditions concerning customer confidentiality are to be included, where appropriate, in all contracts or other arrangements with customers for the provision of services forborne in this Decision.

(c) Bypass of Canadian Telecommunications Facilities

84. The Commission notes that Stentor indicated that it generally would not be opposed to being subject to the bypass restrictions applicable to the non-dominant carriers if the Commission were to prescribe the restrictions on bypass adopted with respect to alternate providers in Decision 95-19.

85. Consistent with its determination in respect of the non-dominant carriers, the Commission considers that it would be appropriate in respect of the Stentor companies to retain the existing restrictions against the bypass of Canadian telecommunications services and facilities as currently prescribed. Accordingly, on a going-forward basis the existing conditions concerning bypass are to be included, where appropriate, in all contracts or other arrangements with customers for the provision of services forborne in this Decision.

86. The Commission considers that there may exist incentives in a competitive environment for the bypass of Canadian facilities and services. The Commission notes that these restrictions are under consideration in Competition in the Provision of International Telecommunications Services, Telecom Public Notice CRTC 97-34, 2 October 1997.

(d) Future Conditions

87. Consistent with the approach in Decision 95-19, the Commission considers it appropriate to retain section 24 powers to impose future conditions upon the offering and provision of toll and toll free services by the Stentor companies, where circumstances so warrant.

(iii) Section 27 - Just and Reasonable Rates/No Unjust Discrimination or Undue Preference

88. In Decision 95-19, the Commission determined to forbear from the regulation of the non-dominant carriers in respect of the subsection 27(1) requirement that rates shall be just and reasonable. Regarding subsection 27(2) (unjust discrimination and undue preference), the Commission found access to telecommunications networks to be in the public interest and, accordingly, while otherwise forbearing from regulation under subsection 27(2), retained subsection 27(2) powers in respect of issues related to access to the networks of non-dominant carriers and the resale and sharing of their services.

89. Parties expressed a broad range of views on the appropriate scope of section 27 forbearance for the Stentor companies. TELUS, Stentor and the Director of Investigation generally supported forbearance, whereas APLDS generally supported varying degrees of continued regulation under section 27.

90. TELUS submitted that there is sufficient competition to ensure that rates will be just and reasonable and supported complete forbearance under section 27.

91. Stentor and the Director of Investigation agreed that it would be appropriate for the Commission to forbear from the exercise of its powers under subsection 27(1), as it has done so in respect of the non-dominant carriers. They argued that Stentor company rates established in a competitive market would be just and reasonable.

92. The Director of Investigation stated that the Commission may wish to retain authority over access to the telephone companies' networks to ensure resale and sharing of their services in the same manner as it has with respect to non-dominant carriers.

93. AT&T Canada LDS argued that, provided the alleged transmission facility shortages are remedied and competitive facilities-based entry into the local market occurs in at least one of Bands A or B in the territories of Bell, BC TEL and TELUS, it would be appropriate for the Commission to forbear from the exercise of its subsection 27(1) powers in respect of business outbound and business inbound services. AT&T Canada LDS supported continued regulation under subsection 27(2) and indicated that such a determination would be consistent with the Commission's determination in Decision 95-19.

94. Call-Net and other APLDS also proposed that certain pre-conditions be satisfied before the Commission forbears from regulation, including: (i) construction of a competitive trans-Canada fibre transmission facility; (ii) alternatives to local interconnection with the telephone companies; (iii) APLDS having the ability to replicate the advantages of vertical integration enjoyed by the Stentor companies; and (iv) the reduction of toll contribution charges. Call-Net proposed that once these pre-conditions are satisfied, the Commission should forbear from exercising its powers under subsection 27(1), but should retain its subsection 27(2) powers as it has for the non-dominant carriers.

95. The Commission considers that the competitive market will be generally sufficient to ensure that the Stentor companies' rates are just and reasonable. Accordingly, and consistent with the Commission's approach for the non-dominant carriers, the Commission will forbear from the exercise of its subsection 27(1) powers in respect of the Stentor companies. However, because there is limited, if any, competition in many non-equal access areas, the Commission considers that it would be appropriate to retain its subsection 27(1) powers in respect of the toll and toll free services of the Stentor companies in such areas to ensure that rates there remain just and reasonable. The Commission notes that the continued exercise of its powers under subsection 27(1) in respect of basic toll service will also be necessary in order to implement the cap on the various North American basic toll schedules.

96. Consistent with its approach in the Non-dominant Carriers Decision, the Commission will retain its subsection 27(2) powers in respect of issues related to access to the Stentor companies' networks and resale and sharing of their toll and toll free services. However, because of the absence of competition in non-equal access areas, the Commission considers it appropriate to retain all of its subsection 27(2) powers in those areas. Similarly, the Commission will continue to exercise all its subsection 27(2) powers in respect of basic toll services. Subject to the Commission's concerns regarding bundling, described below, in all other respects, the Commission will forbear from the exercise of its powers under subsection 27(2).

97. The Commission considers it necessary to retain its powers and duties under subsections 27(3) to 27(6) to the extent that they refer to compliance with powers and duties not forborne from in this Decision.

(iv) Section 29 - Agreements and Arrangements

98. In Decision 95-19, the Commission forbore from the exercise of its section 29 powers (prior approval of certain inter-carrier agreements and arrangements) in respect of agreements and arrangements between domestic non-dominant carriers. Based on concerns related to bypass, the Commission continued to require APLDS to file for Commission approval agreements or arrangements between APLDS and foreign carriers falling within the scope of section 29.

99. The Commission notes that Stentor did not request forbearance with respect to section 29 of the Act in this proceeding. In contrast, TELUS submitted that the Commission can rely on market forces to ensure a relative equality of bargaining power and fair and equitable arrangements between carriers, and supported forbearance by the Commission from the exercise of its section 29 powers.

100. Call-Net opposed forbearance with respect to section 29, noting: (i) the vertically integrated structure of the Stentor companies would make it difficult to distinguish between strictly toll agreements and those which include local service functionality; (ii) existing Stentor arrangements have reduced the level of competition in many toll and local markets by restricting the ability of Stentor companies to compete in each others' territories; (iii) the Commission's concerns regarding bypass of Canadian facilities; and (iv) the possibility that Stentor companies could confer undue preferences upon themselves or their customers through arrangements with foreign carriers.

101. ACC, AT&T Canada LDS, and Westel also advocated continued regulatory oversight in respect of section 29 for the Stentor companies.

102. The Commission is of the view that for the purposes of section 29 agreements and arrangements, the circumstances of the non-dominant Canadian carriers differ from those of the Stentor companies.

103. The Commission notes that unlike the non-dominant carriers, the Stentor companies have section 29 agreements and arrangements to act in concert as a national entity. These agreements and arrangements address the settlement of jointly earned revenues. The Commission considers the settlement of jointly earned revenues, including whether such settlement arrangements are equitable, to be a matter which should remain subject to the Commission's oversight.

104. The Commission therefore considers that it would be appropriate to continue to exercise its section 29 powers in respect of the Stentor companies.

(v) Section 31 - Limitations of Liability

105. In Decision 95-19, the Commission determined to forbear completely and unconditionally from exercising its powers to prescribe limitations of liability for the non-dominant carriers. Commission-approved limitations of liability were continued in existing contracts or arrangements for the balance of their unexpired terms. The Commission's determination was based in part on the view that there was sufficient competition to protect the interests of users.

106. Stentor, TELUS and the Director of Investigation all supported forbearance under section 31 for the Stentor companies. TELUS stated it would be inappropriate for the Commission to forbear from regulation under sections 24 or 25 while asserting a need to continue to exercise its section 31 powers. TELUS also asserted that equal bargaining power in a competitive market would ensure reasonable limitations on liability amongst long distance providers because no one carrier could impose unacceptable limitations without incurring lost market share.

107. Stentor advocated forbearance with respect to section 31 for the Stentor companies on the same terms as applicable to the non-dominant carriers.

108. Consistent with arguments noted above, AT&T Canada LDS argued that it would only be appropriate for the Commission to forbear from exercising its powers under section 31 in respect of business toll services once construction of competitors' trans-Canada backbone facilities across the Prairies and the Maritimes and implementation of local interconnection is complete.

109. In view of the competitive nature of the markets, as noted above, the Commission considers that it would be appropriate to forbear to the same extent for the Stentor companies as in Decision 95-19 for the non-dominant carriers with respect to section 31. Any provision limiting liability in existing contracts or arrangements will continue to remain in force until their expiry. A contract or arrangement will be deemed to terminate on the date or in the manner provided therein as of the date of this Decision, notwithstanding extensions provided for therein.

E. The Imputation Test in a Forborne Environment

110. In PN 96-26, the Commission requested comment on whether the current imputation test should be maintained as a test to resolve complaints in a de-tariffed environment. Parties were divided on this issue, with views ranging from Stentor and the Director of Investigation, who argued that the imputation test be abandoned, to the province of British Columbia and many APLDS, who supported the continued applicability of the imputation test.

111. Stentor opposed either a service-specific or aggregated imputation test, arguing that in a de-tariffed environment the companies would not have the incentive, the means, or the ability to engage in anti-competitive pricing. Stentor asserted that the Stentor companies could not successfully follow a strategy of below imputed cost pricing because it would have to be implemented over a long period, would require that the Stentor companies be able to raise rates to recoup losses sustained during the period of below cost pricing, and would likely fail given the diversity of competitors and the resources available to them and their U.S. partners. Stentor also asserted that the provisions of the Competition Act would apply in a forborne environment, and the Competition Bureau would ensure that the provisions of the Competition Act, including the provisions related to predatory pricing, were not violated.

112. TELUS stated that responsibility for policing anti-competitive pricing practices, including the application of its proposed imputation test, would become the responsibility of the Director of Investigation and the Competition Bureau in a forborne environment. TELUS and Stentor submitted that a decision by the Commission to forbear would not be irreversible. However, TELUS asserted the following conditions would have to be met in order for the Commission to resume the application of the imputation test: (i) strong prima facie evidence of anti-competitive behaviour; (ii) the Director of Investigation is not in a position to provide relief; and (iii) a determination by the Commission to reverse its forbearance order.

113. TELUS' proposed imputation test would require, as the first step, that the price for a specific service be above its incremental cost. The second step would ensure the carriers' revenues cover both incremental costs for the service market, as well as the markups for essential facilities, interconnection, and contribution which competitors must pay to compete in the relevant market.

114. The Director of Investigation argued that maintenance of the imputation test in a competitive market would be unnecessary and undesirable. The Director of Investigation stated that the imputation test may unnecessarily restrict competition because it does not require any evidence of impact on competition. The Director of Investigation also expressed concern that retention of the imputation test may have the undesirable and unintended effect of establishing an artificial price floor, thereby limiting the full benefits of price competition to consumers.

115. APLDS argued that the abandonment of the imputation test in a forborne environment would dramatically increase the likelihood of anti-competitive pricing by the dominant carriers. APLDS asserted that the fact that toll contribution is an internal company transfer for the dominant carriers, combined with differing levels of competition in different market segments, provides the Stentor companies with the incentive to recover contribution at different levels across different toll market segments. The APLDS argued that this provides the telephone companies with the means to sustain pricing below imputation test levels in the most contested markets by using contribution generated in less competitive markets to offset lower contribution in the former.

116. AT&T Canada LDS cited the Commission's reasoning 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), and argued that the underlying concerns which first resulted in the implementation of the imputation test continue to apply.

117. The Commission considers that circumstances have changed since the implementation of the imputation test in 1994. As determined above, the toll and toll free markets have generally become more competitive. In addition, there are presently fewer sources and amounts of revenues available to subsidize below cost pricing. The Commission considers that its determination to retain its powers under subsection 27(2) of the Act, described above, would, to a certain extent, reduce the incentive to engage in below cost pricing by ensuring that the terms under which forborne services are made available by the Stentor companies for resale and sharing are not unjustly discriminatory or unduly preferential in comparison with the rates charged by these companies for such services to other customers. Further, the maintenance of the cap on basic toll service rates would, in the Commission's view, preclude the Stentor companies from obtaining an additional source of revenue with which to finance below cost pricing.

118. On the basis of the foregoing, the Commission considers that the imputation test is no longer required for toll and toll free services. Accordingly, the imputation test is, as of the date of this Decision, discontinued for these forborne services.

F. Other Issues Raised in the Proceeding

(i) Affiliate Rule

119. Pursuant to Affiliate Rule, Telecom Decision CRTC 94-6, 4 March 1994, the affiliate rule restricts the affiliates of the Stentor companies from providing switched toll services and from engaging in joint-use resale of the Stentor companies' inter-exchange private line (IXPL) services.

120. APLDS argued that the Commission should continue to apply the affiliate rule in a forborne environment. AT&T Canada LDS asserted that the Commission's rationale for the affiliate rule, including the need to ensure that Stentor companies not abuse their dominant positions and avoid regulatory oversight through the use of reseller affiliates, continues to apply in today's market.

121. ACC and Call-Net argued that it would not be sufficient for the Commission to rely solely upon subsection 27(2) and a complaints process to protect against cases of unjust discrimination in the provision of access to facilities by the Stentor companies, and that it would therefore be appropriate to make all forborne toll services subject to the condition, pursuant to section 24, that all such services continue to be subject to the current resale and sharing rules.

122. Stentor noted that the affiliate rule was adopted for the express purposes of reducing the opportunity for the telephone companies to provide long distance services on a non-regulated basis and to minimize the potential for inter-exchange carriers to avoid contribution. In Stentor's view, neither rationale continues to be valid, given that the Commission's contribution concern appeared to end with the granting of forbearance to the non-dominant carriers, and pricing concerns are no longer relevant, given the level of rivalry in the market.

123. The Commission considers that the record of this proceeding is not adequate to determine whether the Affiliate Rule should be discontinued in a forborne environment. Accordingly, it is retained.

(ii) Bundling

124. Bundling refers to the inclusion of different services or service elements under a rate structure. For example, this rate structure may be a single rate, a set of rates for various service elements, and/or rates for one or more service elements which are dependent on the usage of other services.

125. ACC, Westel and Call-Net supported the continuation of the rule against the bundling of terminal equipment and network service elements. Westel and ACC also argued that the following three conditions should be met in the event the Stentor companies wish to bundle forborne services with tariffed services: (i) the price of the bundled offering must satisfy a prior imputation test - with bottleneck components costed at the tariffed rates; (ii) competitors can use stand-alone tariffed bottleneck elements to assemble their own bundles; and (iii) resale of the bundle is permitted.

126. CBTA argued that the Stentor companies should be prohibited from bundling long distance and local services until local competition is a reality. Otherwise, in its view, the Stentor companies would enjoy a marketing advantage.

127. Stentor opposed the continuation of the Commission's bundling restrictions. Stentor stated that the terminal equipment market has been competitive for a number of years, and it would therefore be appropriate to discontinue the prohibition against the bundling of terminal equipment and network service elements implemented in Decision 94-19. Stentor also argued that the bundling of toll and local services was permitted by the Commission in Decision 94-19 subject to certain rules, and that CBTA's proposed prohibition would have the anomalous result of limiting rather than expanding the Stentor companies' marketing flexibility in a forborne environment.

128. The Commission notes that shortly after the conclusion of the PN 96-26 proceeding, in Local Competition, Telecom Decision CRTC 97-8, 1 May 1997 (Decision 97-8 or the Local Competition Decision) it endorsed the principle of bundling by the Stentor incumbent local exchange carriers (ILECs). The Commission stated that the Stentor companies should not be prevented from bundling forborne services with ILEC local exchange services. However, the Commission determined that, where a forborne service is included in a new bundled service, the rates for the bundled service are to be filed for approval by the Commission and the Phase II costs for the forborne service must be filed as part of the imputation test. In addition, the Commission stated that, where Stentor companies bundle below-cost single line residential exchange services with other telecommunications services, the cost of the residential exchange services will be deemed to be equal to the tariffed rate for the purposes of the imputation test.

129. Given the evolution of competition in the terminal market and the competitive nature of the toll and toll free markets noted above, the Commission finds it appropriate to remove the restriction against the bundling of terminal equipment with network service elements.

130. As stated in paragraph 96 of this Decision, the Commission has concluded that it is appropriate to retain its subsection 27(2) powers in respect of issues related to access to the Stentor companies' networks and resale and sharing of their toll and toll free services. Consistent with this determination, the Commission will retain its subsection 27(2) powers with respect to a bundled service which includes a toll and/or a toll free service and another forborne service. Thus, for example, a bundled service involving terminal equipment would be subject to regulation by the Commission under subsection 27(2) in respect of issues related to resale and sharing of toll and toll free services.

131. Consistent with the bundling rules recently established in Decision 97-8, the Commission will permit the bundling of forborne toll and toll free services with ILEC local exchange services, or with other tariffed telecommunications services. Consistent with Decision 97-8: (i) when a forborne service is included in a new bundled service, the Phase II costs of the forborne service must be filed as part of the imputation test applicable to the bundled service; (ii) the Commission must approve the rates, terms and conditions of the bundled service; and (iii) the Commission will deem the cost of residential exchange services to be equal to the tariffed rates for such services where Stentor companies bundle below-cost single line residential exchange services with other services.

G. The Quebec Independent Companies

132. While Sogetel has not satisfied the six conditions identified in PN 96-26 for forbearance, the Commission notes that Sogetel's toll service revenues are minimal. The Commission notes that pursuant to Regulatory Framework for the Independent Telephone Companies in Quebec and Ontario (Except Ontario Northland Transportation Commission, Québec-Telephone and Télébec ltée), Telecom Decision CRTC 96-6, 7 August 1996, Sogetel will be implementing equal access in 1998.

133. The Commission's evaluation of the extent to which Québec-Télépone and Télébec satisfy the six conditions follows.

(i) Equal Access

134. In Regulatory Framework for Québec-Téléphone and Télébec ltée, Telecom Decision CRTC 96-5, 7 August 1996 (Decision 96-5) the Commission ordered Québec-Téléphone and Télébec to implement equal access by 1 January 1998.

135. As noted above, several of the Stentor companies, including NewTel, which estimated that 77.6% of NAS in its territory would be served by equal access switches by year-end 1997, continue to work toward the goal of serving 100% of NAS with equal access capable switches. For the reasons set out above, the Commission has determined that forbearance for the Stentor companies is appropriate in conjunction with the above described regulatory safeguards to protect the interests of subscribers in non-equal access areas.

136. As noted above, the implementation of safeguards in non-equal access areas will ensure that the interests of users in these areas are protected in a forborne environment. Consistent with the finding that the relevant markets are national in scope, and with the view that a national forbearance determination strikes an effective balance between efficient and effective regulation and the promotion of reliable and affordable telecommunications services, the Commission considers that a determination to forbear from the regulation of either Québec-Téléphone or Télébec should be conditional upon the companies satisfying the Commission that a minimum of 75% of NAS (i.e. the threshold satisfied by all the Stentor companies subject to this Decision) in their respective serving territories are served by equal access capable switches.

137. Accordingly, any determination by the Commission to forbear from the regulation of toll and toll free services provided by Québec-Téléphone or Télébec will be conditional upon these respective companies satisfying the Commission in writing that a minimum of 75% of NAS in their respective serving territories are served by equal access capable switches.

(ii) Toll Free Access

138. The Commission notes that issues related to interconnection between APLDS and the Quebec independent telephone companies were addressed in the proceeding culminating with Telecom Order CRTC 95-558, 11 May 1995 (Order 95-558). The Commission considers that toll free access has been effectively attained since the issuance of Order 95-558.

(iii) Implementation of the Imputation Test

139. The Commission notes that pursuant to Decision 96-5, Québec-Téléphone and Télébec have for the past several months filed imputation test results in conjunction with their toll and toll free tariff filings.

(iv) Splitting of the Rate Base and Implementation of the CAT

140. In Implementation of Regulatory Framework for Québec-Telephone and Télébec ltée, Telecom Decision CRTC 97-21, (Decision 97-21), also issued today, the Commission directed, effective 1 January 1998, Québec-Téléphone and Télébec to split their respective rate bases into Utility and Competitive Segments. Currently a CAT is in place for both companies.

(v) Evidence of Rivalry

141. The Commission considers that there will be a growing and significant level of toll and toll free competition in the territories of Québec-Téléphone and Télébec. This view is based, in part, on evidence available to the Commission in various proceedings involving these companies, as well as upon competitive trends evident in the toll and toll free markets which, as noted, are national in scope. In addition, the Commission considers that competitive forces will only be enhanced by the fact that Québec-Téléphone and Télébec subscribers are increasingly being made aware of competitive toll alternatives because of their proximity to Bell's territory and exposure to APLDS' advertizing.

(vi) Comparable Access for Competitors

142. The Commission notes that, in Decision 96-5, it expressed its preliminary view that local competition should be permitted in the territories of Québec-Téléphone and Télébec. The Commission also stated that it would issue a public notice to determine the applicability of the terms and conditions for local competition once the Commission had issued its decision regarding local competition in the territories of the Stentor companies.

(vii) Forbearance Determination

143. The Commission considers that the circumstances of Québec-Téléphone and Télébec warrant a less rigorous application of the above six forbearance pre-conditions than is appropriate for the Stentor companies. The Commission notes that Québec-Téléphone and Télébec are less well positioned for toll and toll free competition in their territories than the members of the Stentor alliance, given that the APLDS, who market their services nationally, generally average their prices over the national market, whereas Québec-Téléphone and Télébec have a significantly more limited geographic coverage and subscriber bases. The Commission further notes that both Québec-Téléphone and Télébec's CATs are significantly higher than that of Bell.

144. In light of the foregoing, the Commission finds that the markets of the Quebec independent companies will be subject to competition sufficient to protect the interests of users. The Commission also finds that to refrain from regulating their toll and toll free services would be consistent with the Canadian telecommunications policy objectives. Finally the Commission finds that to forbear would not impair unduly the establishment or continuance of a competitive market for toll or toll free services.

145. Accordingly, in respect of the toll and toll free services provided by Québec-Téléphone, Télébec, and Sogetel, the Commission hereby announces that it will forbear from the exercise of its powers to the same extent and subject to the same conditions as described above for the Stentor companies. In the case of Québec-Téléphone and Télébec, the Commission's determination is subject to both companies respectively satisfying the Commission in writing of compliance with the above noted equal access NAS threshold condition. Sogetel is directed to file, within 45 days of this Decision, proposed tariff pages removing its toll and toll free services from its tariffs. Québec-Téléphone and Télébec are directed to file with the Commission, concurrent with the filing of evidence confirming their compliance with the above noted condition of forbearance, proposed tariff pages removing their toll and toll free services from their tariffs. For all three companies, the imputation test is discontinued, as of the date of this Decision, with respect to toll and toll free services.

H. O.N. Tel

146. The Commission notes that O.N. Tel is among the carriers in respect of which PN 96-26 elicited comment on toll forbearance. The Commission notes that Regulatory Framework - Ontario Northland Transportation Commission, Telecom Public Notice CRTC 97-7, 19 February 1997 (PN 97-7) is intended to establish a regulatory framework for O.N. Tel, including whether it would be appropriate to introduce toll and toll free competition in its territory. In view of the PN 97-7 proceeding, the Commission considers that it would be premature to forbear from the regulation of toll services provided by O.N. Tel at this time.

147. The Commission notes that O.N. Tel's tariffs for toll and toll free services make reference, where applicable, to the rates for similar services set out in the Stentor National Services Tariff. Given the Commission's determination above to forbear from the exercise of its section 25 powers with respect to the Stentor companies, O.N. Tel is hereby directed to issue, within 45 days of this Decision, tariff pages reflecting the rates applicable to its toll and toll free services as of the date of this Decision. Further, O.N. Tel is to file, for tariff approval pursuant to subsection 25(1) of the Act, all future tariff revisions.

I. Timing of Forbearance

148. The Stentor companies are directed to issue within 90 days of this Decision, tariff pages removing the tariffs for the services listed in the Appendix, to the extent prescribed therein. Forbearance will be effective on the earlier of the date that revised tariff pages are issued, or 90 days from the date of this Decision (the effective date). The conditions herein prescribed under section 24 will come into force on the effective date.

149. The Appendix lists services which Stentor identified in its 22 November 1996 submission. The Stentor companies have subsequently issued tariff pages for new toll and toll free services. Accordingly, the Stentor companies are further directed to file, within 45 days of this Decision, a list of other services, identified on a tariff item basis, which they consider to be toll or toll free services subject to this Decision.

150. Pursuant to subsection 34(4) of the Act, on the effective date, section 25 and 31, and (in part) sections 24 and 27 will no longer apply to the Stentor companies' and Sogetel's toll and toll free services, to the extent that they are inconsistent with the Commission's determinations herein.

Laura M. Talbot-Allan
Secretary General

This document is available in alternative format upon request.

2. Bell Canada
Tariff CRTC 6716

3. BC TEL
Tariff CRTC 1005

4. Island Tel
Tariff CRTC 11001

5. MTS NetCom
Tariff CRTC 24001

6. Maritime Tel & Tel
Tariff CRTC 10001

7. NBTel
Tariff CRTC 12001

Tariff CRTC 12002 - Special Services Tariff

8. NewTel Communications
Tariff CRTC 13001

9. TELUS Communications Inc.
Tariff CRTC 18001