ARCHIVED -  Telecom Decision CRTC 98-12

Telecom Decision
CRTC 98-12

Ottawa, 7 August 1998

ACC TelEnterprises Ltd. - Application dated 26 September 1997 to Review and Vary Telecom Decision CRTC 97-8, Local Competition,1 May 1997

Reference: 8662-A14-01/97

I THE APPLICATION

1. On 26 September 1997, ACC TelEnterprises Ltd. (ACC) filed an application pursuant to section 62 of the Telecommunications Act (the Act) requesting the Commission to review and vary its determinations in Telecom Decision CRTC 97-8, Local Competition, 1 May 1997 (Decision 97-8), to preclude non-Canadian carriers from becoming competitive local exchange carriers (CLECs). ACC further requested that the Commission review and vary section XIV and other relevant parts of Decision 97-8, by establishing entry procedures and regulatory obligations for non-Canadian carriers that wish to become CLECs. ACC included with its application a proposed local exchange carrier (LEC)-Reseller interconnection agreement that sets out the regulatory obligations that must be adhered to by a reseller for eligibility as a CLEC. ACC proposed that this agreement be entered into with all LECs to which the non-Canadian carrier is interconnected. ACC requested that the Commission order all LECs to enter into such an agreement with any requesting reseller.

2. The Consumers’ Association of Canada, the Fédération nationale des associations de consommateurs du Québec and the National Anti-Poverty Organization (CAC/FNACQ/NAPO), the Canadian Business Telecommunications Alliance (CBTA), Fundy Cable Ltd./Ltée, London Telecom Network, Inc., Lucent Technologies Canada Inc., Rogers Network Services and Stentor Resource Centre Inc. (Stentor) (on behalf of BC TEL, Bell Canada, The Island Telephone Company Limited (now Island Telecom Inc.), Maritime Tel & Tel Limited, MTS NetCom Inc. (now MTS Communications Inc.), The New Brunswick Telephone Company, Limited (now NBTel Inc.), NewTel Communications Inc. and TELUS Communications Inc.) filed comments in response to ACC’s application. ACC filed reply comments on 17 November 1997.

3. ACC proposed to be given access to all existing CLEC privileges and be subject to all existing CLEC obligations and any that may be imposed in the future. Highlights of ACC’s proposed LEC-Reseller interconnection agreement were as follows:

(i) That ACC obtain the same interconnection provisions with LECs as LECs have with one another, including the sharing of costs of interconnecting trunks.

(ii) That the payment for the interchange of traffic between the reseller and a LEC be as set out in Decision 97-8, in particular, that it involve the termination of traffic on a bill and keep basis except in certain circumstances.

(iii) That resellers assume various network-related obligations such as one Central Office code (NXX) per exchange and rules on the notice of network changes.

(iv) With regard to the central contribution fund, that ACC be able to access the same subsidies that are available to LECs and that it calculate, collect and remit contribution for interexchange traffic originating or terminating on its switch.

(v) That ACC offer equal access to interexchange carriers (IXCs) and connection with wireless service providers in terms equivalent to the incumbent local exchange carriers’ (ILECs) tariffs, and file these with the Commission in order to comply with the competitive safeguards put in place by the Commission. Further, that ACC comply, in all areas in which it offers service, with subsection 27(2) of the Act which reads as follows: "No Canadian carrier shall, in relation to the provision of a telecommunications service or the charging of a rate for it, unjustly discriminate or give an undue or unreasonable preference toward any person, including itself, or subject any person to an undue or unreasonable disadvantage" and that ACC not impede or prevent end-users that it serves from having access under reasonable terms and conditions to LECs of their choice.

(vi) That ACC provide directory listings to LECs at rates no greater than the rates charged by ILECs.

(vii) Finally, that ACC comply with all consumer safeguards as set out in Decision 97-8.

II BACKGROUND

4. In Decision 97-8, the Commission established the regulatory framework applicable to the competitive local exchange services market, including the rights and obligations of CLECs.

5. In Decision 97-8, the Commission recognized that there are several barriers to entry into the local exchange market that generally arise from: (1) technical restrictions that prevent CLECs from interconnecting their networks to the ubiquitous networks of the ILECs in a manner that would enable them to offer exchange services using their own facilities; (2) tariff restrictions designed for regulation in a monopoly environment, where the tariff structure provides for local services packaged to serve the end-user; and (3) subsidized pricing policies implemented in respect of residential exchange service rates. To remove these barriers to entry, the Commission (1) mandated interconnection arrangements between LECs and directed that associated technical modifications be made to the ILECs’ networks; (2) ordered interconnection and mandated unbundling of certain ILECs’ service and facility components that CLECs will require, but will not generally be able to provide themselves; and (3) established a contribution mechanism that balances the objective of fostering effective competition with the equally important objective of ensuring that, to the greatest extent possible, residential customers, including those in higher cost areas, have access to services that reflect the benefits of competition.

6. In Decision 97-8, having considered the submissions made by all the parties who filed in response to Implementation of Regulatory Framework - Local Interconnection and Network Component Unbundling, Telecom Public Notice CRTC 95-36, 11 July 1995, the Commission found that it was appropriate to establish entry procedures for CLECs wishing to enter the market, one of which, is the obligation to file for Commission approval their proposed intercarrier tariffs and interconnection agreements. Furthermore, the Commission considered that it was in the public interest that it exercise its powers under section 24 of the Act in order to impose on CLECs a variety of terms and conditions (e.g. consumer safeguards) set out in Decision 97-8 as well as those that may prove necessary in the future.

7. The Commission notes in passing that review and vary applications filed after 20 March 1998 are considered in light of the guidelines enunciated in Telecom Public Notice CRTC 98-6, Guidelines for Review and Vary Applications, 20 March 1998.

8. In evaluating ACC’s application, the Commission has applied the criteria identified in Telecom Decision CRTC 79-1, Bell Canada, Request to Review that Part of Telecom Decision CRTC 78-7 of 10 August, 1978 Dealing with the Saudi Arabian Telephone Project, 2 February 1979. The Commission stated that the applicant must demonstrate, on a prima facie basis, the existence of one or more of the following: (1) an error in law or in fact; (2) a fundamental change in circumstances or facts since the decision; (3) a failure to consider a basic principle which had been raised in the original proceeding; and (4) a new principle that has arisen as a result of the decision. In addition to the above, notwithstanding the lack of prima facie evidence that any of the above criteria have been met, the Commission may determine that there is substantial doubt as to the correctness of its original decision, and that reappraisal is accordingly warranted. In this light, the following sections address ACC’s arguments for review and variance of Decision 97-8.

III DETERMINATIONS

A. Failure to consider a basic principle raised in the original proceeding

9. ACC submitted that there is no indication in Decision 97-8 that the Commission gave any consideration to the issue of non-Canadian carriers becoming CLECs, even though the matter was raised in the interrogatory stage of the proceeding, when the Commission asked Stentor how it would ensure that CLEC obligations could be imposed on local service providers not subject to federal jurisdiction.

10. ACC stated that every party, including Stentor, supported the proposition that resellers should be eligible to become CLECs provided that the appropriate mechanisms or procedures are in place to ensure resellers’ compliance with CLEC obligations.

11. Stentor responded that the issue of whether CLEC obligations can be imposed on resellers was explicitly raised by the Commission and was addressed during the course of the proceeding, and submitted that the Commission was obviously well aware of this issue when rendering its decision. Furthermore, Stentor stated that it was evident that the Commission has had considerable opportunity for consideration of the principle that safeguards are needed in a competitive environment and has rendered its decision in such a manner that these safeguards will be in place.

12. In Decision 97-8, the Commission stated that while resale competition can help promote the development of a competitive market, it is the Commission’s view that the full benefits of competition can only be realized with facilities-based competition.

13. The Commission notes that it addressed an interrogatory to parties regarding methods of enforcing CLEC obligations on resellers. All interrogatory responses formed part of the record of the proceeding which the Commission considered in its entirety in its deliberations. Specifically, the Commission concluded that the most appropriate regulatory framework is one that requires CLECs to file tariffs for intercarrier services and submit intercarrier agreements. In addition, the Commission considered that CLECs would share costs for interconnecting trunks. In order to comply with these requirements, CLECs must be Canadian carriers subject to the Commission’s regulatory authority under the Act.

14. Furthermore, the Commission considers that Decision 97-8 clearly addressed those aspects raised by parties in evidence and argument of how resellers might participate in the local exchange market by requiring ILECs to allow (1) unrestricted resale by CLECs of unbundled components, other than subscriber listings and (2) resale of residential exchange services to provide residential services to consumers. While it recognized that resale of retail services would provide no pricing margins, the Commission noted that such resale may provide some limited opportunities for both non-Canadian and domestically-owned resellers for one-stop shopping and other similar arrangements. Moreover, in establishing the conditions of resale, the Commission required resellers to meet certain service requirements that the Commission imposes on LECs, such as 9-1-1 and Message Relay Service, by virtue of the underlying LECs’ obligations.

15. In light of the above, the Commission finds that ACC has not demonstrated that the Commission failed to consider a basic principle raised in the original proceeding.

B. A new principle has arisen as a result of the Decision

16. ACC alleged that a new principle has arisen as a result of the Decision, i.e., that non-Canadian carriers and, in particular, foreign-owned and controlled resellers, are prevented from participating in the local exchange market as CLECs. ACC submitted that, although the Commission does not make any explicit determination in Decision 97-8 that non-Canadian carriers should be treated in this manner, the regulatory framework established for CLECs in Decision 97-8 makes it clear that non-Canadian carriers are simply unable to comply with the various CLEC requirements.

17. ACC stated that this new principle of preventing non-Canadian carriers from becoming CLECs: (1) creates artificial constraints on the number of potential competitive local service providers and will limit service innovation and consumer choice in the local telecommunications market; (2) is inconsistent with the Commission’s historic policy of ensuring that similarly situated carriers are provided with equal market entry opportunities and with access to similar terms and conditions of interconnection; and (3) was not supported by any party to the original proceeding but, to the contrary, it was contemplated by all parties that resellers would be given CLEC status if they meet the required obligations for CLECs, several parties even proposing specific methods or mechanisms by which CLEC obligations could be imposed on resellers.

18. Those supporting ACC submitted that barriers to the local exchange market would put foreign-owned resellers at a disadvantage in the interexchange market since they will not have the same opportunity as Canadian-owned competitors to offer fully bundled services. These parties argued that this would be a significant market disadvantage that would have a detrimental effect on competition.

19. In response to ACC’s argument that the competitive model selected by the Commission for the local exchange marketplace in Decision 97-8 differs from that chosen for the interexchange marketplace in 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, Stentor submitted that it is incorrect to contend that Decision 97-8 therefore introduced a new principle which warrants review. Stentor noted that the rules established by the Commission in previous regulatory framework decisions have always been based on the circumstances of each case.

20. In reply, ACC stated that its examination of the decisions cited by Stentor confirmed that the Commission never discriminated against foreign-owned and controlled resellers by refusing their entry into new markets while at the same time opening up entry to Canadian-owned and controlled carriers. ACC pointed to Trunk-Side Access by Resellers to the Public Switched Telephone Network, Telecom Decision CRTC 93-8, 23 July 1993, to illustrate that when the Commission was faced with a call to limit entry by foreign-owned and controlled resellers, it decided to treat all interconnecting carriers (facilities-based carrier, domestic-owned and controlled resellers and foreign-owned and controlled resellers) on a similar basis.

21. In Decision 97-8, the Commission found that facilities-based competition would confer greater benefits on users. Facilities-based entry promotes technical innovation that is not found to the same degree in resale markets where the focus is usually on price and service packaging. The Commission notes that only those facilities-based providers that comply with the provisions of the Act may operate in Canada. As such, Decision 97-8 precluded all resellers, both foreign and domestic, from becoming CLECs for the purpose of local competitive entry. Nonetheless, the Commission notes that any reseller that takes action to bring itself within the provisions of the Act and to satisfy the Commission’s criteria for participation in the local exchange market, may become a CLEC.

22. Thus, the Commission finds that Decision 97-8 did not raise a new principle that non-Canadian carriers, particularly foreign-controlled resellers, are prevented from becoming CLECs.

C. There is substantial doubt about the correctness of Decision 97-8 to limit CLEC eligibility to Canadian carriers

23. ACC stated that, among other things, rather than promoting true local competition by eliminating barriers to entry into the local exchange market, Decision 97-8 has the perverse effect of creating a new barrier to entry for non-Canadian carriers wishing to participate in the local exchange market as CLECs. In ACC’s view, this barrier to entry not only places non-Canadian carriers at a significant competitive disadvantage, it also serves to limit consumer choice and service innovation in the local exchange market, contrary to the Commission’s overall policy objectives.

24. ACC alleged that this barrier to entry by non-Canadian carriers is also incompatible with Canada’s commitments given in the recent negotiations leading to the World Trade Organization agreement on basic telecommunications. In particular, ACC argued that Decision 97-8 is inconsistent with Canada’s commitment that up to 100% foreign investment is allowed in service providers of basic telecommunications services supplied on a resale basis. CAC/FNACQ/NAPO and CBTA agreed that the barriers to entry for resellers might be incompatible with Canada’s commitments to the Fourth Protocol.

25. In response, Stentor argued that there was no Canadian commitment to allow foreign companies to compete in the local market as though they were facilities-based carriers.

26. ACC also noted that the Commission has never denied ACC or other non-Canadian carriers access to the same tariffed services or facilities that are available to interexchange carriers.

27. ACC submitted that, given the likely impact of Decision 97-8 on the viability of non-Canadian carriers and also the various methods that are available to the Commission for imposing regulatory obligations on non-Canadian carriers, there is substantial doubt as to the correctness of the Commission’s decision to preclude non-Canadian carriers from becoming CLECs.

28. Some parties supporting ACC found themselves in a similar predicament as being unable to obtain the same rights and obligations as Canadian carriers, including the ability to access trunk-side interconnection and act as Primary Exchange Carriers. These parties argued that the exclusion of non-Canadian carriers from participation in the local exchange market on an equal basis with Canadian carriers is contrary to the Commission’s vision of ensuring fair competition.

29. Stentor noted that, in establishing its framework for local competition, the Commission gave consideration to the role of resellers in a competitive local services market and, in particular, addressed the needs of resellers when it expanded the scope of ILECs’ services which could be resold to include residence service.

30. Stentor submitted that the Commission has not permitted the use of facilities and interconnection by service providers that are not subject to the Act because of its limited powers and responsibilities under existing legislation and the requirement to establish a framework for local competition consistent with this legislation.

32. In Stentor’s view, the requisite agreements would be contrary to other principles espoused in Decision 97-8 such as the concept of interconnection between carriers equal in status.

33. In addition, Stentor submitted that throughout the CRTC Interconnection Steering Committee (CISC) process, it has proceeded on the basis of the directions contained in Decision 97-8 regarding the eligibility of service providers to be CLECs. Stentor stated that inclusion in the CISC negotiations of service providers which do not meet the current CLEC eligibility requirements would have altered the Companies’ positions, and possibly other LECs’ positions and even some of the Commission’s determinations, with respect to many of the interconnection arrangements being negotiated. For example, issues such as the establishment of the Contribution Fund and its operation, and the implementation of Local Number Portability (LNP) would have been addressed differently if service providers which are not Canadian carriers were considered to be CLECs. In this regard, Stentor submitted that the arrangements negotiated in good faith in the CISC process would need to be reassessed.

34. The Commission agrees that many CISC issues would have to be re-examined if resellers were to obtain the rights and obligations of CLECs which would delay the progress in the development of local competition.

35. ACC rejected Stentor’s allegation that the Commission did not permit resellers to use local loops and interconnection arrangements because of limitations in the scope of the Commission’s powers and responsibilities under existing legislation. ACC claimed that the Commission has the power to require ILECs to offer tariffed services and interconnection to resellers in the local exchange market as it has done so in the long distance market.

36. ACC indicated that the inability to gain access to the ILECs’ local loops and favourable interconnection arrangements is more than a question of flexibility for the entrant local carrier. The non-Canadian carriers are ineligible for access to:

(2) bill and keep compensation arrangements or mutual compensation at cost-based rates;

(3) efficient interconnection arrangements, such as gateway point of interconnection (POI) interconnection;

(5) further cost reductions, including the equal sharing of the cost of interconnecting trunks and CCS7 signalling links with other interconnected LECs; and

(6) payment for switching and aggregation activities related to the origination/termination of IXC traffic from and to local service customers.

38. In Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994, the Commission indicated that encouraging competitive local entry would lead to productivity improvements. It went on to say that the Commission’s role is to ensure that the right economic and technical conditions for open access are in place.

39. The Commission is of the view that Decision 97-8 does not raise a new barrier to reseller entry. The Commission notes that all resellers are free to carry on in local markets as they have for several years. Further, there is no new barrier to entry for carriers in Canada. Any service provider that operates as a Canadian carrier in compliance with the Act may take steps to become a CLEC.

40. Under Decision 97-8, foreign-owned resellers continue to have the same rights as domestically-owned resellers. The Commission notes that no determination was made that discriminates between resellers by virtue of their level of Canadian ownership.

41. The Commission disagrees with ACC’s view that in trying to balance many interests in dealing with complex issues, the Commission omitted foreign-owned and controlled resellers. The Commission, as it indicated in Decision 97-8, took account of the interests of consumers and all industry participants and established its framework accordingly. In doing so, the Commission found that facilities-based entry would be of greater benefit to consumers. Accordingly, the Commission did not include in the framework a regulatory regime that would permit entry by any reseller on the same basis as a facilities-based provider. To have done so would have required complex regulation of resellers through the tariffs and agreements of, potentially, all LECs. In the Commission’s view, the enforcement of CLEC obligations on resellers through conditions in LEC tariffs and agreements would be inappropriate in the competitive local exchange market.

42. The Commission notes ACC’s submission that there are several market segments in which the Commission has engaged in indirect regulation to allow resellers the opportunity to enter competitive markets; these include the long distance market, the shared tenant services market and the operator services market. However, the Commission considers that such markets do not face nearly the extent or complexity of enforcement required for providing service in the local exchange market.

43. For example, the Commission notes that competing in the local market requires acceptance of obligations mandated in Decision 97-8 including, among others, the provision of LNP; bill and keep and mutual compensation; the obligation to collect and the right to receive portable subsidies; privacy, confidentiality and disconnection concerns; interconnection between carriers; equal access; and POI/Gateway obligations.

44. Based on the record of this proceeding, the Commission finds that Decision 97-8 correctly established a framework for facilities-based local exchange competition, based on the view that facilities-based entry will in the long run, give rise to greater technical innovation, more competition and greater benefit to users.

45. In light of the above, the Commission considers that there was no substantial doubt as to the correctness of the Commission’s determinations in Decision 97-8.

46. Accordingly, ACC’s application to the Commission to review and vary Decision 97-8 is denied.

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