Ottawa, 1 October 1998
REGULATORY REGIME FOR THE PROVISION OF INTERNATIONAL TELECOMMUNICATIONS SERVICES
TABLE OF CONTENTS
I INTRODUCTION 1
II APPLICATION OF THE TELECOMMUNICATIONS ACT TO
INTERNATIONAL SERVICE PROVIDERS 10
A. Background 10
B. IRUs and the Ownership or Operation of Transmission
C. Status as "Telecommunications Common Carrier"
or "Canadian Carrier" 18
III ROUTING RESTRICTIONS 23
A. Background 23
B. Routing of Canada-overseas Traffic Through the United States 29
C. Routing of Canada-Canada Traffic Through the United States 34
1. Background 34
2. Positions of Parties 39
3. Conclusions 46
D. Approval of Schedules and Issuing of Tariff Pages 58
IV COLLECTION OF CONTRIBUTION ON INTERNATIONAL TRAFFIC 59
A. Background 59
B. Changes to the Collection Mechanism 68
C. Implementation 83
V INTERNATIONAL SETTLEMENT ARRANGEMENTS 91
A. Background 91
B. Correspondent Relations 99
C. Parallel Accounting, Proportionate Return,
Equal Division of Accounting Rates 104
1. Positions of Parties 104
2. Conclusions 116
D. Benchmarks 122
1. Positions of Parties 122
2. Conclusions 128
VI FORBEARANCE 132
A. Background 132
B. Forbearance for Teleglobe 134
1. Overview of Positions of Parties 134
2. Conclusions 158
a. Analytical Framework 158
b. Determinations 168
i. General 168
ii. Relevant Geographic Market 175
iii. Relevant Product Market 178
iv. Market Share 183
v. Other Factors Relevant to Forbearance 189
vi. Section 27 211
vii. Section 29 215
viii. Services Within Canada and Between
Locations in Canada and the United States 223
C. Forbearance for Other Service Providers 224
VII INTERCONNECTION, RESALE AND SHARING, AND RELATED MATTERS 231
A. Background 231
B. Obligations to Interconnect and to Permit Resale and Sharing 233
C. Direct Access to Intelsat 247
D. Carrier Services Group 251
VIII LICENSING 257
A. Introduction 257
B. Preliminary Issues 261
C. Services and Service Providers 268
D. Conditions of Licence Pertaining to Competitive
Abuses and Remedies 304
E. Reporting Requirements 319
F. WTO/Non-WTO Countries 341
G. Establishment of Classes of Services and Service Providers 351
H. Application Process and Requirements 353
1. Information to be Provided by the Applicant 353
2. Process 362
I. Licence Term 366
IX TELEGLOBE'S RETAIL MARKET ACCESS PROPOSALS 368
A. General 368
B. Separate International PIC Mechanism 370
1. Positions of Parties 370
2. Conclusions 383
C. Customer Balloting 390
D. Unbundling of Billing and Collection Services 396
1. Positions of Parties 396
2. Conclusions 405
E. Canada Direct Service/Freephone Numbers 412
1. Positions of Parties 412
2. Conclusions 426
X PROPOSALS OF GEOREACH 433
This overview summarizes the Commission's main findings in the proceeding initiated by Competition in the Provision of International Telecommunications Services, Telecom Public Notice CRTC 97-34, 2 October 1997 (Public Notice 97-34). The overview is provided for the convenience of the reader only. It does not form part of the Commission's Decision and should not be regarded by the reader as authoritative.
In Public Notice 97-34, the Commission initiated a proceeding to consider the regulatory regime that should apply to the provision of international telecommunications services, effective 1 October 1998, the scheduled date for the official termination of the Canada-overseas facilities monopoly of Teleglobe Canada Inc. (Teleglobe). Among the issues identified in Public Notice 97-34 was the question of any licensing requirements to be imposed on service providers pursuant to section 2(1) of the Telecommunications Act, as recently amended.
2. Application of the Telecommunications Act to International Service Providers
The Commission noted in its Decision that section 2(1) of the Telecommunications Act establishes a new definition, that of "telecommunications service provider", and empowers the Commission to require that specified classes of basic telecommunications service providers obtain a licence in order to provide international telecommunications services within a class specified by the Commission. The new licensing power extends to resellers, as well as to "Canadian carriers" within the meaning of the Telecommunications Act.
The Commission also noted that, while international resellers are subject to the new licensing power, the recent amendments to the Telecommunications Act do not otherwise alter the status of resellers. Resellers are not obliged to comply with regulatory requirements applicable under the Telecommunications Act to Canadian carriers, such as the obligation to comply with Canadian ownership and control requirements in section 16, to file tariffs pursuant to section 25, or to file intercarrier agreements pursuant to section 29.
An IRU (indefeasible right of use) is a right to use a specific portion of an international cable (certain fibres or wavelengths), typically for the life of the cable, in return for the upfront payment of a lump sum of money and an on-going contribution to the maintenance of the cable. In its Decision, the Commission stated that, based on the record of the proceeding, it would appear that the holder of an IRU would only own or operate exempt transmission apparatus, within the meaning of the Telecommunications Act, and would therefore not be a telecommunications common carrier (or a Canadian carrier) under the Telecommunications Act. Therefore, the acquisition by a reseller of an IRU would not by itself be sufficient to make that reseller subject to provisions of the Telecommunications Act intended to apply only to Canadian carriers.
3. Routing Restrictions
The Commission eliminated the rules prohibiting the routing of Canada-Canada calls (e.g., from Toronto to Vancouver) or Canada-overseas calls (e.g., from Montréal to the United Kingdom) through the United States. The Commission concluded that removal of such restrictions would be in the public interest, taking into account all of the objectives set out in section 7 of the Telecommunications Act (including, for example, the enhancement of the efficiency and competitiveness of Canadian telecommunications and responding to the economic and social requirements of users of telecommunications services).
4. Collection of Contribution on International Traffic
The Commission concluded that service providers should be required to pay contribution on a per-minute basis for international traffic, consistent with the telephone companies and with the contribution mechanism for the domestic traffic of competing long distance service providers. The Commission rejected proposals that it eliminate contribution charges applicable at border crossing points. The reporting and remitting of contribution was made a condition of licence for international service providers who operate telecommunications facilities used in transporting traffic between Canada and another country.
5. International Settlement Arrangements
The Commission determined that it would not require international service providers to enter into direct correspondent relations with foreign carriers in order to terminate traffic in foreign jurisdictions. Among other things, the Commission agreed with parties who argued that such a requirement would be contrary to current trends in the international telecommunications market.
The Commission determined that it would not require proportionate return, parallel accounting or the equal division of accounting rates, absent evidence of some kind of conduct that is having an anti-competitive effect in the Canadian market. Among other things, the Commission considered that flexible routing practices and increased competition in the major markets with which Canada exchanges traffic are reducing the need for such requirements.
The Commission noted that, if conduct having an anti-competitive effect in the Canadian market were found to have occurred, the Commission could impose proportionate return, etc., either on an individual service provider or on all service providers on a particular route.
The Commission did not consider it appropriate or necessary to establish accounting rate benchmarks. The Commission considered, among other things, that increased competition and routing flexibility will gradually bring down accounting rates on most routes of significance to Canada.
In the proceeding, Teleglobe submitted that all of its services would be subject to sufficient competition that the Commission should forbear completely and unconditionally from regulation under sections 24, 25, 27, 29 and 31 of the Telecommunications Act. The Commission considered that Teleglobe had not provided the kind of specific evidence or arguments, as described in Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994, required in support of a finding that competition is sufficient to warrant forbearance pursuant to section 34(2) of the Telecommunications Act. In particular, Teleglobe had not provided sufficient information for the Commission to properly identify and assess (in relation, for example, to supply and demand conditions) the relevant product markets. The Commission expressed the view that, when such information is not provided, the factual underpinnings that would permit a finding that there is competition sufficient for forbearance with respect to a service or class of services, and to determine the extent of that forbearance, are missing. Accordingly, the Commission denied Teleglobe's request for forbearance. However, the Commission granted Teleglobe partial forbearance for certain services it may wish to provide within Canada and between locations in Canada and the United States (specifically, with respect to services that Teleglobe would offer in competition with Canadian carriers who are subject to forbearance pursuant to Forbearance - Services Provided by Non-dominant Canadian Carriers, Telecom Decision 95-19, 8 September 1995).
7. Interconnection, Resale and Sharing, and Related Matters
The Commission considered that, until Teleglobe establishes that there are sufficient alternatives to its services available to other service providers, it should be under a positive obligation to provide interconnection and to permit resale and sharing of its services and facilities, both on a non-discriminatory basis. Accordingly, the Commission maintained Teleglobe's existing obligations with respect to interconnection and resale and sharing of its telecommunications services.
The Commission considered a licensing regime necessary in order to deal with instances of anti-competitive conduct. The Commission prescribed a basic condition of licence prohibiting the licensee from engaging in anti-competitive conduct in relation to the provision of an international telecommunications service or services. For the purposes of this condition, anti-competitive conduct includes entering into or continuing to participate in an agreement or an arrangement that has, or is likely to have, the effect of preventing or lessening competition unduly in Canada, or otherwise providing telecommunications services in a manner that has, or is likely to have, the effect of preventing or lessening competition unduly in Canada.
In order to detect distortions in traffic patterns that may be symptomatic of anti-competitive conduct, the Commission established a condition of licence requiring service providers who operate telecommunications facilities used in transporting basic telecommunications service traffic between Canada and another country to file certain information as to the traffic they carry and the agreements and arrangements they enter into.
The Commission set out the information that should be provided by licence applicants, including (among other things) basic contact information, information regarding the applicant's ownership, and information as to any affiliates the applicant may have that are involved in the provision of basic telecommunications services. It stated that it would place applications on the public record in its examination rooms, and that it would expect to issue licences within 21 days, provided the application is satisfactory on its face and no adverse comments are received. The Commission anticipated that comments opposing applications would likely be minimal.
While the Commission established a licensing regime applicable to most telecommunications service providers who provide international telecommunications services, it excluded certain service providers from licensing requirements, in particular, hotels and motels and certain Internet service providers. The Commission also specified that merely entering into a cellular roaming agreement and/or transporting call signaling information across borders should not be sufficient to make a service provider an international telecommunications service provider subject to licensing requirements.
9. Teleglobe's Retail Market Access Proposals
The Commission rejected the following retail market access mechanisms proposed by Teleglobe:
(a) the introduction of a separate Primary Interexchange Carrier (PIC) mechanism for international calling, concurrent with the introduction of facilities-based competition;
(b) a consumer balloting process for residential customers and small business customers (five lines and less) to enable them to select a carrier to provide international services; and
(c) the unbundling and provision to international service providers of billing and collection services by certain incumbent local exchange carriers.
10. Proposals of GeoReach
The Commission also rejected proposals by GeoReach that would have limited the involvement of the telephone companies (for example, the Stentor companies) in the direct offering of international telecommunications services, as well as the involvement of Teleglobe in the local exchange service market.
1.In Competition in the Provision of International Telecommunications Services, Telecom Public Notice CRTC 97-34, 2 October 1997 (PN 97-34), the Commission initiated a proceeding to consider the regulatory regime that should apply to the provision of international telecommunications services, effective 1 October 1998, the scheduled date for the official termination of the Canada-overseas facilities monopoly of Teleglobe Canada Inc. (Teleglobe).
2.Teleglobe's monopoly relates to international facilities linking Canada to countries other than the United States (U.S.). The government's decision to terminate Teleglobe's monopoly was made in the context of negotiations on the Fourth Protocol to the General Agreement on Trade in Services (GATS) under the World Trade Organization (WTO). The Fourth Protocol came into effect on 5 February 1998.
3.Bill C-17 is an Act to amend the Teleglobe Canada Reorganization and Divestiture Act (the Teleglobe Act) and the Telecommunications Act. Having been passed by Parliament, it received assent on 12 May 1998. Bill C-17 added a new definition to the Telecommunications Act, effective 31 July 1998, as follows:
"telecommunications service provider" means a person who provides basic telecommunications services, including by exempt transmission apparatus
The Telecommunications Act, as amended by Bill C-17, also specifies that:
16.1(1) No telecommunications service provider that is of a class specified by the Commission shall provide international telecommunications services except in accordance with an international telecommunications service licence.
4.In PN 97-34, the Commission requested comment on various issues related to international telecommunications, including the classes of international services and international service providers, if any, that should be subject to licensing requirements.
5.On 27 November 1997, the following parties filed proposals as to the regulatory regime that should apply: AT&T Canada Enterprises Inc. (ACE); AT&T Canada Long Distance Services Company (AT&T Canada LDS); Aurora International Telecommunications Inc. (Aurora); Call-Net Enterprises Inc. (Call-Net); fONOROLA Inc. (fONOROLA, subsequently acquired by Call-Net); France Telecom North America on behalf of France Telecom (France Telecom); GeoReach Telecommunications Inc. (GeoReach); London Telecom Network Inc. (London Telecom); MCI International Inc. (MCI); North American Gateway Inc. (NAG); Stentor Resource Centre Inc. (Stentor) on behalf of BC TEL, Bell Canada (Bell), 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., Québec-Téléphone, Télébec ltée (Télébec) and TELUS Communications Inc.; and Teleglobe.
6.Pursuant to the procedure established in PN 97-34, the Commission and parties addressed interrogatories to those who filed proposals.
7.Comments were filed on 25 March 1998 by the following: ACC TelEnterprises Ltd. (ACC); ACE; AT&T Canada LDS; Call-Net; Canadian Business Telecommunications Alliance (CBTA); Canadian Wireless Telecommunications Association (CWTA); Director of Investigation and Research, the Competition Bureau (the Director); fONOROLA; France Telecom; GeoReach; Global One; London Telecom; NAG; Public Interest Advocacy Centre (PIAC); Rogers Cantel Inc. (Cantel); MCI; Stentor; Teleglobe; Telesat Canada (Telesat); and the Government of the United States (the U.S. Government), specifically, a joint submission from National Telecommunications and Information Administration, Bureau of Economic and Business Affairs, Office of the United States Trade Representative, and the Federal Communications Commission (the FCC).
8.During the course of the proceeding, ACC, AT&T Canada LDS, Call-Net and Stentor met in an attempt to arrive at a consensus with regard to a proposed regulatory framework for international licensing and regulation of basic international telecommunications services providers. With their comments, these four parties filed a "Consensus Framework" on the essential items of a uniform proposal.
9.Reply comments were filed on 15 April 1998 by the following: ACE; AT&T Canada LDS; Call-net; CWTA; Cantel; fONOROLA; GeoReach; Global One; Hong Kong Telecommunications (Pacific) Limited (HKTel); London Telecom; MCI; NAG; PIAC; Stentor; and Teleglobe.
II APPLICATION OF THE TELECOMMUNICATIONS ACT TO INTERNATIONAL SERVICE PROVIDERS
10.Until the enactment of Bill C-17, regulatory requirements under the Telecommunications Act related solely to Canadian carriers, and not to resellers. A "Canadian carrier" is defined as "a telecommunications common carrier subject to the legislative authority of Parliament". A "telecommunications common carrier" (TCC) is defined in section 2 as:
a person who owns or operates a transmission facility used by that person or another person to provide telecommunications services to the public for compensation.
11.Under the amendments to the Telecommunications Act contained in Bill C-17, however, the international telecommunications services offered by other telecommunications service providers, i.e., resellers, are subject to the Commission's licensing power. Under the new sections 16.1 to 16.4 of the Telecommunications Act, the Commission now has the power to require both Canadian carriers and resellers to obtain licences in respect of the basic international telecommunications services that they provide. The amendments do not otherwise alter the application of the Telecommunications Act to resellers. Therefore, the other regulatory requirements in the Telecommunications Act, for example, the obligations to comply with Canadian ownership and control requirements in section 16, to file tariffs pursuant to section 25, and to file intercarrier agreements pursuant to section 29, do not apply to international resellers. Canadian carriers will, however, continue to be subject to these statutory obligations, and all other provisions of the Telecommunications Act, absent forbearance or exemption.
12.In light of the cost of laying international submarine cables, a typical way for a service provider to acquire overseas capacity is by way of an indefeasible right of use (IRU) in a cable. An IRU is a right to use a specific portion of an international cable (certain fibres or wavelengths), typically for the life of the cable, in return for the upfront payment of a lump sum of money and an on-going contribution to the maintenance of the cable.
13.In PN 97-34, the Commission requested comment on whether the acquisition by a reseller that offers services in Canada of an IRU on a cable either landed in Canada or located entirely outside Canada results in that reseller becoming a TCC, within the meaning of the Telecommunications Act.
B. IRUs and the Ownership or Operation of Transmission Facilities
14.Many parties submitted that holding an IRU in a submarine cable involves the ownership or operation of a transmission facility. Call-Net and fONOROLA submitted that the holder of an IRU has control of all channelization, multiplexing and transmission protocols on the facility, and of the negotiation of interconnection and operating arrangements with other carriers. Call-Net and fONOROLA submitted that the holder is also responsible for maintenance and repairs, and thus has responsibilities consistent with the operation of a transmission facility. Teleglobe added that an IRU holder must obtain its own connecting circuits between its facilities and the cable station, whereas a leased line holder would have these elements handled by its service provider. In addition, the IRU holder must arrange for restoration capacity itself in the event that the circuit fails. Teleglobe further noted that IRUs are not offered as a tariffed service anywhere in the world.
15.Aurora and HKTel submitted that an IRU is a type of lease and does not amount to ownership. Therefore, a reseller does not become a TCC merely by acquiring an IRU in a submarine cable. NAG submitted that holding an IRU in a cable merely involves the operation of the IRU and does not involve ownership or operation of the cable itself. In Aurora's view, even after acquiring an IRU, a reseller would still have to pay regular operations and maintenance fees to the cable owners. Aurora and NAG noted that restoration and repair work would be under the control of the cable owner. Further, the mere fact of paying a lump sum at the outset of a term, rather than making periodic payments, does not make the reseller less a reseller.
16.In response to interrogatory Teleglobe(CRTC)18Dec97-29, Teleglobe filed examples of agreements for the sale or acquisition of IRUs.
17.While the Commission agrees that an IRU is generally something more than a mere lease, it does not necessarily result in the ownership of the submarine cable itself or of a segment thereof. Further, the Commission is not persuaded that IRU holders necessarily operate a part of the cable. Based on the submissions of the parties and the IRU agreements filed in response to interrogatory Teleglobe(CRTC)18Dec97-29, it would appear that a holder of an IRU would only own or operate exempt transmission apparatus, within the meaning of the Telecommunications Act, and would therefore not be a TCC.
C. Status as "Telecommunications Common Carrier" or "Canadian Carrier"
18.ACC, Call-Net and fONOROLA submitted that a person that has transmission facilities that are used to provide telecommunications services to the public in Canada for compensation is a TCC, regardless of whether the facilities are located within Canada. In the view of ACE, PIAC and Stentor, a person must have facilities located in Canada and must offer services to Canadians to be a TCC.
19.The Commission considers that the definition of a TCC is a functional one, i.e., it describes the attributes of a common carrier. It has two main components: (a) ownership or operation of transmission facilities, and (b) provision of telecommunications services (by that person or another person) to the public for compensation. In the Commission's view, a person that performs these two functions, regardless of whether the facilities are located in Canada or the services are offered in Canada, meets the definition of a TCC. Accordingly, a foreign telecommunications service provider may be a TCC. However, as Call-Net noted, a finding that owning or operating facilities outside Canada makes a company a TCC is not the same as an assertion of jurisdiction over the foreign facilities.
20.With respect to which TCCs are Canadian carriers, Call-Net submitted that a Canadian carrier is simply a TCC that is subject to the authority of Parliament. fONOROLA submitted that holders of IRUs are Canadian carriers, regardless of where the submarine cables are located (in or outside Canada), provided those facilities are used to provide telecommunications services to Canadian customers. fONOROLA argued that this position makes sense, as there are cases where there are no direct cable routes between Canada and other countries. MCI submitted that a TCC must own or operate facilities in Canada to be a Canadian carrier.
21.Global One argued that a finding that a reseller possessing facilities outside Canada is considered to be a Canadian carrier in respect of its operations in Canada would raise questions as to Canada's compliance with national treatment and most favoured nation (MFN) disciplines under the WTO. It stated that the classification of a reseller as a Canadian carrier, if it were to lead to the imposition of foreign ownership restrictions, could force it to cease service or to go through the difficult and time-consuming process of finding Canadian partners. In its view, both of these consequences would diminish competition and directly harm Canadian users.
22.In the Commission's view, a TCC is a Canadian carrier when it operates as a TCC in Canada and is thus subject, as a TCC, to the legislative authority of Parliament. A Canadian carrier is therefore a person that owns or operates transmission facilities located in Canada where those facilities are used, by that person or another, to offer services to the public in Canada for compensation. As a result, the following TCCs would not be Canadian carriers:
(a) a TCC that owns or operates facilities in Canada but does not provide services to the public in Canada for compensation; or
(b) a TCC that only owns or operates transmission facilities located outside Canada.
III ROUTING RESTRICTIONS
23.Section 7 of the Telecommunications Act sets out the objectives of Canadian telecommunications policy. One of those objectives, paragraph 7(e), is to "promote the use of Canadian transmission facilities for telecommunications within Canada and between Canada and points outside Canada." In order to promote the use of Canadian facilities, Teleglobe's tariffs and the tariffs of domestic carriers with Canada-U.S. facilities have contained provisions restricting the routing of traffic originating and/or terminating in Canada through other countries.
24.In its Schedule of Specific Commitments in the Fourth Protocol, Canada specified that the routing of basic telecommunications between points within Canada, and between Canada and points outside Canada, is regulated to promote the use of Canadian transmission facilities, subject to certain exceptions. Among the exceptions noted is that, as of 31 December 1999, all international services will be unrestricted, except for fixed satellite services between Canada and points in the United States (with the latter to be unrestricted as of 1 March 2000).
25.In Teleglobe Canada Inc. - Resale and Sharing of International Private Line Services, Telecom Decision CRTC 97-10, 5 May 1997 (Decision 97-10), the Commission decided to retain the following provision of Teleglobe's tariffs, which was intended to restrict the hubbing of traffic through intermediary countries using Teleglobe's international private lines (IPLs):
Except where alternate routing has been agreed to by all countries or operating agencies involved, it is prohibited to route Canadian originating or terminating joint-use voice traffic to or from a third country over international private line services leased between Canada and the country where the international private line service terminates.
26.In PN 97-34, the Commission identified the above noted tariff provision, and requested comment on the appropriate routing rules (a) for the period 1 October 1998 to 31 December 1999, and (b) for the period commencing 1 January 2000. However, by letter dated 19 December 1997, the Commission reviewed and varied Decision 97-10, and ordered the elimination of this tariff provision. Teleglobe appealed the Commission's letter of 19 December 1997 to Cabinet, but subsequently withdrew that appeal.
27.As a result of its ruling of 19 December 1997, the Commission considers that the Teleglobe tariff provision cited above is no longer at issue in this proceeding. However, the routing restriction embodied in the tariffs of the domestic telephone companies, and applicable to the facilities of non-dominant Canadian carriers pursuant to Forbearance - Services Provided by Non-Dominant Canadian Carriers, Telecom Decision CRTC 95-19, 8 September 1995 (Decision 95-19), was also raised in the Public Notice and is at issue. This restriction prohibits the routing by customers of Canada-overseas basic calls through the U.S. (i.e., it prohibits customers from using the facilities of domestic carriers to hub basic traffic through the U.S.). It also prohibits the routing through the U.S. of basic Canada-Canada calls (e.g., Toronto to Vancouver). The following provision from the tariffs of Bell is typical of the restriction applicable to the Canada-U.S. facilities of the domestic carriers:
Services or channels provided between one or more exchanges or rate centres of the Company and one or more rate centres in the United States may not be used, either directly or indirectly, to carry basic service traffic which originates in Canada to points in Canada or overseas, or to carry basic service traffic which originates outside the United States to points in Canada.
28.A similar restriction is incorporated in many of the interconnection agreements between Canadian and American carriers. This prohibits the carriers themselves from routing their own Canada-overseas basic telecommunications traffic through the U.S.
B. Routing of Canada-overseas Traffic Through the United States
29.In their initial submissions, fONOROLA, GeoReach, NAG and Teleglobe proposed the retention of some restrictions on the routing of Canada-overseas traffic. However, in their comments or reply comments, these parties revised their positions to call for the elimination of the routing restriction effective 1 October 1998.
30.The Commission considers that the question of whether or not there will be significant competition for Teleglobe in the short to medium term is linked to the issue of whether or not routing restrictions are removed. Given the significant investment required to construct international submarine cables, the Commission anticipates that it may be some time before international submarine cables that would provide an alternative to Teleglobe's facilities are actually landed in Canada. Therefore, in the interim, competition for Teleglobe services and facilities would have to come primarily from the existence of submarine cables landed in the U.S. As noted by some parties, International Simple Resale (ISR) and switched hubbing over Teleglobe's IPLs provides some competition to Teleglobe's services. However, since it is Teleglobe's IPLs that are used, these mechanisms provide no alternative to the use of Teleglobe facilities. Thus, the Commission agrees with those parties who argued that to retain the restriction on routing Canada-overseas traffic through the U.S. would tend to extend the effect of Teleglobe's monopoly.
31.The Commission considers that removing the rule would likely result in an increase in the amount of Canada-overseas traffic routed through the U.S. However, if routing of traffic through the U.S. is permitted, service providers will have greater opportunity to lease IPLs or to acquire their own overseas capacity in new or existing cables landed in the U.S. Allowing Canadian service providers to take advantage of these alternatives could allow them to route their traffic more cheaply and more efficiently, and pass on the associated savings to consumers. The Commission considers that elimination of the rule would thus contribute to several objectives of the Telecommunications Act. In particular, it would assist in the rendering of reliable and affordable telecommunications services of high quality, enhance the efficiency and competitiveness of Canadian telecommunications on the national and international levels, foster increased reliance on market forces, and respond to the economic and social requirements of users. The Commission also considers that there is validity to arguments that removal of the restriction would contribute to the overall vitality and competitiveness of the Canadian telecommunications industry, and could thus assist in promoting the use of Canadian transmission facilities.
32.The Commission also considers that, with many more countries opening up to ISR, it will become more difficult to detect the routing of Canada-overseas traffic through the U.S. and thus to enforce the existing rule.
33.Taking all of the above into account, the Commission concludes that it is in the public interest to eliminate, effective 1 October 1998, the rule prohibiting the routing through the U.S. of basic telecommunications traffic that originates in Canada and terminates overseas (or which originates overseas and terminates in Canada).
C. Routing of Canada-Canada Traffic Through the United States
34.In a letter issued on 5 May 1997 in conjunction with Decision 97-10, the Commission (a) withdrew approval of Schedule H to agreements between Stentor and MCI and Sprint Communications Company LP (Sprint LP) in the U.S., effective six months from the date of the letter, and (b) initiated a proceeding with regard to other Schedules to agreements between Canadian and American carriers, stating its intention to withdraw approval unless shown compelling reasons why approval should remain in place. The Commission stated that the Schedules in question (all of which permitted the routing of Canadian traffic through the U.S.) were, among other things, "contrary to the current policy with respect to the use of Canadian facilities for the carriage of traffic originating or terminating in Canada." The Commission considered that the continued approval of such Schedules would undermine the policy against bypass.
35.The Commission's ruling of 5 May 1997 was stayed along with Decision 97-10 by the Federal Court of Appeal in connection with an appeal by NAG. NAG's application for leave to appeal was subsequently withdrawn, and the court stay was dissolved in February 1998. However, the effective date for the withdrawal of approval of Schedule H passed while the stay was in effect. On 11 February 1998, after the stay was dissolved, Stentor wrote to the Commission setting out proposals as to how the Commission should now deal with the proceeding initiated in the Commission's letter of 5 May 1997 and with its withdrawal of approval of Schedule H to Stentor's agreements with MCI and Sprint LP.
36.In a letter dated 27 February 1998, the Commission noted that some of the Schedules at issue provided for Canada-Canada bypass, and stated that it considered that it should address the issue of Canada-Canada bypass at the same time as it addressed restrictions concerning the routing of traffic between Canada and points overseas. Accordingly, parties were invited to comment on the Canada-Canada rule in a separate process, with comments and replies to be submitted at the same time as those in the PN 97-34 proceeding. In particular, the Commission requested comment on whether, in the event that it determines that restrictions on the routing of Canada-overseas traffic through the U.S. should be changed or eliminated, the Commission should also change or eliminate the current Canada-Canada bypass restriction or permit departures from it on a case-by-case basis.
37.The Commission established a new effective date of 1 August 1998 for the withdrawal of interim approval of Schedule H. At the request of Stentor and MCI, this date was subsequently extended to 31 January 1999.
38.The Commission received separate comments and/or replies on this issue from the following parties: ACC; Call-Net; fONOROLA; GeoReach; MCI, Saskatchewan (Intergovernmental and Aboriginal Affairs); Sprint LP; Stentor; Teleglobe; and Westel Telecommunications Ltd.
2. Positions of Parties
39.With the exception of Saskatchewan, all parties favoured the elimination of the Canada-Canada routing rule. MCI, Sprint LP and Stentor argued that, if the Commission does not eliminate the rule, it should permit exceptions to it on a case-by-case basis. Parties favouring elimination of the rule argued, among other things, that the policy objective of promoting the use of Canadian facilities has largely been attained, and the rule is no longer needed. They argued that, with facilities-based competition, the supply of transmission facilities has increased significantly. In support, parties cited the record of the proceeding leading to Stentor Resource Centre Inc. - Forbearance from Regulation of Interexchange Private Line Services, Telecom Decision CRTC 97-20, 18 December 1997 (Decision 97-20), in which the Commission decided to forbear, in part, from regulating the interexchange private line services of the Stentor companies. They noted that Canadian service providers continue to make substantial investments in facilities.
40.Some parties submitted that the routing restriction is extremely difficult to enforce and of no practical effect. Some argued that the benefits to be obtained from retention of the rule are outweighed by the associated disadvantages. They submitted that, without the rule, carriers could maximize the efficiency of their networks, avoid duplication of facilities, and offer better services at lower prices. They contended that the routing rule complicates the provision of services to customers by both American and Canadian carriers (for example, calling card services for individual customers, and services based on global platforms, required by multinational businesses located in Canada). Further, with fully integrated networks, Canadian and American carriers could offer improved and seamless service. Finally, they submitted that the rule inherently does not make sense because it interferes with economically rational decisions.
41.MCI submitted that, if the Commission chooses to retain the restriction, it should permit exceptions on a case-by-case basis when: (a) the service is not actively marketed in Canada, (b) the service cannot be technically or economically provided using only Canadian facilities, and (c) there is reciprocal treatment. Sprint LP and Stentor also submitted that exceptions should be permitted, if the rule is to be retained.
42.Both MCI and Stentor argued that the Schedules at issue in the Commission's letter of 5 May 1997 would fall within the proposed exceptions. They argued that these Schedules should be granted final approval on that basis, even if the Commission retains some form of Canada-Canada bypass rule.
43.Saskatchewan opposed the elimination of the Canada-Canada routing rule. It submitted that one of the Commission's principal goals should be to create an environment that supports the growth of a strong Canadian telecommunications sector, and that this can be achieved only by ensuring that Canadian traffic is carried on Canadian facilities. It stated that the telecommunications industry faces unique challenges because of Canada's low population density along most routes, and that bypass would eventually erode the ability of the Canadian industry to serve all areas of the country. Saskatchewan submitted that routing long distance traffic through the U.S. will eventually lead to a reduction in the capacity of Canadian facilities across Canada. Moreover, Canada's total traffic would not be a major burden to the existing system in the U.S., while withdrawal of major portions of traffic from Canadian facilities would be significant.
44.Saskatchewan submitted that any Canada-Canada bypass would intensify contribution avoidance and affect the ability of Canada to support services in high cost areas. It stated that the issues in Telecom Order CRTC 98-307, 1 April 1998 (Order 98-307), demonstrate that companies are already attempting to avoid Carrier Access Tariff charges between regions of Canada, and that opening Canada-Canada bypass would only serve to exacerbate this type of avoidance behaviour.
45.Finally, Saskatchewan argued that, given the wording and the intention of the Telecommunications Act, the Commission does not have the latitude to forbear on Canada-Canada bypass, nor is it in the best interest of the Canadian telecommunications system to do so.
46.The Commission considers that it has the discretion to eliminate the rule prohibiting the routing of basic Canada-Canada traffic through the U.S. The rule was established by the Commission, and imposed as a condition of service in approved tariffs or otherwise through Commission rulings. Further, while the Telecommunications Act requires the Commission to exercise its powers with a view to implementing the policy objectives set out in section 7, the promotion of the use of Canadian transmission facilities is but one of several objectives contained in that section. In determining whether the rule remains appropriate, the Commission must consider this objective along with the other relevant policy objectives in section 7. Moreover, it is within the Commission's discretion to determine how best to carry out this mandate in the public interest.
47.In Teleglobe Canada Inc. - Resale of Transborder Services, Telecom Decision CRTC 91-10, 26 June 1991 (Decision 91-10), the Commission found that incorporating a bypass rule in tariffs would contribute to the use of Canadian transmission facilities. However, it also stated that the best means of preventing bypass would be the lowering of Canadian rates to a level comparable to those in the U.S. The Commission notes that Decision 91-10 preceded its determination, 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 (Decision 92-12), to allow competition in the provision of facilities-based long distance services.
48.The Commission agrees with parties who argued that the supply of Canadian transmission facilities has increased with facilities-based competition. In Decision 97-20, the Commission found there were sufficient alternative facilities to largely forbear from regulating the Stentor companies' high capacity private line services on some 20 routes (for example, Vancouver-Toronto). The Commission also agrees that, generally, service providers who own facilities in Canada have an incentive to use them, regardless of what the routing rules might be.
49.Nonetheless, there are many private line routes for which the Commission has not granted forbearance to the Stentor companies, as it has not yet been established that sufficient alternative facilities are available.
50.The Commission considers that Canada-Canada bypass is difficult to detect and that the rule against it is difficult to enforce.
51.Saskatchewan submitted that elimination of the rule would lead to greater contribution avoidance. Saskatchewan did not explain its position in detail, but referred to Order 98-307. The Commission notes that this Order is one of several addressing attempts by alternative providers of long distance services (APLDSs) to avoid high contribution charges in the territories of some independent companies. The Commission does not consider the contribution avoidance behaviour in question in the Order to be related to the issue of whether or not to permit the routing of Canada-Canada traffic through the U.S.
52.The Commission considers that elimination of the rule would lead to the further integration of the Canadian and American networks, with facilities being constructed and used solely with regard to network efficiencies and other economic factors.
53.The Commission considers that elimination of the rule could in some respects work to the benefit of Canadian carriers and facilities, as suggested by fONOROLA, in that there may be instances where the more efficient routing for American traffic would be through Canada. In the Commission's view, elimination of the rule would remove a possible justification for the U.S. imposing a rule against the bypass of U.S. traffic through Canada, thus ensuring that Canadian carriers are free to compete for the carriage of such traffic.
54.Taking all of the above into account, the Commission considers that elimination of the rule would likely lead to some increase in the amount of Canadian originated and terminated traffic being routed through the U.S. However, the Commission also considers that elimination of the rule would contribute positively to several other objectives of the Telecommunications Act. For example, routing purely with regard to economic efficiencies should improve the cost structures of Canadian service providers (enhancing their efficiency and competitiveness) and allow them to pass those benefits on to consumers (affordability of telecommunications services, responding to economic needs of users).
55.The Commission agrees with Sprint LP that the routing rule complicates the provision of services to customers by both American and Canadian carriers. The difficulties associated with the present rule are demonstrated by Schedule H to the agreements between Stentor and MCI and Sprint LP. This Schedule permits Americans to place calling card calls while traveling in Canada. Pursuant to it, Canada-Canada (and Canada-overseas) calls are routed through the U.S. According to the submissions of Stentor and MCI, the volume of calling is low, and the investment necessary to build the platform to carry the calls on Canadian transmission facilities is significant. In addition, Stentor and MCI submit that the service afforded American customers using such a platform would not be comparable. In light of such considerations, the Commission is of the view that, if it were to retain the rule, it would have to permit exceptions to it in such circumstances.
56.The Commission notes that, in Decision 95-19, it retained its powers under section 29 of the Telecommunications Act to approve agreements between non-dominant Canadian carriers and foreign carriers. The reason cited was the need to maintain bypass provisions. If the routing restriction is maintained in its current form, or modified to permit exceptions, the Commission considers that it would have to continue to exercise powers and perform duties under section 29 with respect to these agreements, in order to ensure that they either (a) contained the basic prohibition, or (b) fit within one of the permitted exceptions. The Commission considers that determining whether or not a service fit within an exception (e.g., the service could not be technically or economically provided using only Canadian facilities) could be a complicated exercise in some circumstances. The Commission also notes that enforcement would continue to prove difficult. The Commission considers that the regulatory burden associated with these activities (for both carriers and the Commission) would not be justified by the benefit to be achieved in terms of the associated increase in the use of Canadian transmission facilities.
57.In light of the above, the Commission considers it in the public interest to eliminate the Canada-Canada routing rule, effective 1 October 1998.
D. Approval of Schedules and Issuing of Tariff Pages
58.The Commission grants final approval to those Schedules referenced in its letter of 5 May 1997 that currently have only interim approval. The Commission also grants final approval to Schedule H of Stentor's agreements with MCI and Sprint LP. Those carriers whose tariffs currently incorporate the rule restricting the routing of Canadian traffic through the U.S. are to issue, by 5 October 1998, revised tariff pages to delete it effective 1 October 1998.
IV COLLECTION OF CONTRIBUTION ON INTERNATIONAL TRAFFIC
59.The contribution mechanism established pursuant to Decision 92-12 requires Teleglobe to collect from APLDSs the contribution owed on overseas calling and remit it to the telephone companies.
60.Contribution generally applies to APLDS' minutes at the point of interconnection between the APLDS network and a telephone company's local network. For domestic calls, there are two points of interconnection and two contribution charges (the first at the originating end and the second at the terminating end). In the case of cross-border and overseas calls, there is one point of interconnection with the telephone company's local network, but a second contribution charge is applied at the point at which the call enters or exits Canada (i.e., at the border points). The second contribution charge at the border points is collected on a per-circuit basis, based on an assumed number of minutes carried per circuit.
61.Currently, APLDS traffic destined to overseas locations is delivered via dedicated circuits to one of Teleglobe's three gateways. As Teleglobe's gateway switches are used solely for overseas traffic, any interexchange carrier (IXC) circuits accessing Teleglobe's switches are clearly identifiable as bearing solely overseas traffic. Contribution charges apply on circuits that connect APLDS' networks to the domestic side of Teleglobe's switches. Teleglobe collects contribution directly from the APLDS and remits it to the telephone company in whose territory the Teleglobe switch is located.
62.With respect to Canada-U.S. traffic, contribution charges apply on APLDS circuits that cross the Canada-U.S. border, i.e., on the international side of the Canadian switch. The APLDS self-reports the number of contribution-eligible circuits to the telephone company in whose territory the circuits exist and the telephone company bills the APLDS for interexchange (IX) contribution based on those self-reported circuit counts.
63.Contribution from the telephone companies' services is recovered on a per-minute basis for all traffic, including overseas and U.S. traffic, based on the telephone companies' billing and network traffic information.
64.On 9 June 1997, Stentor filed an application requesting that the Commission reform the per-circuit contribution mechanism applicable to APLDS' international circuits. Specifically, Stentor requested that the Commission either eliminate the mechanism (i.e., eliminate the second contribution charge at the border point) and increase domestic contribution rates by the requisite amounts, or, in the event that the Commission found this proposal inappropriate, implement a per-minute mechanism applicable to APLDS' self-reported minutes along with improvements to the self-reporting procedures.
65.In Telecom Order CRTC 97-1903, 22 December 1997 (Order 97-1903), the Commission ordered, among other things, that the current per-circuit mechanism for APLDSs be maintained, with modifications to the number of minutes assumed on a circuit. However, the Commission noted that the international contribution collection mechanism was being reviewed in the present proceeding to determine how it should apply in a competitive environment.
66.Parties to this proceeding argued that, with the introduction of overseas facilities-based competition, facilities-based international service providers will not likely dedicate any of their switching facilities entirely to overseas traffic as does Teleglobe, and hence any circuit accessing the new entrants' switches (either from their own or another service provider's network) is unlikely to be carrying solely overseas traffic. In addition, new entrants may carry both APLDS and telephone company traffic, to which different contribution regimes apply. They submitted that, with no basis to identify circuits carrying solely overseas traffic, the current method of collecting contribution needs to be revisited. Furthermore, with the potential that a single carrier may carry both overseas and Canada-U.S. traffic, there may be a need for a single collection mechanism, as opposed to separate mechanisms for overseas and Canada-U.S. traffic, as is the current practice.
67.Stentor and Teleglobe, supported by NAG, favoured eliminating the second contribution charge levied at the border points, with offsetting adjustments to applicable contribution rates. Other parties either preferred a per-minute mechanism or suggested changes to the existing per-circuit mechanism.
B. Changes to the Collection Mechanism
68.In Order 97-1903, the Commission stated that elimination of the second contribution charge on international calls would result in higher domestic contribution rates and, for subscribers of some of the Stentor operating companies (SOCs), in higher local rates. The Commission also noted that, given the anticipated higher growth in international traffic over domestic traffic with the introduction of competition in the Canada-overseas market in late 1998, elimination of the international contribution mechanism would reduce the amount of contribution remitted to the Central Fund, which will be used to subsidize local service to high cost areas. The Commission further noted that eliminating contribution on international circuits would result in a narrowing of the scope of contribution-eligible minutes and, accordingly, would run counter to the Commission's objective of increasing the base of contribution-paying services.
69.With respect to Teleglobe's comment that it is only international traffic that bears two Canadian contribution charges yet uses the local access network only once, the Commission notes that (a) the purpose of contribution is not to recover the cost of terminating specific types of traffic, but rather to recover the local/access (now Utility segment) shortfall over as broad a base as possible, and (b) wireline to wireless and wireless to wireline traffic interconnects only once with the public switched telephone network (PSTN), yet, as a result of Telecom Order CRTC 97-590, 1 May 1997, contribution is (in effect) paid at both the originating and terminating ends of the call.
70.The Commission notes that, while elimination of the cross-border contribution charge would be easy to implement and would allow both APLDSs and SOCs to pay contribution on the same basis, it would (a) result in contribution costs for domestic calls being higher than for international calls, and (b) increase the contribution rates for five of the Stentor telephone companies to above the target two-cent level, which runs counter to the Commission's directives in Price Cap Regulation and Related Issues, Telecom Decision CRTC 97-9, 1 May 1997.
71.While acknowledging the issues raised by Teleglobe with respect to the need to recover the cross-border contribution charge through accounting rates, the Commission does not consider that the arguments put forward in support of eliminating the second contribution charge are sufficient to reverse the position taken by the Commission in Order 97-1903 that eliminating contribution on international circuits is not appropriate.
72.Call-Net and Stentor suggested that the existing per-circuit mechanism could be modified so that, in the case of overseas circuits, contribution would be collected on the international side, rather than on circuits going into Teleglobe's facilities. The Commission notes that this suggestion raises a number of issues. As noted by Stentor, this option would require a change to the per-minute contribution mechanism currently used by the telephone companies for their own international traffic. This is due to the fact that all circuits on the international side of the switch would incur contribution charges, including the circuits carrying telephone company traffic that has already paid contribution on a per-minute basis. Unless the mechanism used for the telephone companies is changed to a per-circuit mechanism, the telephone companies would end up being double-charged for overseas traffic.
73.As noted above, Teleglobe currently bills APLDSs directly for IX contribution based on the number of circuits interconnecting with its switch on the domestic side. If contribution is collected based on circuits exiting the switch on the international side, these circuits will also be carrying Teleglobe's own switched traffic, for which Teleglobe would be billed contribution. Since it is not possible to attribute individual circuits on the international side of the switch to individual APLDSs (or telephone companies), it would be necessary for Teleglobe (or any other international service provider) to recover the IX contribution charges from the APLDSs (and telephone companies) as part of its tariffed charges or settlement rates. As noted by Stentor, Teleglobe would be required to amend its tariffs and billing systems, but would derive no benefit from these changes.
74.As noted by Stentor and Teleglobe, a major hurdle associated with this approach is with respect to transit traffic (i.e., traffic which neither originates nor terminates in Canada). Under the current regime, international transit traffic is exempt from IX contribution. If contribution were to be collected on the international side of the switch, international transit traffic would automatically be captured, along with all other international traffic. In order to maintain the contribution exemption for transit traffic, the carrier in question would have to route the contribution-exempt traffic over separate international facilities. This would result in less efficient use of facilities, which would be competitively disadvantageous to the carrier in question and would complicate network planning.
75.In the Commission's view, although there may be remedies for certain of the concerns raised with respect to modifying the per-circuit mechanism, the remedies in themselves would create further complications. The Commission considers it important to keep the contribution mechanism as simple as possible. The Commission is of the view that the modifications that would be required to adapt the per-circuit mechanism to the new competitive environment would be so complex and cumbersome as to render this approach impractical.
76.In light of the above, the Commission considers that the most appropriate solution is to require APLDSs to begin paying contribution on a per-minute basis for international traffic, consistent with the telephone companies and with the contribution mechanism for APLDS' domestic IX traffic.
77.Although Stentor's preferred approach is to eliminate contribution on international traffic, it supported a mechanism based on self-reported APLDS' international minutes, with appropriate safeguards, should the Commission choose to retain the second international IX contribution charge. It considered that a per-minute mechanism would be competitively equitable, in that it would eliminate implicit contribution discounts associated with the per-circuit mechanism and would recover appropriate IX contribution amounts.
78.ACC, AT&T Canada LDS, fONOROLA, GeoReach, CWTA and Cantel also supported a per-minute mechanism. Although Teleglobe favoured elimination of the international contribution component, it submitted that, should the Commission wish to retain an additional contribution mechanism, the only solution would be a per-minute mechanism. London Telecom, however, submitted that a per-minute regime would be more complex, more difficult administratively and more costly to implement and maintain.
79.The Commission considers that the advantages to a per-minute approach, as stated by Stentor, are that (a) it would be competitively equitable as both the APLDSs and the telephone companies would be paying contribution on the same basis, and (b) any implicit discounts associated with the current per-circuit contribution mechanism would be eliminated.
80.A per-minute contribution mechanism on international traffic will require that APLDSs self-report their international minutes to the telephone company or competitive local exchange carrier (CLEC). Therefore, there is a requirement for procedures to prevent contribution avoidance. The Commission notes that the present per-circuit contribution mechanism for APLDS' Canada-U.S. traffic requires self-reporting of the number of cross-border circuits and that self-reporting safeguards have been set out in Order 97-1903.
81.In Order 97-1903, the Commission acknowledged that a per-minute mechanism would result in tracking and billing costs and additional administrative costs and concluded that, in view of the fact that the international contribution collection mechanism was under review in the present proceeding, a self-reporting per-minute mechanism was not appropriate at that time.
82.The Commission notes that Call-Net and London Telecom argued in this proceeding that a per-minute mechanism would require a substantial increase in resources, but failed to provide any dollar estimates of the increased costs that would be incurred, despite specific requests in Commission interrogatories for such information. In addition, no party stated that it could not identify and track contribution-eligible international minutes. As pointed out by Stentor, APLDSs have been reporting international contribution-eligible minutes in previous annual IX contribution proceedings, and their networks typically use modern switching equipment that is generally capable of tracking international contribution-eligible minutes. The Commission concludes that the costs to implement such a mechanism cannot be considered unduly onerous.
83.AT&T Canada LDS considered it inappropriate to expand the role of the Central Fund Administrator (CFA) (whose present authority only includes local exchange carriers (LECs)) to include the administration of self-reporting by APLDSs. It stated that expanding participation in the CFA consortium would create additional unnecessary complexities. It considered that the combination of (a) a sworn affidavit accompanying an international carrier's monthly cross-border reports, and (b) reporting by international carriers to the relevant LECs under the existing process, ought to be sufficient.
84.Stentor proposed similar administrative procedures to those set out in Order 97-1903 for Canada-U.S. circuits and considered that the safeguards set out in that Order should be administered through the CFA. It acknowledged that this would entail APLDSs self-reporting their minutes directly to the CFA. It noted that this would involve an extension to the CFA's authority, which currently only includes LECs. It stated that, in view of the potential number of reporting APLDSs and the complexity of the administrative aspects of these safeguards, and depending upon the manner in which these procedures are implemented, this could impose a significant increase in the resource requirements of the CFA.
85.In light of concerns such as those raised by AT&T Canada LDS and Stentor, the Commission does not consider it appropriate that the CFA undertake the administration of the reporting mechanism.
86.The Commission is of the view that the reporting procedures, safeguards and audits set out in Order 97-1903 are appropriate for the per-minute regime. Under these procedures, (a) all APLDSs provide monthly reports of international contribution-eligible minutes to the relevant LEC, supported by a sworn affidavit made by a senior officer of the company; (b) APLDSs are subject to random audits by the CFA with respect to self-reported contribution-eligible traffic; and (c) all APLDSs make full disclosure with respect to self-reported international contribution-eligible minutes. The Commission notes that the most recent terms of the Central Fund Administration Agreements require an auditor to conduct an annual compliance audit of each LEC, that includes (a) a random or specific sampling or testing of data provided by the LEC to the CFA, (b) a review of the control mechanisms utilized by the LEC to record and verify information required to be recorded, and (c) any other testing, sampling or verifications that the auditor may consider necessary or appropriate.
87.The Commission also notes and concurs with the point raised by AT&T Canada LDS (and supported by Stentor) that, where an international service provider leases international transmission facilities to another service provider, the contribution reporting and remittance obligation should reside with the party using the transmission facility to transport international traffic, and not the underlying transmission facility provider. The international service provider (be it a SOC, Teleglobe, AT&T Canada LDS or another IXC) should be responsible for reporting international contribution-eligible minutes related to its own end-users, as well as those of other APLDSs who are reselling one of its switched services or who hand off international traffic to it for termination. Resellers would be responsible to report their own international contribution-eligible minutes carried on transmission facilities leased by them to transport international traffic.
88.The Commission concurs with AT&T Canada LDS that the obligation to report and remit contribution should be made a condition of licence. However, this obligation should not apply where an APLDS certifies that it is not itself transporting international traffic between Canada and another country, i.e., that all of its international traffic is carried by means of switched services of another international service provider or is merely handed off to another service provider for termination. The Commission will require that such certification be provided by affidavit made by a senior officer of the company.
89.Where there have been modifications to the contribution regime in the past, six months lead time has been considered appropriate (for example, in Revisions to the Mechanism to Recover Contribution Charges, Telecom Decision CRTC 95-23, 4 December 1995). The Commission considers six months appropriate in this instance as well.
90.In summary, the Commission concludes that: (a) the international service provider that uses facilities to transport international minutes over Canada's borders will be responsible for reporting and remitting contribution to the relevant LEC; (b) reporting and remitting of contribution will be a condition of licence for the service providers in question; (c) where an international service provider leases international transmission facilities to another service provider for transporting international traffic, the contribution reporting and remittance obligation will reside with the party using the transmission facility and not the underlying transmission facility provider; (d) the obligation to report and remit contribution will not apply to a reseller who only resells switched services of another international service provider or to a service provider who only hands off international traffic to another service provider for termination, once the reseller or service provider has been issued the appropriate licence under the process set out in Part VIII, below; (e) the reporting procedures, safeguards and audits set out in Order 97-1903 will apply to the per-minute contribution regime for international traffic; and (f) the modifications in this Decision to the mechanism for collecting contribution on international traffic are to be implemented effective 1 April 1999.
V INTERNATIONAL SETTLEMENT ARRANGEMENTS
91.In PN 97-34, the Commission noted that, historically, the exchange of traffic between international service providers has required agreements between service providers in the originating and terminating countries. The Commission requested comment on whether, and in what circumstances, international carriers should be obliged to enter into such correspondent relations for the termination of traffic in other countries, including formal transit arrangements for routing traffic through intermediary countries.
92.The Commission also requested comment on (a) whether it should require proportionate return and/or parallel accounting for international services, (b) if so, what the specific requirements should be, and (c) whether it should require the equal division of accounting rates.
93.In this context, the Commission noted that mechanisms have been put in place in other jurisdictions to address problems associated with distortions in traffic patterns and settlement flows that can arise between countries with liberalized telecommunications markets and countries where there is a monopoly or dominant supplier. In particular, the U.S. and other countries have in the past imposed requirements for proportionate return and parallel accounting.
94.In the traditional bilateral relationship between international carriers under the accounting rate system, the carrier originating more traffic pays a settlement to the carrier that terminates that traffic. Under a proportionate return system, the amount of traffic a Canadian service provider would terminate in Canada on behalf of a foreign operator would be linked to the proportion of total Canadian traffic that the Canadian service provider sent to the foreign operator. For example, if a Canadian service provider originated 10% of the total Canadian traffic sent to a particular foreign carrier, the foreign carrier would send back to that Canadian service provider 10% of its traffic bound for Canada.
95.Proportionate return is intended to prevent foreign carriers from discriminating among a country's international service providers. For example, when a foreign international carrier has a monopoly, service providers in competitive jurisdictions have no choice but to deal with the monopolist if they want to establish correspondent relations for the termination of their traffic in the country in question. However, the foreign monopolist may have established an affiliate to carry on business in the competitive jurisdiction. If so, it would have an incentive to send all its traffic to that affiliate for termination in the competitive jurisdiction. This would ensure that any payments it made under the accounting rate system would go to its affiliate, while none would go to the other service providers with whom the affiliate competes. The unaffiliated competitors would be obliged to make settlement payments under the accounting rate system to the foreign monopolist for the termination of their traffic, with no offsetting payments from the foreign monopolist for traffic terminated in Canada on its behalf. This would give the affiliate of the foreign monopolist an ongoing cost advantage for its operations in the competitive jurisdiction.
96.Under parallel accounting, all Canadian service providers would have the same accounting rate with a particular country. Parallel accounting is intended to address the problem of "whipsawing", i.e., in competitive jurisdictions, the playing off of one carrier against another with respect to the rates paid by foreign operators for the termination of their traffic. It also prevents a foreign carrier from granting preferential accounting rates to a particular service provider in a competitive jurisdiction.
97.As noted above, in a bilateral relationship between international carriers, the carrier originating more traffic pays a settlement to the carrier that terminates that traffic. When the accounting rate is equally divided between the originating and terminating jurisdiction, that payment effectively represents the application of the per-minute accounting rate to any traffic imbalance between the two countries. If traffic is balanced, no payment is made. However, traffic imbalances may develop between competitive and monopoly jurisdictions. This is because rates charged to end-users are driven down in competitive jurisdictions. Therefore, there is a tendency for more calls to be placed from the competitive to the monopoly jurisdiction than in the other direction. Some jurisdictions have been reluctant to permit an unequal division of accounting rates with foreign monopolies, fearing that it would exacerbate competitive concerns in their home markets and increase outbound imbalances in settlement payments.
98.In addition to the mechanisms noted above, PN 97-34 also requested comment on whether or not the Commission should establish benchmarks for accounting rates, as was recently done by the FCC in the U.S. Under the FCC's ruling, countries are assigned to one of four categories depending on level of economic development. A ceiling accounting rate is prescribed for each category, along with deadlines by which the rate must be brought down to this ceiling level. The ceiling is highest, and the implementation period longest, for the least developed countries.
B. Correspondent Relations
99.Of the parties who commented on this issue, the majority (ACE, Aurora, Call-Net, Global One, fONOROLA, NAG, Stentor and Teleglobe) opposed a requirement for service providers to enter into direct correspondent relations with foreign carriers. Parties argued that the liberalizing international telecommunications market is moving away from such requirements, and is providing flexibility in arrangements for traffic exchange. Further, to impose such a requirement would preclude practices such as switched hubbing that are leading to significant benefits to end-users in the form of lower rates.
100.Parties also submitted that the need to negotiate agreements with all countries with whom a service provider might wish to exchange traffic would take time and would constitute a barrier to entry. Among other things, some foreign monopolists may be reluctant to complicate their participation in the settlement system by entering into agreements with numerous, relatively small service providers in Canada. Further, from the perspective of the Canadian service provider, traffic volumes to a particular country may not justify the establishment of direct relations with a carrier in that country.
101.GeoReach submitted that service providers should enter into correspondent relations for the direct termination of traffic to other countries with which traffic is to be exchanged. GeoReach noted that formal transit arrangements, consistent with International Telecommunications Union (ITU) recommendations, could be implemented for routing traffic through intermediary countries when international traffic volumes are not sufficient to justify direct routes between Canada and other countries.
102.The Commission will not require international service providers to enter into direct correspondent relations with foreign carriers in order to terminate traffic in foreign jurisdictions. Among other things, the Commission agrees with parties who argued that such a requirement would be contrary to current trends in the international telecommunications market. In addition, the establishment of correspondent relations with a foreign carrier may not be justified by a service provider's traffic volumes. Further, a requirement for direct relations could provide Teleglobe (who has already established such relations with many countries) with an undue competitive advantage.
103.The Commission notes that PN 97-34 was issued prior to its 19 December 1997 Decision permitting switched hubbing over Teleglobe's IPLs. In the Commission's view, the issue of a requirement for correspondent relations has been overtaken by events and was effectively resolved by the Commission's December 1997 ruling permitting switched hubbing (i.e., permitting the hubbing of traffic without formal transit arrangements).
C. Parallel Accounting, Proportionate Return, Equal Division of Accounting Rates
1. Positions of Parties
104.Most parties opposed the blanket imposition of parallel accounting, proportionate return and the equal division of accounting rates. Several parties proposed that the Commission impose these requirements only as corrective measures where anti-competitive practices are shown to have occurred. Some parties proposed conditions of licence to this end.
105.Call-Net, Global One and Stentor expressed the view that proportionate return fossilizes the market and favours those service providers with a larger market share of outbound traffic at the inception of a competitive regime. Several parties also submitted that the imposition of measures such as parallel accounting from the outset could impede competition and reduce service providers' incentives to become more efficient. Global One, NAG and other parties submitted that proportionate return locks in market shares and prevents inbound and outbound markets functioning as separate commercial markets. Call-Net argued that whipsawing is not a problem unless it has anti-competitive effects in the Canadian market.
106.Stentor commented that the new environment for international telecommunications is characterized by multiple carriers with international traffic traded as separate inbound and outbound streams. It submitted that accounting rates are changing to local termination rates. Stentor and other parties submitted that market forces and open and fair competition will ensure that the impact of traffic imbalances is limited. Stentor also noted that carriers may implement proportionate return in any event, either voluntarily or because of requirements at the other end.
107.fONOROLA noted that, in some cases, carriers at the other end are not willing to enter into agreements providing for proportionate return (i.e., if the Canadian carrier does not have enough traffic).
108.NAG supported the principle of proportionate return, but opposed making it a condition of licence. Rather, the Commission should monitor traffic flows and take specific action to cure problems that appear to be the result of anti-competitive conduct.
109.Both Teleglobe and fONOROLA noted that proportionate return and parallel accounting were implemented in the U.S. when it had the only competitive regime. fONOROLA (and other parties) noted that the FCC has moved away from requiring these measures in all circumstances. Teleglobe submitted that circumstances have changed greatly since the FCC imposed these requirements. Teleglobe also submitted that the licensing process and licensing conditions provide the best means of preventing any abuse.
110.Parties also noted that the ability to use flexible routing and switched hubbing already provides cost-based alternatives to anti-competitive practices by overseas monopoly carriers under bilateral relations.
111.MCI submitted that the Commission should require all international carriers to enter into published uniform accounting rate agreements and be subject to proportionate return traffic arrangements with foreign correspondents. MCI submitted that the terms and conditions negotiated by a foreign dominant carrier should be made available to all Canadian international carriers so that foreign dominant carriers do not take advantage of their negotiating leverage with individual international Canadian carriers.
112.MCI also proposed a rule preventing Canadian carriers from accepting any special concessions from foreign carriers with market power (i.e., any arrangement that affects traffic or revenue flows to or from Canada that is offered exclusively by a foreign carrier to a particular carrier and not also to a similarly situated Canadian international service provider). MCI considered this necessary to prevent foreign carriers from discriminating among Canadian international carriers in delivering traffic to Canada and to protect Canadian service providers from whipsawing (i.e., demanding a lower termination rate) as a concession for getting disproportionate return traffic. However, MCI submitted that more flexible arrangements should be permitted, for example, when the amount of traffic involved is not sizeable, thus permitting non-dominant carriers to compete more effectively against a dominant provider.
113.PIAC submitted that innovative settlement arrangements should be encouraged, provided they are available to all market participants on a non-discriminatory basis. In this context, PIAC submitted that the Commission should impose parallel accounting on all facilities-based service providers. PIAC considered this necessary to avoid anti-competitive abuses by significant international carriers and to ensure that termination rates are at a competitive level for all carriers.
114.ACE disagreed with suggestions that parallel accounting and proportionate return only be used as remedies when anti-competitive behaviour is found to have occurred. ACE submitted that such measures are necessary to discourage anti-competitive conduct before it actually takes place. ACE submitted that all agreements entered into by dominant service providers should contain conditions allowing others to avail themselves of the same accounting rates and proportionate return traffic arrangements. Further, the Commission should make this a condition of licence.
115.AT&T Canada LDS also supported parallel accounting and proportionate return as anti-competitive safeguards for dominant service providers, including service providers affiliated with a major supplier in a foreign market.
116.The Commission will not require proportionate return, parallel accounting or the equal division of accounting rates, absent evidence of some kind of conduct that is having an anti-competitive effect in the Canadian market.
117.The Commission considers that a requirement for proportionate return would, among other things, provide Teleglobe with an undue advantage at the outset of competition. The Commission also considers that there is a growing tendency to treat inbound and outbound traffic as separate markets. The Commission considers that service providers should be free to compete for the termination of inbound traffic, without having that ability constrained by the amount of traffic they originate.
118.The Commission considers that parallel accounting could have an adverse effect, in that foreign international carriers may be reluctant to reduce the accounting rate granted to one Canadian service provider if that means it must also automatically reduce the accounting rate for all other Canadian service providers. Thus, parallel accounting can have the unfortunate effect of preventing accounting rate reductions. This is particularly true if accounting rates are published, since carriers from other jurisdictions might also seek to have their accounting rates reduced to the same level.
119.The Commission considers that flexible routing practices and increased competition in the major markets with which Canada exchanges traffic are reducing the need for requirements such as parallel accounting, proportionate return, and the equal division of accounting rates. However, even with the ratification of the Fourth Protocol, there will remain markets where competitive abuses may occur. The Commission agrees with parties who argued that abuses are most likely to occur where there is a monopoly or dominant service provider at the foreign end. However, as discussed below with regard to licensing, the Commission considers that to distinguish between dominant and non-dominant service providers in order to impose proportionate return, etc., only on the dominant providers, would be a time-consuming and sometimes contentious exercise, especially considering that it would often have to be done on a route-by-route, market-by-market basis.
120.As also discussed in the context of licensing, the Commission considers that a reporting regime would detect distortions in traffic patterns that may be symptomatic of conduct that is having an anti-competitive effect in the Canadian market. If such conduct were found to have occurred, the Commission could, by way of condition of licence, impose proportionate return, etc., either on the individual licensee or on all service providers on the route in question. The Commission does not consider it necessary to impose such requirements before the fact. In the Commission's view, imposing requirements such as proportionate return only on a case-by-case basis in response to conduct that has an anti-competitive effect would be more consistent with increased competition and reliance on market forces, as the same practice (for example, obtaining a favourable termination rate) may or may not have anti-competitive effects, depending on the circumstances.
121.The Commission notes that, in any event, some foreign jurisdictions impose proportionate return under the regulatory regimes applicable to their carriers. In addition, some carriers have adopted proportionate return voluntarily or as a matter of industry practice.
122.Most parties who commented on this issue were of the view that the Commission should not establish accounting rate benchmarks. Several of these parties submitted that benchmarks are unnecessary, as competitive pressures and routing flexibility will lead to reductions in accounting rates.
123.Call-Net submitted that benchmarking of accounting rates could be effective to combat the inflated cost of international telecommunications to foreign countries with monopoly regimes. However, on balance, Call-Net opposed benchmarks, arguing that they are complicated to establish and difficult to enforce. Call-Net and Stentor also considered that Canada may experience a "spill-over" effect from the FCC benchmarking initiative, thus receiving the benefits without having to implement its own benchmarking scheme.
124.Teleglobe also considered that benchmarks were unwarranted and would be difficult to establish and enforce. It noted that the FCC benchmarking order had led to court appeals in the U.S. It also submitted that the establishment of benchmarks raises issues of national sovereignty and international comity.
125.fONOROLA submitted that Canada does not have the influence of the U.S. to impose benchmarks, or the appropriate mechanism to enforce them. PIAC submitted that the Commission should use benchmarks with caution, if at all. PIAC argued that, while benchmarks can undercut excessive rates, they may also serve as a "price leader" that dictates as normal termination fees that are above the competitive market level.
126.Aurora supported the establishment of benchmarks for accounting rates as an interim measure, with the end goal to be the removal of accounting/settlement rates entirely over a period of 10 years.
127.The U.S. Government submitted in general that the Commission should establish a flexible settlements framework similar to that established by the FCC to take advantage of competitive pressures in foreign markets. However, it stated that non-discriminatory, cost-based charges for interconnection and other services do not exist in many foreign markets. It submitted that the Commission should adopt benchmark settlement rates. It noted that, in the absence of data on foreign carriers' costs, the Commission could conduct a study similar to that performed by the FCC and establish a methodology based on foreign carriers' publicly available tariffed rates and data published by the ITU. It added that, whatever methodology the Commission adopts, action to bring accounting rates more in line with costs is essential to the continued development of the international services market and the promotion of consumer welfare in Canada, the U.S., and all other countries.
128.The Commission agrees that alternative routing arrangements such as ISR and switched hubbing, as well as practices such as call-back, can put downward pressure on accounting rates in many countries. However, there are still countries where accounting rates are high, and probably at levels significantly above costs. The Commission notes that, while efforts are underway in the ITU to bring about lower accounting rates, it is impossible to predict how successful those efforts will be.
129.However, the Commission also considers that the commitments made by various countries under the Fourth Protocol promise a significant market liberalization. Further, that liberalization is occurring in countries (such as the countries of the European Union) with whom Canada exchanges much of its overseas traffic. The Commission considers that increased competition and routing flexibility in these countries will gradually bring down accounting rates on most routes of significance to Canada.
130.In addition to the above, the Commission agrees with parties who argued that benchmarks could be difficult to establish and enforce.
131.In light of the above, the Commission does not consider it appropriate or necessary at this time to establish accounting rate benchmarks.
132.In PN 97-34, the Commission requested comment on whether, pursuant to section 34 of the Telecommunications Act, it should refrain from exercising powers and performing duties with respect to services provided by Teleglobe, once its monopoly has ended. In particular, the Commission requested comment on whether, and if so to what extent, it should refrain from exercising powers and performing duties under section 25 of the Telecommunications Act with regard to services provided by Teleglobe (a) to other service providers, and (b) to end-users. In this context, the Commission noted that non-dominant Canadian carriers are not obliged to file tariffs for the bulk of their services, by virtue of Decision 95-19, and that public proceedings were then underway to determine the extent of forbearance appropriate for certain services of the Stentor companies and other telephone companies.
133.The Commission also noted that section 17 of the Teleglobe Act specifies that agreements and arrangements between Teleglobe and any foreign telecommunications carrier or foreign communications administration respecting international telecommunications facilities, operations or services are not subject to the Commission's approval. Based on the assumption that legislative amendments would include the deletion of section 17, the Commission requested comment on whether or not forbearance under section 29 of the Telecommunications Act should be extended to (a) Teleglobe, and (b) new facilities-based entrants.
B. Forbearance for Teleglobe
1. Overview of Positions of Parties
134.Teleglobe submitted that all of its services will be subject to sufficient competition that the Commission should forbear completely and unconditionally from regulation under sections 24, 25, 27, 29 and 31 of the Telecommunications Act. Teleglobe submitted that the new licensing powers in Bill C-17 will permit the Commission to forbear as Teleglobe proposed, while retaining any necessary powers to address lingering concerns through the ability to impose conditions of licence related to the circumstances of a licensee.
135.In support of its request for complete and unconditional forbearance, Teleglobe stated that, in Teleglobe - Review of the Regulatory Framework, Telecom Decision CRTC 96-2, 2 February 1996 (Decision 96-2), the Commission concluded that Teleglobe possessed substantial market power in the provision of international telephone services due to (a) its monopoly status, and (b) restrictions on bypass. Teleglobe submitted that, with the end of its mandate and of routing restrictions, the reasons cited for not granting Teleglobe forbearance will no longer be valid.
136.Teleglobe also submitted (among other things) that it has few end-user customers of its own. It argued that its major customers are other service providers who, with the end of its monopoly and of routing restrictions, will be able to find other means of sending their traffic overseas. Further, due to their control of end-user customers, these customers are in a good position to negotiate advantageous rates with Teleglobe. In addition, their control of Canadian outbound traffic will facilitate negotiations and the creation of correspondent relations with foreign carriers.
137.Teleglobe also contended that it controls no essential facilities and that barriers to entry are low. It argued that, with the elimination of routing restrictions, service providers will have many alternatives open to them for routing their traffic, including: (a) resale of Teleglobe facilities; (b) resale from competitive facilities-based carriers, including facilities from U.S. suppliers; (c) resale of switched services from Teleglobe or other Canadian service providers; and (d) the establishment of direct bilateral interconnections with overseas correspondent carriers, such bilateral routes utilizing: (i) IRUs in existing cables landing in the U.S. or Canada; (ii) leases of capacity in such cables; (iii) original ownership of capacity in new cables (TAT-14, Oxygen); and (iv) leases of satellite capacity from satellite service providers such as the International Telecommunications Satellite Organization (Intelsat), Orion, PanAmSat and Intersputnik.
138.Call-Net expressed support for forbearance for Teleglobe, arguing that, provided routing restrictions are eliminated, Canadian service providers will have competitive alternatives to Teleglobe in the U.S., which should prevent Teleglobe from extracting monopoly rents for its services. Call-Net submitted that the Commission would therefore not have to regulate Teleglobe's wholesale rates.
139.However, Call-Net also submitted that the Commission should retain its powers under sections 27(2) and (4) of the Telecommunications Act to ensure the availability of Teleglobe's facilities to other competitors (consistent with Decision 95-19 with regard to forbearance for non-dominant Canadian carriers), and under section 29. In addition, Call-Net recommended that forbearance not take effect until 1 January 1999, to give Canadian service providers a short transition period to establish facilities and relationships, if necessary, to deliver their traffic to foreign carriers that are in a position to offer an alternative to Teleglobe.
140.ACC considered that short to medium term constraints on the availability of routing alternatives to Teleglobe's services and facilities would remain even with the elimination of routing restrictions. Therefore, ACC submitted that forbearance for Teleglobe should not take effect until at least 1 October 1999, and further that the Commission should retain powers under sections 24, 27(2) and (4) and 29 of the Telecommunications Act.
141.Parties opposing forbearance for Teleglobe, or arguing that forbearance should be limited, pointed to Teleglobe's monopoly status and argued that the lifting of routing restrictions alone will not create the competitive conditions necessary for the Commission to forbear. ACC submitted that any ability for retail providers to route traffic as they wish depends on the presence of alternatives to Teleglobe's services. Parties argued further that, given Teleglobe's ability to control the price differential between IPLs and switched services, the option of ISR/switched hubbing is not sufficient to discipline Teleglobe's price levels for switched services.
142.With its proposal, Call-Net submitted a study by KMI Corporation entitled Cost and Availability of Circuit Capacity on Trans-Atlantic and Trans-Pacific Fiberoptic Submarine Cables from the U.S. and Canada, which concluded that there is limited capacity available for purchase on undersea cables. Several parties relied on this study in opposing Teleglobe's forbearance request, arguing that capacity shortages mean that Teleglobe would retain control of essential bottleneck facilities, and thus market power, for some time to come. Some parties submitted that the capacity that will be available may be in increments too large for the needs of new entrants.
143.Other obstacles to the acquisition of international facilities were cited, in particular, the need for large up-front investments to purchase facilities or to participate in consortia for the construction of facilities, as well as the long lead times required. Parties also cited factors such as the time and effort required to obtain landing rights in foreign countries or to negotiate "matching capacity" for international half circuits, and to enter into agreements with foreign carriers. Parties also raised concerns with regard to their ability to access satellite facilities, in particular, Intelsat capacity.
144.Parties argued generally that Teleglobe's extensive network of agreements with foreign carriers and administrations would provide it with a competitive advantage. Parties also submitted, among other things, that foreign carriers and administrations might not be willing to enter into agreements with service providers other than Teleglobe, especially where the foreign carrier is a monopoly, or on routes where facilities are limited. Similarly, they argued that foreign carriers may be reluctant to send return traffic to new entrants, thus providing Teleglobe with a significant cost advantage.
145.Stentor submitted that it would be inappropriate for the Commission to forbear with respect to Teleglobe's wholesale services until there is evidence of a sufficient supply of international services and facilities available to service providers in Canada. Stentor added that, if the Commission does forbear, it should do so partially, retaining in particular sections 27(2) and 29 of the Telecommunications Act.
146.Stentor considered it likely that competition will develop more rapidly in outbound (Canada originated) services. With inbound services (services that Teleglobe provides to foreign carriers to deliver calls to Canada for completion), Teleglobe's historical role as Canada's monopoly service provider and interface with foreign carriers will be more difficult to overcome. In particular, Stentor submitted that substitutes for Teleglobe's operator handled, home country direct, toll-free, virtual network and card based services cannot reasonably be expected to develop for some time due, among other things, to the time required for new entrants to negotiate the necessary relationships with foreign correspondents.
147.Stentor agreed with Teleglobe that competition in the retail provision of international outbound calling is flourishing. It therefore submitted that forbearance for Teleglobe's outbound retail calling services, coincident with the removal of routing restrictions, would appear appropriate from the perspective of current rivalry, price competition and marketing activity.
148.However, Stentor also submitted that, since Teleglobe controls underlying facilities and will remain the dominant provider of international carriage in the Canadian market, it will be able to use excess margins from rates for wholesale services to set retail prices below the level at which other service providers can compete profitably. Stentor submitted that the Commission should retain powers under section 27(2) (no undue-discrimination) as a replacement for the need for Teleglobe to file retail service tariffs. Stentor also recommended that the following conditions be met: (a) all routing restrictions should be lifted, (b) Teleglobe should establish a separate Carrier Services Group (CSG), and (c) Teleglobe should be subject to retail price controls; in particular, it should not be permitted to price retail services below prevailing wholesale prices for like quantity and quality. In its reply, Stentor submitted that the Commission should impose "appropriate" restrictions on Teleglobe's ability to set up a resale affiliate, in order to ensure that its proposed conditions are effective.
149.Other parties also raised concerns related to Teleglobe's presence in the retail market, noting that this would enable it to engage in "price squeezing" between its wholesale and retail prices. Some also agreed that Teleglobe should be required to establish a CSG, to ensure that it does not use sensitive information provided by competitors to market its retail services.
150.Some parties argued that Teleglobe simply had not presented sufficient evidence to permit the Commission to forbear. Further, the evidence that Teleglobe had submitted was general and at an aggregate level. Parties noted that, with Teleglobe's monopoly in place until October 1998, there can be no evidence of rivalry in the provision of wholesale international services to Canada's domestic service providers, nor any evidence of price competition or any competitive marketing activity not constrained by Teleglobe's current position. The extent and pace at which these might develop is speculative at this point. Some parties argued that the issue of forbearance for Teleglobe should be left until Teleglobe can demonstrate, in a subsequent proceeding, that it has met the criteria for forbearance set out in Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994 (Decision 94-19).
151.In its reply, Teleglobe cited a press article quoting a Sprint Canada Vice-president stating that a recent Call-Net investment in the new Atlantic Crossing submarine cable represented an opportunity for "a new source of revenue from inbound traffic to Canada from Europe." Teleglobe submitted that this demonstrates that competitors will be able to negotiate for inbound traffic. Further, the ability of a service provider to acquire inbound traffic will depend on its ability to send outbound traffic. Teleglobe stated that, with competition, its ability to send outbound traffic will decrease to the benefit of its competitors.
152.Teleglobe cited the same press article as evidence that competitors will be able to obtain capacity on international cables, and in units of capacity appropriate to suit their needs. To refute arguments that international capacity is limited, Teleglobe also cited its own recent experience acquiring capacity in the Pacific region. It submitted that growth in capacity at present is "exponential".
153.With regard to the supposed reluctance of foreign carriers to enter into direct relations, Teleglobe submitted that the opening of markets under the Fourth Protocol will mean that many new carriers in important foreign markets will be eager to enter into relations with new facilities-based service providers in Canada. For those who do not have sufficient traffic to open up a direct route to a particular country, switched hubbing is available.
154.With regard to arguments that implementation of direct routes requires complex negotiations, etc., for the establishment of correspondent relations, Teleglobe submitted that the issue of attempting to duplicate its network of facilities and agreements is irrelevant, since alternative routing arrangements are available.
155.Teleglobe also argued that operator-handled, home country direct, international toll-free, virtual network and card-based services need not be considered separately for forbearance. Teleglobe submitted that, with the elimination of routing restrictions, its customers would be able to handle their own operator traffic as easily as their international direct dial traffic via alternate routings. In negotiating such agreements, it would be up to any Canadian service provider to negotiate the necessary arrangements for the provision of operator services.
156.To refute arguments that there are barriers to entry, Teleglobe cited the rise of Pacific Gateway Exchange (Pacific Gateway), Star Telecommunications (Star) and RSL Communications Ltd. (RSL) in the U.S. Teleglobe also cited the recent appearance of Internet sites, modelled on the commodities market, specializing in the brokerage of international transmission.
157.Teleglobe submitted that the Commission should not leave the issue of forbearance until a subsequent proceeding and that there should be no delay in the granting of forbearance. It remained of the view that the end of its monopoly and the removal of routing restrictions should be sufficient for the Commission to forbear. However, it submitted that, in any event, all the necessary information to meet the Decision 94-19 criteria had been filed in this proceeding. It submitted further that the Commission had stated previously that forbearance should be granted when a market is competitive, or will be within one or two years.
a. Analytical Framework
158.In Decision 94-19, the Commission developed an analytical framework for determining whether or not it should forbear with respect to a service or class of services. As an initial step in that analysis, the Commission determines the relevant market (i.e., the smallest group of products and geographic area in which a firm with market power could profitably impose a sustainable price increase), taking into account substitutes and other market features of the service in question. The analysis then takes into account the market share of the dominant firm and of other firms in the market, demand conditions (including the availability of economically feasible and practical substitutes), supply conditions (for example, whether competitors could accommodate a substantial number of new customers in a reasonable period of time if the dominant firm raised prices), the likelihood of entry, and evidence of rivalrous behaviour (falling prices, aggressive marketing activities, etc.).
159.The Commission has stated with regard to this analysis that regulatory policy should aim to remove artificial barriers to entry in order to ensure sufficient opportunity for workable competition, and further that it will require evidence that significant barriers to entry are removed and that such competition has occurred or will occur within a period of one to two years.
160.In support of its request for complete and unconditional forbearance, Teleglobe submitted that, with the end of its mandate and of routing restrictions, the reasons cited in Decision 96-2 for not granting Teleglobe forbearance will no longer be valid. Other parties argued that the meeting of these two conditions is not sufficient, but rather the Commission should conduct its forbearance analysis on the basis of the criteria established in Decision 94-19.
161.In response to interrogatory Teleglobe(SRCI)18Dec97-21, Teleglobe submitted that its request for forbearance should be considered based on the broad market conditions that apply for all of its services and operations and that a detailed review on a service category basis is no longer necessary or appropriate. Hence, the assessment of its market power should be done taking into account the competitive pressures on its operations as a whole at the end of its mandate.
162.Stentor noted the Decision 94-19 criteria, including the definition of the relevant market, and submitted that the Commission should consider the unique aspects of the different services provided by Teleglobe. In its view, a "one size fits all" approach to forbearance would not be appropriate in light of the significant differences in market conditions for Teleglobe's various services.
163.In Decision 96-2, the Commission stated:
During the proceeding, Teleglobe and several interveners noted that the criteria contained in [Decision 94-19] were appropriate for determining whether there is sufficient competition to forbear from regulation of a service or class of services.
164.In Decision 96-2, in ruling on Teleglobe's forbearance proposal, the Commission considered that "Teleglobe's categorization of its services is consistent with the product market criteria established in Decision 94-19." However, it considered that "the relevant geographic market for forbearance purposes should be the Canada-overseas market accessible by customers located in Canada." In the next paragraph, the Commission went on to state that:
Given Teleglobe's monopoly status and the restrictions on bypass, the Commission finds that forbearance would not be consistent with the telecommunications policy objectives of the Act and that there is insufficient competition to protect the interest of users.
165.As indicated by the above, the Commission did not find in Decision 96-2 that the end of Teleglobe's monopoly and the removal of routing restrictions would be sufficient for it to grant forbearance for Teleglobe's services. Rather, as suggested by Stentor, once the Commission had concluded that the relevant geographic market was Canada, Teleglobe's monopoly combined with routing restrictions obviated the need for it to proceed with the full Decision 94-19 analysis.
166.More importantly, the Commission considers that the Decision 94-19 analytical framework includes the basic elements necessary for it to determine whether in fact there is, or there is likely to be, competition sufficient to protect the interests of users. In the Commission's view, when those elements are not addressed, the factual underpinnings that would permit a finding that there is or will be competition sufficient for forbearance with respect to a service or class of services, and to determine the extent of that forbearance, are missing.
167.The Commission notes that it has applied the Decision 94-19 analysis in various forbearance proceedings, and considers that there is nothing on the record of the proceeding to warrant a departure from this practice in this instance. Accordingly, the Commission considers that it is this analysis that should be applied in assessing Teleglobe's request for forbearance in this proceeding.
168.The Commission notes that, while Teleglobe has some end-user or retail customers, most of its current services are provided primarily to other service providers. Based on Teleglobe's general arguments, the Commission considers that substitutes for at least some of these services could likely be found in the U.S. However, the Commission also considers that Teleglobe has not provided the kind of specific evidence or arguments that the Decision 94-19 analysis would require in support of a finding that competition is sufficient to warrant forbearance pursuant to section 34(2) of the Telecommunications Act. In particular, as discussed in more detail below, it has not provided sufficient information for the Commission to properly identify and assess (in relation, for example, to supply and demand conditions) the relevant product markets. Among other things, the Commission has no assurance that Teleglobe's arguments in support of forbearance, based as they are on broad market conditions, would apply to all of Teleglobe's services.
169.With regard to the suggestion that forbearance may be appropriate for Teleglobe's retail outbound calling services, the Commission notes that, other than in Local Competition, Telecom Decision CRTC 97-8, 1 May 1997 (Decision 97-8), it has not established classes of service for forbearance purposes by reference to whether the customer is an end-user or another service provider. This reflects the fact that, while some telecommunications services provide for volume discounts, and are therefore suitable for other service providers (for example, resellers), these services are generally equally available to end-user customers who have sufficient traffic volumes.
170.In light of the above, the Commission is unable to find, based on the record of the proceeding, that competition for Teleglobe's services is, or is likely to be, sufficient to protect the interests of users. Accordingly, Teleglobe's request for forbearance is denied, except as specified in section viii below with regard to certain services Teleglobe may wish to provide within Canada and between locations in Canada and the U.S.
171.The Commission notes that Teleglobe submitted that the new liberalized environment will make it necessary to change its method of regulation, established in Decision 96-2, regardless of the Commission's forbearance decision. Teleglobe proposed that the current regulatory regime, based on average revenue per minute price reductions for its telephone services and a price ceiling method for non-telephone services, cease to be applied as of 1 October 1998. Teleglobe noted that, in Decision 96-2, the Commission stated that:
The regulatory regime approved by the Commission will initially be in effect from 1 April 1996, the effective date for any required rate reductions for 1996, to 31 December 1999, barring any exceptional changes to the company's operating environment.
172.Teleglobe submitted that the ability of the Stentor carriers to engage in ISR and the increase (under the Fourth Protocol) in the number of countries permitting ISR constitute "exceptional changes". Further, in the company's new environment, the current method of regulation will be unsuitable, and should be ended immediately upon the issuance of the Commission's decision in this proceeding. Teleglobe also stated that it had reviewed other possible regulatory methods, but found them equally unworkable, as well as unnecessary.
173.The Commission notes that the issue of changes to (or the elimination of) the current method of regulating Teleglobe was not specifically identified as an issue in PN 97-34. Further, parties have not addressed the issue in any detail. In light of the above, and considering the Commission's finding that the record of the proceeding does not justify forbearance for Teleglobe at this time, the Commission does not consider it appropriate to grant Teleglobe's request that the current form of regulation be eliminated. However, in light of its determinations in this Section, including its view that substitutes are likely available for some of Teleglobe's services, the Commission would be prepared, on application from Teleglobe, to consider changes to its approach to regulating Teleglobe, including the question of forbearance.
174.The Commission's comments with regard to specific aspects of the Decision 94-19 analysis, and to sections 27 and 29 of the Telecommunications Act, are set out below. The Commission's findings with regard to Teleglobe's establishment of a CSG are set out in Part VII, below.
ii. Relevant Geographic Market
175.Teleglobe argued that the relevant geographic market is a North American one (excluding Mexico). It submitted that, since the Canadian and U.S. networks have been closely integrated under the North American numbering plan, and traffic flows between Canada and the U.S. constitute the largest bilateral traffic flows in the world, the mutual opening of switched hubbing by Canada and the U.S. will effectively create a single North American (except Mexico) market for overseas telecommunications for both Canadian and American international service providers.
176.Other parties argued or implied that it is only the Canadian market that should be taken into account, pointing out (among other things) that Teleglobe owns and controls the only overseas facilities linking Canada to overseas destinations.
177.The Commission considers that the relevant geographic market remains, as found in Decision 96-2, the Canada-overseas market accessible by customers located in Canada. Thus, the Commission's analysis should focus on any market power Teleglobe may have in Canada, and not in the broader North American market. However, given the Commission's decision to eliminate the Canada-overseas routing restriction, Teleglobe's wholesale customers located in Canada should, absent specific impediments, be able to take advantage of any facilities and services in the U.S. for sending their traffic overseas. Therefore, the Commission considers that such services and facilities should be taken into account in assessing available alternatives to Teleglobe's services and its market power.
iii. Relevant Product Market
178.Teleglobe considered that it is the retail market that is relevant, arguing that its wholesale customers (with their large shares of the retail market) could find alternate suppliers almost "overnight". Other parties considered Teleglobe's emphasis on the retail market inappropriate. ACC submitted that the market that must be assessed in determining the extent of any forbearance for Teleglobe is the market for those international facilities available to Canadian licensees through domestic or cross-border facilities for the purposes of routing overseas traffic. ACC submitted that any ability for retail providers to route traffic as they wish (as Teleglobe suggested they could) is entirely dependent on the presence of alternatives to Teleglobe, not on the retail providers' market share per se. Therefore, in ACC's view, retail market share is irrelevant to whether continued regulation of Teleglobe is required.
179.Stentor submitted that an initial consideration is whether the services are provided to wholesale or retail customers. It submitted that, within these two segments, the Commission should draw a distinction between outbound and inbound services. Stentor considered that competition would likely develop more quickly in outbound services.
180.Stentor considered that other services provided by Teleglobe have unique service and market attributes and should be considered separately from other inbound and outbound services. In this context, Stentor mentioned home country direct, other operator-handled services, international toll-free services, and virtual private network services.
181.Stentor and other parties also submitted that the Commission should distinguish between switched and private line services.
182.As noted above, the analytical framework established in Decision 94-19 would require that Teleglobe address the relevant product market. The Commission notes the wide variety of services offered by Teleglobe, ranging from international teleprinter service, through audio and television services, to its large volume wholesale offerings such as Globeaccess services. The Commission would expect there to be differences in, among other things, the market conditions for these diverse services. In the Commission's view, there is no basis on which it could properly conclude, absent specific supporting evidence, that these varying services constitute substitutes for each other, or could otherwise comprise a single relevant product market.
iv. Market Share
183.Teleglobe submitted that, for the larger North American overseas traffic market (considering Mexico as an overseas destination), it has a market share of only 5.5%. As discussed above, the Commission considers that, in assessing Teleglobe's market share, the Commission should have regard only to Teleglobe's share of the Canadian market.
184.Teleglobe submitted that, even in the presence of routing restrictions, it does not have 100% of the market. It submitted that 25% of Canadian outbound traffic bypasses its switched services. Therefore, its share of these services is 75% or less. Further, some of its customers have bypassed its network for more than 90% of their traffic.
185.ACE stated that, when Teleglobe's monopoly ends, it will have 100% of the market for IPLs and roughly 80% of the wholesale market for switched overseas services. MCI and other parties made similar submissions. AT&T Canada LDS submitted that, even taking into account bypass and the Commission's decision to permit switched hubbing over Teleglobe's IPLs, Teleglobe will continue to hold the overwhelming share of the market for Canada-overseas services.
186.Teleglobe based its estimate that 25% of traffic bypasses its switched services on a study covering the period 1991 to 1997. The Commission has concerns with regard to the study, in particular (a) that the estimate of traffic carried on Teleglobe's switched services is sensitive to the estimation period used, and (b) that its estimate of total Canada-overseas traffic over the period is not adequately substantiated. The Commission therefore does not accept Teleglobe's specific estimate of the amount of traffic bypassing its switched services. However, there is confirmation elsewhere on the record that Teleglobe's switched services are subject to bypass.
187.As noted by Stentor and other parties, the Commission considers that some of the switched traffic that Teleglobe describes as bypassing its switched services is likely carried on Teleglobe's IPLs.
188.With regard to IPLs, Teleglobe submitted that just under 90% of customers are currently served by other Canadian service providers. In response to interrogatory Teleglobe(SRCI)18Dec97-22, Teleglobe stated that the 90% figure refers to the percentage of Teleglobe's IPL revenues that comes from its wholesale customers; in other words, just over 10% of Teleglobe's IPL revenues come directly from the end-user market. The Commission considers this figure irrelevant for assessing what share of the overall Canadian market for overseas IPLs is provided by Teleglobe, directly or indirectly, or whether or not there are alternative sources for IPLs.
v. Other Factors Relevant to Forbearance
189.In the Commission's view, the key issue to address with regard to forbearance for Teleglobe is the question of the availability, now or within the time frame contemplated by the Decision 94-19 analysis, of alternatives to Teleglobe's services. The Commission agrees with ACC and other parties who argued that, absent alternatives, "control" by retail service providers over end-user customers is of little significance. Further, absent alternatives to Teleglobe's retail services, Teleglobe's end-user customers are similarly captive to it.
190.Teleglobe submitted that alternatives available to service providers would include: (a) resale of Teleglobe facilities; (b) resale from competitive facilities-based carriers, including facilities from U.S. suppliers; (c) resale of switched services from Teleglobe or other Canadian service providers; and (d) the establishment of direct bilateral interconnections with overseas correspondent carriers, such bilateral routes utilizing: (i) IRUs in existing cables landing in the U.S. or Canada; (ii) leases of capacity in such cables; (iii) original ownership of capacity in new cables; and (iv) leases of satellite capacity.
191.The Commission considers that the option of using ISR over Teleglobe's IPLs does not in itself provide a sufficient alternative to Teleglobe's switched services, absent regulatory controls over the terms under which Teleglobe's IPLs are made available.
192.With regard to the possibility of resale from competitive facilities-based carriers, the Commission notes that there is no evidence on the record that Canadian carriers will in the short term offer the kind of Canada-overseas services offered by Teleglobe. While carriers such as Stentor members offer IPLs (for example) on the retail level, those IPLs are obtained from Teleglobe.
193.Teleglobe made the general argument that wholesale alternatives would be available via the U.S. In support of its argument that barriers to entry are low, it mentioned certain service providers (Pacific Gateway, Star and RSL), but provided no information as to what specific services they offer (for example, switched services comparable to Globeaccess, IPLs), or under what terms and conditions.
194.Teleglobe also made reference to website "brokerage" agencies for international transmission. However, there is little assurance on the record of the proceeding that these brokerage houses would provide a complete alternative to Teleglobe's services. For example, there is no evidence that the services available would be suitable for large service providers (such as customers for Teleglobe's Globeaccess services) seeking to enter into reliable long-term contracts for the transmission of traffic. In addition, no information was placed on the record as to the quality and reliability of the services available.
195.With regard to audio and television services, Teleglobe submitted that Canadian retail customers can and do obtain audio program and television broadcast services from U.S. service providers. It stated that the market is effectively already competitive, and Teleglobe should be treated as non-dominant. However, Teleglobe submitted no specific data as to its share of the Canadian market for these services, nor did it point to specific available alternatives.
196.Teleglobe suggested that retail service providers could themselves establish direct relations with foreign carriers using various means, including leases in cables, IRUs, original ownership in cables and the use of satellite capacity.
197.The Commission considers that original ownership in cables is likely a realistic option only for the largest of Teleglobe's current service-provider customers. Further, given the time and expense involved in planning and constructing such facilities, the Commission considers that it may be some time before even the larger service providers undertake original ownership.
198.With regard to the possibility of obtaining capacity other than by way of original ownership, the Commission's judgment is that there will likely be sufficient capacity available in existing and planned submarine cables to accommodate international service providers for whom this is a suitable mode of entry. While parties cited barriers that might hamper their ability to gain access to the capacity that is available (unwillingness of owners to sell IRUs, capacity available only in very large increments, etc.), the record also indicates that some service providers have begun the process of acquiring international capacity. Over the long term, the Commission considers the acquisition of capacity via IRUs in submarine cables a viable alternative for some service providers, in particular, those with larger traffic volumes. However, even for larger service providers, the Commission considers that it would take some time to put in place sufficient IRUs to eliminate their reliance on wholesale services provided either by Teleglobe or some other similar service provider.
199.The Commission also considers that the acquisition of their own capacity (for example, in the form of IRUs) may not be appropriate for all service providers, especially smaller service providers without sufficient volume of traffic to justify the acquisition.
200.Teleglobe submitted that, with the removal of routing restrictions, leases of satellite capacity would be available. Teleglobe submitted that the Intelsat space segment would be available to new entrants, as well as competitive satellite systems (PanAmSat, Orion and Columbia/TDRS). It submitted that satellite earth stations can be quickly and inexpensively constructed by Canadian competitors, and that some potential competitors (Telesat) may already own facilities that could be re-assigned for overseas services.
201.In its comments, Telesat stated that its current generation of satellites is not designed or configured to provide services to countries other than Canada and substantial portions of the U.S. It stated that its forthcoming generation of satellites will have the capability to provide services through most of North America, Central America and the Caribbean, and that it will be in position to extend services to include routes currently classified as Canada-overseas. Further, as of 1 October 1998, there may be circumstances in which it would have a commercial interest in providing certain Canada-overseas services, as well as the capability to do so.
202.Based on the above, the Commission considers that Telesat would not, in the near future, offer competition to Teleglobe in the provision of fixed satellite services to most overseas destinations.
203.As Canada's sole signatory to Intelsat, Teleglobe is currently the only Canadian service provider with access to Intelsat space segment. Intelsat is in the process of restructuring itself with the intention of ultimately permitting multiple signatories. However, it is not clear whether the government intends to appoint other signatories or whether signatory status would in all cases be appropriate for other service providers.
204.Call-Net noted that Intelsat has mechanisms whereby other parties can obtain Direct Access to Intelsat space segment and/or various Intelsat meetings, etc. Under this system, a country's signatory can sign forms granting such parties various levels of Direct Access.
205.The Commission notes that, in Canada Gazette Notice No. DGTP-006-98, Policy Consultation Paper Respecting the Authorization of Earth and Space Stations for Fixed Satellite Services Following the Coming into Force of the GATS Agreement on Basic Telecommunications, 14 March 1998 (DGTP-006-98), the government stated that the Minister of Industry may, as of 1 October 1998, issue licences to enable entities to provide international fixed satellite service (except for service between Canada and the U.S.), within existing traffic-routing requirements for those services, in competition with the monopoly services now offered by Teleglobe. The government requested comment on, among other things, whether Industry Canada should adopt specific mechanisms in respect of satellites that provide fixed satellite services, are operated by an intergovernmental satellite organization (such as Intelsat), and are to be used with earth stations in Canada.
206.In DGTP-006-98, the government further stated that "fixed satellites owned and controlled up to a level of 100% by foreign service providers may be used to provide services between points in Canada and all points outside of Canada, except in the United States, as of December 31, 1999, and furthermore, fixed satellites owned and controlled up to a level of 100% by foreign service providers may be used to provide services between points in Canada and between Canada points in the United States, as of March 1, 2000."
207.Based on DGTP-006-98, it appears that Industry Canada will address the issue of Direct Access to Intelsat space segment by other service providers, along with other issues related to international fixed satellite service. However, given that the government has not yet established its policy pursuant to DGTP-006-98, the Commission is unable to assess the extent to which other service providers will have access to the satellite systems noted by Teleglobe.
208.More generally, the Commission considers that satellites may not provide a complete substitute for international submarine cables, due to factors such as the delay associated with satellite transmission.
209.With regard to operator handled, home country direct, toll-free, virtual network and card based services, Stentor submitted that competition cannot reasonably be expected to develop for some time due, among other things, to the time required for new entrants to negotiate the necessary relationships with foreign correspondents.
210.The Commission notes that several parties to the proceeding submitted that the need to establish direct relations with a number of foreign carriers would constitute a barrier to entry. The Commission considers that, in many instances, service providers would not be able to justify entering into such relations on the basis of considerations such as traffic volumes to particular destinations. Further, negotiating agreements and establishing relations with a number of countries could take time.
211.The Commission's general approach to forbearance has been to retain powers under sections 27(2) and (4) of the Telecommunications Act with regard to issues related to access to networks and the resale and sharing of services. In retaining powers under 27(2) and (4), the Commission retains its jurisdiction to find, in the appropriate circumstances, that a refusal to interconnect or to permit resale and sharing constitutes unjust discrimination or the conferring of an undue preference.
212.The Commission's approach has been based on the concept that open access to telecommunications is consistent with the notion of a "network of networks" and is generally in the public interest. For example, in retaining powers under sections 27(2) and (4) in Decision 95-19, the Commission considered that "access to the facilities of competing carriers will enhance the efficiency and competitiveness of the Canadian telecommunications industry."
213.The exception to the above is Decision 97-20, relating to the interexchange private line services of the Stentor companies. In Decision 97-20, the Commission granted forbearance for specific high capacity routes, including forbearance under section 27 with regard to access to networks and resale, based on a route-by-route analysis.
214.Teleglobe's argument that the Commission should not retain powers under sections 27(2) and (4) with regard to network access and resale and sharing is based on its submission that alternatives to its services and facilities are readily available. As discussed above, it is the Commission's view that Teleglobe has not substantiated this submission sufficiently to permit the Commission to find that Teleglobe's services are, or are likely to be, subject to a degree of competition sufficient to protect the interests of users. In addition, even if it were satisfied that forbearance was otherwise justified, the Commission is not satisfied, based on the arguments before it, that a departure from its general approach towards the retention of its powers under section 27(2) and (4) would be warranted.
vii. Section 29
215.Until the repeal of section 17 of the Teleglobe Act, the Commission has no jurisdiction over Teleglobe's agreements with foreign carriers and administrations. While the Commission can require the filing of such agreements for information purposes, they came into effect on their own terms without the Commission's approval. Under Bill C-17, section 17 of the Teleglobe Act will be repealed, bringing Teleglobe's agreements with foreign carriers and administrations under the Commission's general jurisdiction to approve interconnection agreements under section 29 of the Telecommunications Act.
216.The Commission notes that many parties raised concerns with respect to Teleglobe's agreements with foreign carriers. Generally, parties were concerned that Teleglobe may have entered into exclusivity arrangements with such carriers, which would prevent them entering into agreements with new facilities-based Canadian service providers.
217.Teleglobe stated that it has not entered into any exclusive agreements with foreign carriers. Other parties replied that Teleglobe's contracts may have provisions that, while not providing for exclusivity on their face, have the same effect.
218.In light of the concerns expressed by interveners, the Commission considers it appropriate that Teleglobe file its existing agreements with foreign carriers so that the Commission can examine them. Teleglobe is therefore directed to file all such agreements with the Commission by 30 November 1998. Verbal agreements are to be reduced to writing and also filed by the same date.
219.Parties also argued that these agreements should be placed on the public record. They suggested that public availability of accounting rates, and other integral terms of these agreements, would assist new competitors in their negotiations with foreign carriers and administrations. Teleglobe argued against public disclosure, especially of accounting rates, on the grounds that this information is competitively sensitive, and that many of its foreign correspondents would object to disclosure.
220.Information on the record of the proceeding indicates that accounting rates are made public in the U.S. Teleglobe indicated that OFTEL in the United Kingdom (U.K.) required the publication of the accounting rates of BT and Mercury (see response to interrogatory Teleglobe (AT&T CLDS)18Dec97-31) and was considering requiring the publication of all accounting rates agreed to by U.K. operators. The Commission notes that the FCC recently published accounting rate information for three countries, the U.S., the U.K. and New Zealand.
221.The Commission considers that knowledge of Teleglobe's accounting rates would give new facilities-based international service providers some assistance in negotiating with foreign carriers. They would, for example, be in a position to request the same accounting rate. However, the record indicates that accounting rates are regarded as commercially sensitive in most jurisdictions at this time. The Commission also considers that publication of accounting rates could make some foreign administrations reluctant to negotiate reduced rates, since they would likely be subject to pressure from other countries to reduce accounting rates for them as well.
222.On balance, the Commission would not generally consider it appropriate to require Teleglobe to place its international agreements (which include accounting rates) on the public record in their entirety. Therefore, Teleglobe may file such agreements under a claim of confidentiality, with abridged versions provided for the public record (unless Teleglobe can justify why abridged versions should not be provided).
viii. Services Within Canada and Between Locations in Canada and the United States
223.The Commission notes that services offered within Canada and between locations in Canada and the U.S. have never been part of Teleglobe's monopoly, and there is no evidence that Teleglobe exercises any market power with respect to such services. The Commission finds that there is sufficient competition for such services, as they may be offered by Teleglobe, to protect the interests of users. Further, to forbear is not likely to impair the establishment or continuance of a competitive market for these services. The Commission considers that forbearance should be granted for the same services and to the same extent as was granted with respect to non-dominant Canadian carriers in Decision 95-19, with the exceptions that (a) as discussed above, the Commission will retain powers under section 29 with respect to Teleglobe's agreements and arrangements, and (b) in light of the Commission's decision to eliminate routing restrictions, it is not necessary to impose a condition under section 24 with regard to restrictions on the bypass of Canadian services and facilities. Accordingly, pursuant to section 34(4) of the Telecommunications Act, sections 24 (in part), 25, 27 (in part) and 31 do not apply, effective 1 October 1998, to the extent that they are inconsistent with the above, to the provision by Teleglobe of services within Canada and between locations in Canada and U.S.
C. Forbearance for Other Service Providers
224.With respect to the provision of the carriage of traffic between Canada and overseas locations, Stentor submitted that unconditional forbearance of all service providers except Teleglobe would be appropriate. With specific regard to section 29 of the Telecommunications Act, Stentor submitted that regulatory scrutiny of new entrants' agreements with foreign service providers is unnecessary.
225.The Commission notes that, in Decision 95-19, it retained powers under section 29 over agreements and arrangements between non-dominant Canadian carriers and foreign carriers. The Commission cited routing restrictions as the reason for continuing to exercise powers and perform duties under section 29 with regard to international agreements. With the elimination of routing restrictions, the Commission does not consider it necessary or appropriate to continue to exercise its powers over such agreements. Accordingly, effective 1 October 1998, section 29 will not apply to agreements between foreign carriers and non-dominant Canadian carriers (i.e., those subject to Decision 95-19).
226.The Commission has not, in prior decisions, forborne with regard to its powers under section 29 over Stentor company agreements. In Forbearance - Regulation of Toll Services Provided by Incumbent Telephone Companies, Telecom Decision CRTC 97-19, 18 December 1997 (Decision 97-19), and in Decision 97-20, the reason cited for retaining jurisdiction over such agreements was the fact that, for the purposes of agreements and arrangements subject to section 29, the circumstances of the non-dominant Canadian carriers differ from those of the Stentor companies. In particular, the Stentor companies have agreements and arrangements to act in concert as a national entity. The Commission noted that these agreements and arrangements address the settlement of jointly earned revenues. The Commission considered the settlement of jointly earned revenues, including whether such settlement arrangements are equitable, to be a matter that should remain subject to the Commission's oversight. The Commission did not distinguish in Decision 97-19 and 97-20 between domestic and Canada-U.S. agreements.
227.The Commission notes that, in forbearance proceedings relating particularly to the Stentor companies, the Commission did not see fit to forbear with respect to international agreements. The Commission does not consider the record of this proceeding sufficient for it to find, pursuant to section 34, that forbearance would be appropriate with regard to its powers to approve such agreements.
228.The Commission considers that the treatment of the international agreements of the Stentor companies should be consistent with that accorded Teleglobe. Accordingly, Stentor may file such agreements subject to a claim of confidentiality, with abridged versions for the public record (unless it can justify why an abridged version should not be provided).
229.In Decisions 95-19, 97-19 and 97-20, the Commission imposed a condition under section 24 prohibiting the bypass of Canadian transmission facilities. In light of its decision to eliminate routing restrictions, the Commission considers that it is no longer necessary or appropriate to impose such a condition. Accordingly, effective 1 October 1998, this condition will no longer apply.
230.With regard to sections 27(2) and (4), the Commission remains of the view that open access to networks will enhance efficiency and competitiveness in Canadian telecommunications. The Commission therefore considers it appropriate that it continue to exercise powers and perform duties under sections 27(2) and (4), consistent with prior forbearance rulings, with respect to access to or resale of any Canada-overseas facilities and/or capacity that may be acquired by Canadian carriers entering the market in competition with Teleglobe.
VII INTERCONNECTION, RESALE AND SHARING, AND RELATED MATTERS
231.In PN 97-34, the Commission requested comment on whether international carriers should be obliged to interconnect with domestic carriers on a non-discriminatory basis. The Commission noted that, through Canada's Schedule of Specific Commitments in the Fourth Protocol, the government announced its intention to permit, as of 1 October 1998, foreign investment of up to 100% for operations conducted under an international submarine cable licence. The Commission requested comment on whether foreign entities acquiring such licences should be subject to the same obligation to interconnect on a non-discriminatory basis.
232.In addition, the Commission requested comment on whether (a) resale of Teleglobe's services and facilities should continue to be mandated and, if so, under what terms and conditions, and (b) resale of the overseas services and facilities of new entrants (including any foreign entity acquiring an international submarine cable licence) should be mandated and, if so, under what terms and conditions.
B. Obligations to Interconnect and to Permit Resale and Sharing
233.The Commission notes that Teleglobe's current tariffs specify that its telecommunications services may be resold and that the facilities of IXCs may be interconnected to its facilities and services, subject to their availability. In addition, available interconnection points are specified in its various tariffs.
234.The Commission notes that, by virtue of its monopoly, Teleglobe is the only party that has been permitted to land international cables in Canada or to obtain licences for earth stations operating with international facilities. Absent sufficient alternatives to its services, other service providers will be obliged to use Teleglobe's overseas services and facilities in order to provide services to their customers. The Commission therefore considers that, until Teleglobe establishes that there are sufficient alternatives to its services available to other service providers, it should be under a positive obligation to provide interconnection and to permit resale and sharing of its services and facilities, both on a non-discriminatory basis
235.In light of the above, the Commission will, at this time, maintain Teleglobe's existing explicit obligations with respect to interconnection and resale and sharing of its telecommunications services.
236.The Commission notes that parties made various requests with regard to more extensive interconnection to Teleglobe's network and the unbundling of and access to its facilities.
237.At present, Teleglobe generally provides interconnection at its three international gateway switches located in Vancouver, Toronto and Montréal. Parties submitted that Teleglobe should be obliged to provide interconnection at other points, for example, where the international cable is landed. Parties also submitted that the Commission should provide for access to Teleglobe's earth stations for interconnection purposes.
238.The Commission notes that a carrier providing retail international services in (for example) New Brunswick and wishing to use Teleglobe's Globeaccess service must, at present, incur the costs of transporting its traffic to Montréal, even though Teleglobe has cables landed on the east cost. While it may be reasonable to require Teleglobe to provide additional points of interconnection, or to otherwise provide greater access to its network, the requests made in this proceeding were made in general terms and no specific proposals were filed. In addition, there is no information on the record as to the costs associated with the various requests (the Commission notes that several of these suggestions were made in the comment stage, after the interrogatory process). The Commission does not consider the record of the proceeding adequate to make any specific direction to Teleglobe with regard to the provision of additional interconnection points or greater "access" to cable landings, etc.
239.The Commission also considers that, in a further proceeding, Teleglobe may establish that there are sufficient alternatives to its services that it should be granted some degree of forbearance and (among other things) should not be required to establish additional points of interconnection. In the interim, it is open to any party that considers itself unduly disadvantaged because of the lack of additional points of interconnection, or other forms of access to Teleglobe's network, to apply to the Commission with a specific request.
240.In the Commission's view, the above considerations also apply to requests that service providers be allowed further interconnection to Teleglobe's earth station sites.
241.The Commission does not consider it necessary or appropriate to order Teleglobe to convert excess cable capacity (or IPLs currently leased to service providers) into IRUs that it would then sell to new entrants, as suggested by some parties. Among other things, as discussed in the context of forbearance, the Commission is not persuaded that there will be a lack of available transmission capacity, in the form of IRUs or otherwise.
242.PN 97-34 also requested comment on whether foreign entities acquiring international submarine cable licences should be subject to the same obligation to interconnect on a non-discriminatory basis, and whether resale and sharing of their overseas services and facilities should be mandated. The Commission will rule when the need arises on the question of whether entities other than Teleglobe (domestic or foreign) actually obtaining licences for international cable facilities (as opposed, for example, to merely obtaining an IRU on a cable) should be subject to explicit interconnection and resale obligations. The Commission's preliminary view is that, should Teleglobe establish in a future proceeding that there are sufficient alternative facilities available to relieve it of an explicit obligation to provide interconnection, etc., there would appear to be little justification to impose such an obligation on other international cable licensees.
243.For other Canadian carriers who acquire more limited Canada-overseas capacity (for example, in the form of IRUs), the Commission does not consider it appropriate to prescribe specific interconnection obligations.
244.Global One submitted that new entrants should be under an obligation to provide for resale, but not to provide non-discriminatory interconnection. Global One argued that interconnection can impose significant costs on a service provider, whereas providing for resale does not. Global One did not substantiate this argument.
245.As discussed in the previous Part, the Commission is continuing to exercise powers and perform duties under sections 27(2) and (4) of the Telecommunications Act, with regard to access to and resale of any Canada-overseas facilities and/or capacity that may be acquired by Canadian carriers entering the market in competition with Teleglobe. The Commission notes that the associated costs to the carrier in question can be taken into account in assessing any allegation that the carrier is unjustly discriminating in refusing to interconnect or to provide services or facilities for resale purposes.
246.NAG suggested that, in order to encourage facilities-based competition, service providers investing in "hardware" (including switches) be granted favourable interconnection rates, and that the Commission may wish to consider conducting a future proceeding on this issue. The Commission does not intend to initiate such a proceeding. The Commission notes that "favourable" rates granted to such service providers would have to be offset by higher rates for other service providers.
C. Direct Access to Intelsat
247.Call-Net noted Intelsat provisions for Direct Access to its space segment, and submitted that the Commission should be prepared to direct Teleglobe to allow licensees access to any level of service that is required from the Intelsat and International Maritime Satellite Organization (Inmarsat) satellite systems. However, given Teleglobe's statement in this proceeding that "any other Canadian entity should be allowed to own and/or operate Intelsat space segment facilities on an equivalent basis to Teleglobe Canada's ownership and operation", Call-Net did not envision that the Commission's intervention would be required.
248.Stentor stated that, as signatory to Intelsat and Inmarsat, Teleglobe is currently the only Canadian party to receive invitations from these organizations to attend planning sessions and forums where carriers from around the world meet to discuss their traffic requirements. Other carriers may only attend if Teleglobe extends invitations to them. Stentor submitted that other carriers must be allowed to access these sessions, both before and after 1 October 1998. Further, if Teleglobe does not extend such invitations after that date, it would in effect be leveraging its position as Canada's only designated signatory beyond the end of its monopoly.
249.Call-Net submitted that, although Teleglobe would continue to be the Canadian signatory until multiple signatories from a single country are allowed, the Commission should encourage Teleglobe to represent the interests of all licensees using those systems before these organizations, in order that all issues faced by licensees could be raised in these forums. Call-Net proposed that Teleglobe convene meetings with all licensees using the Intelsat system, at which Canada's position before Intelsat would be discussed and formulated. Call-Net anticipated that there would be a commonality of interests among Canadian players, and did not foresee any differences in opinion concerning Canada's position. In the event that licensees did report that the signatory was not fulfilling its obligation of fairly representing the interests of all Canadian Intelsat users, Call-Net submitted that the Commission should intervene and mediate disputes.
250.As indicated in Part VI above, it would appear that Industry Canada intends to address issues related to Direct Access and to Teleglobe's signatory status in the proceeding under DGTP-006-98. However, the Commission considers that there may be circumstances where a refusal by Teleglobe to sign a Direct Access consent form for another service provider would constitute an undue preference under section 27(2) of the Telecommunications Act. The Commission would be prepared to deal with any specific application regarding difficulties associated with Direct Access.
D. Carrier Services Group
251.The Commission notes that several parties submitted that Teleglobe should be required to establish a CSG.
252.In response to interrogatory Teleglobe(CRTC)18Dec97-26, Teleglobe stated (among other things) that a specific requirement to establish a CSG would not increase the level of confidentiality safeguards already implemented.
253.In reply to arguments that it should be required to establish a CSG, Teleglobe disputed assertions that it is now in the same position as the Stentor companies at the time of Decision 92-12. Teleglobe submitted that it has no end-user customers and will operate in a competitive environment. By contrast, Stentor was a dominant vertically integrated carrier in competition with few new entrants. Further, Teleglobe submitted that it has already established a CSG group.
254.In the proceeding leading to Decision 92-12, Bell noted that a CSG would be responsible for (among other things) the developing and marketing of services to competitors, forecasting and tracking of network access requirements, processing and tracking of network access service requests, network provisioning interface, contract administration and safeguarding of competitor information. In Decision 92-12, the respondent telephone companies were directed to establish such a group, to negotiate an agreement with Unitel specifying the relevant procedures, and to file a proposed agreement.
255.In Unbundled Rates to Provide Equal Access, Telecom Decision CRTC 97-6, 10 April 1997 (Decision 97-6), the Commission approved, with limited modifications related primarily to Primary Interexchange Carrier (PIC) processing, the CSG agreements filed by the Stentor companies. The Commission also ordered that the agreements, and associated appendices, be incorporated by reference into the tariffs of the Stentor companies.
256.The Commission considers the establishment of a CSG a basic protection for competitively sensitive information that other service providers may have to provide to Teleglobe in order to obtain services required as inputs for their businesses. The Commission directs Teleglobe to file for the Commission's approval, within 30 days, a proposed CSG agreement, based on those approved in Decision 97-6 (amended to reflect the fact that Teleglobe is not a local service provider) and providing the same degree of protection. The Commission also directs Teleglobe to file, within 30 days, proposed tariff revisions to incorporate the proposed agreement into its tariffs, as necessary.
257.As noted earlier, section 2(1) of the Telecommunications Act, as amended by Bill C-17, establishes a new definition, that of "telecommunications service provider", and empowers the Commission to require that specified classes of basic telecommunications service providers obtain a licence in order to provide international telecommunications services within a class specified by the Commission. By virtue of the definition of telecommunications service provider, the new licensing power extends to resellers.
258.In PN 97-34, the Commission requested comment on which classes of international services and service providers, if any, should be subject to licensing requirements. The Commission also stated the view that licence conditions should not constitute a barrier to entry, but rather should ensure that the regulatory regime put in place with regard to international services is respected by service providers. In that context, it requested comment on the conditions to be incorporated into licences. Other licensing issues on which the Commission requested comment include the following: (a) possible reporting requirements; (b) the appropriate term of the licence; (c) the information that should be provided upon application for a licence; and (d) procedures for issuing and renewal of licences.
259.The Commission notes that many parties recommended that the licensing regime be as efficient, light-handed and streamlined as possible, and no more burdensome than required to accomplish the Commission's objectives. CWTA noted that there are already many international service providers operating in Canada, and submitted that any new licensing process should not disrupt the commercial activities of these existing service providers. The Commission agrees with such submissions, and has formulated its conclusions accordingly.
260.As noted earlier, during the course of the proceeding, ACC, AT&T Canada LDS, Call-Net and Stentor met in an attempt to arrive at a consensus with regard to a proposed regulatory framework for international licensing and regulation of basic international telecommunications services providers. With their comments, these four parties filed a "Consensus Framework" on the essential items of a uniform proposal (although AT&T Canada LDS differed from the others, in that it argued that there is a need for special conditions of licence for dominant service providers).
B. Preliminary Issues
261.The Commission notes that some parties considered that, by virtue of the terms of Bill C-17, the Commission would have no alternative but to implement some form of licensing regime. The Commission considers that the recently enacted section 16.1 of the Telecommunications Act empowers but does not require it to specify and require licences for certain classes of international telecommunications services and service providers. Therefore, it is open to the Commission to determine that licensing is unnecessary.
262.Some parties argued that licensing is in fact unnecessary. CWTA submitted that the Commission already has a broad range of powers over Canadian carriers; therefore, the perceived need for licensing is due to the possibility of resellers providing services over routes where they are, directly or indirectly, in a dominant position. CWTA was not convinced that such a regime is necessary. It submitted that the growth of alternative routing and related competitive strategies, and the implementation of the Fourth Protocol, raise doubts that a reseller could wield this kind of market power.
263.Other parties argued that competition in the international telecommunications market is not yet fully developed, and that there are countries that are still monopolist or that have dominant service providers. These parties noted that this gives rise to the potential for competitive abuse, in that foreign monopolists are in a position to grant preferential treatment to affiliates they may establish to enter the market in Canada.
264.The Commission agrees with the concerns expressed by parties relating to the potential for anti-competitive behaviour involving a foreign monopolist acting in conjunction with a resale affiliate based in Canada. The Commission considers a licensing regime, under which the Commission can impose conditions directly on resellers, necessary in order to deal with any such instances of anti-competitive conduct.
265.The Commission also considers that the licensing provision may be of assistance in exercising some supervision over Canadian service providers, and in particular resale affiliates of Canadian carriers. The Commission considers that, absent a licensing power, it is difficult to devise or enforce appropriate conditions applicable to such affiliates. For example, in the past, the Commission has found it necessary to impose a rule on facilities-based carriers prohibiting them from entering the market via resale affiliates (the Stentor companies are still subject to this rule). This was considered necessary in order to prevent these companies from using a resale affiliate to escape the regulatory supervision otherwise considered appropriate.
266.The Commission notes that parties to the proceeding have expressed concern about Teleglobe's participation in the retail market. In its forbearance proposals, Stentor submitted that the Commission should impose "appropriate" restrictions on Teleglobe's ability to set up a resale affiliate, in order to ensure that its proposed conditions on Teleglobe's presence in the retail market are effective. As discussed further below, the Commission considers that the licensing power would allow the Commission to impose general conditions that would govern the conduct of a Teleglobe affiliate, and prevent it from deriving any undue competitive advantage in the marketplace due to its relationship with Teleglobe.
267.In light of the above, the Commission considers it appropriate that it establish a licensing regime.
C. Services and Service Providers
268.The Commission notes that various proposals were advanced with regard to which class or classes of services and service providers should require licences.
269.Subject to certain specific exclusions, Stentor believed that the enforcement aspect of the regime would not be effective unless a licence is required by all telecommunications service providers, including resellers and Canadian carriers, that offer basic international telecommunications services to end users or that are responsible for transporting basic international telecommunications services into or out of Canada. Accordingly, Stentor proposed the following definition of international telecommunications service:
"international telecommunications service" means a service offered by a telecommunications service provider which involves the transmission of traffic originating or terminating in Canada to or from any points outside of Canada by any means of telecommunications whatsoever.
270.In response to Interrogatory SRCI(CRTC)18Dec97-18, Stentor considered it best to avoid attempting to include the underlying technology or facilities in the definition, but emphasized that interconnected earth stations would be expected to fall within the definition. Stentor submitted that, while satellite earth stations are not "transmission facilities" within the meaning of the Telecommunications Act, they are in many cases interconnected with the PSTN and the last potentially independent functional step in Canada in the transmission of international traffic.
271.Some other parties also submitted that the Commission should not take the nature of the technology into account in determining which service providers should require a licence or in establishing classes of licence.
272.The Commission notes that a "telecommunications service" is defined in section 2 of the Telecommunications Act as:
a service provided by means of telecommunications facilities and includes the provision in whole or in part of telecommunications facilities and any related equipment, whether by sale, lease or otherwise.
273.The Commission considers it appropriate to rely on the Telecommunications Act definition of "telecommunications service." An international telecommunications service involves traffic that originates in Canada and terminates in another country, or vice versa.
274.The Commission notes that, pursuant to section 2, a "telecommunications facility" includes a "transmission facility", which is defined as:
any wire, cable, radio, optical or other electromagnetic system, or any similar technical system, for the transmission of intelligence between network termination points, but does not include any exempt transmission apparatus.
275.Consistent with the above definition, the Commission considers that an earth station generally would constitute a transmission facility, unless it was involved only in the transmission of intelligence outside the termination points of the network. Thus, a service offered via earth stations would generally fall within the definition of a "telecommunications service".
276.CWTA and Cantel emphasized that the only arrangements with foreign carriers that are of concern to a licensing regime are those that relate to the carriage of calls between Canada and a foreign country. Other types of arrangements are not relevant, for example, arrangements relating only to "roaming" (which CWTA described as essentially billing arrangements) or call signaling (used in roaming for verification purposes and separate from the actual call).
277.Call-Net stated that, under the Consensus Framework, the type of traffic, not the billing arrangement, is the key determinant as to whether a licence is needed. If a foreign wireless customer comes to Canada and makes a wireless domestic call on a Canadian carrier's network, that carrier would not be providing an international service, despite the existence of a roaming agreement. However, if the caller makes an international call under the roaming agreement, the wireless carrier would be an international service provider subject to licensing requirements.
278.The Commission agrees that merely entering into a roaming agreement and/or transporting call signaling information across borders should not be sufficient to make a service provider an international telecommunications service provider subject to licensing requirements; rather, it is the origination, termination or carriage of the international call itself.
279.Call-Net and ACC shared Stentor's basic view that all telecommunications service suppliers that offer basic international telecommunications services to end users, or that are responsible for transporting basic international telecommunications services into or out of Canada, should require an international telecommunications service licence.
280.AT&T Canada LDS and London Telecom submitted that any licensing regime should not apply to traffic between Canada and the U.S. (i.e., as opposed to traffic routed through the U.S. and on to an overseas destination). AT&T Canada LDS stated, among other things, that the cross-border market is one of the most competitive in the world, while Canada-overseas traffic has been subject to monopoly provision by Teleglobe. Therefore, the issues set out in PN 97-34 are not applicable to Canada-U.S. traffic (for example, the potential for anti-competitive behaviour on this route is minimal). AT&T Canada LDS also submitted that, if the Commission does extend licensing to cover traffic between Canada and the U.S., it should have regard to the competitiveness of this market. fONOROLA supported AT&T Canada LDS' view.
281.Other parties (Call-Net, Stentor and Teleglobe, among others) considered that, for the Commission to exempt only Canada-U.S. traffic from the licensing regime would entail a violation of Canada's MFN commitments under the GATS. Stentor also considered that a licensing regime that exempted Canada-U.S. traffic would fail to address traffic reporting and other licensing conditions on Canada's most important international route. Stentor submitted that the licence proposals it had advanced (the Consensus Framework) support the continuation of the existing lightly regulated competitive regime for Canada-U.S. traffic, which it considered to be the primary motivation of parties who proposed to exempt Canada-U.S. traffic from the licensing regime.
282.Some parties argued that the Commission should either require licences only for dominant service providers, or should distinguish between dominant and non-dominant service providers in the type of licence it issues. These parties noted that a licensee's "dominance" would also have to take into account any affiliates the licensee might have who were dominant in foreign markets.
283.In general, such parties argued that the licensing regime is primarily aimed at the kind of market abuses that can only be brought about by service providers who possess market power. Therefore, the licensing regime should only cover such service providers. To include non-dominant service providers would simply add an unnecessary layer of regulation that would complicate entry for non-dominant service providers and generally impose an unwarranted regulatory burden.
284.While generally supporting the Consensus Framework, ACE believed it could be strengthened by the imposition of additional conditions of licence on dominant international services providers, where the Commission determines on an ex ante basis (i.e., prior to issuing the licence) that such conditions are warranted in order to prevent anti-competitive conduct. AT&T Canada LDS also considered that the Commission should distinguish, in the process of issuing licences, between dominant and non-dominant service providers. NAG proposed conditions of licence that would refer to dominant service providers (i.e., prohibit dominant service providers from engaging in certain types of behaviour), but which would be included in all licences.
285.Stentor, Call-Net, ACC and others opposed a licensing system that would require the Commission, prior to issuing a licence, to determine whether or not a service provider was dominant, either generally or on a particular route. They submitted that this would require a lengthy and complex analysis. Further, the process would be used by incumbents to challenge applications in order to delay entry by applicants, and thus would constitute a barrier to entry. Stentor also submitted, among other things, that an ex post (i.e., after licensing) complaints-based approach for competitive safeguards is lighter-handed, while meeting the needs of those parties favouring a two-class licensing regime.
286.The Commission considers that to distinguish for licensing purposes between dominant and non-dominant service providers, especially on a route-by-route basis, would be a time-consuming and sometimes contentious exercise that could delay the licensing process. The Commission also considers that a reporting regime, designed to detect distortions in traffic patterns that may be symptomatic of anti-competitive conduct, would accomplish the same end as making a distinction between dominant and non-dominant service providers and imposing more restrictive conditions on dominant providers at the outset. In the Commission's view, such an approach relying on the reporting of traffic would also be more consistent with increased competition and reliance on market forces, as the same practice (for example, obtaining a favourable termination rate) may or may not be anti-competitive, depending on the effect in the marketplace.
287.In light of the above, the Commission considers it appropriate that the licensing regime not distinguish between dominant and non-dominant service providers, in terms of licence class or licence conditions. Similarly, the licensing regime will not distinguish between competitive and non-competitive routes.
288.Some parties suggested that it would not be necessary to include Canadian carriers in the licensing regime, as they are already subject to the Telecommunications Act. While the Commission can impose conditions on Canadian carriers other than through conditions of licence, the Commission considers that the simpler and more straightforward approach is to rely on the licensing power.
289.Some parties argued that the licensing regime should distinguish via conditions of licence between resellers and facilities-based carriers. Stentor replied that distinguishing between resellers and facilities-based carriers would only contribute to maintaining an artificial distinction between similar activities that are only differentiated by the economic choice of the entity carrying on the activities. Further, most conditions that would apply to carriers would be equally appropriately applied to resellers. Stentor submitted that the sole differentiation necessary would appear to be based on reporting requirements. Stentor therefore favoured a single-class licence system, although licensees' reporting requirements would differ.
290.The Commission considers that a distinction between resellers and facilities-based carriers, per se, is not warranted. The Commission notes that many resellers, through the use of switches and private lines, are as capable of determining the routing of international traffic as are facilities-based carriers. They are therefore in a position to enter into arrangements with foreign carriers that could have anti-competitive effects in the Canadian market.
291.Some parties noted specific types of service providers that they submitted should be excluded from the licensing regime. In Stentor's view, the key issue in this context is whether exclusion of certain service providers would put the Commission in the situation of attempting to enforce its policies solely through connecting carriers who may either be unaware of the offending actions of a retail operation or may find that attempts at enforcement merely trigger migration of the retail operator's traffic to another unsuspecting cross-border carrier.
292.In particular, Stentor considered that LECs that act as agents for the international services of other carriers would not require a licence. In addition, Stentor considered that the Commission should have the ability to exempt certain other retail operators (hotels, motels) that offer international telecommunications service as a line of business incidental to other businesses not subject to the Commission's jurisdiction.
293.Finally, Stentor considered that, consistent with its proposals in Proposed New Contribution Exemption Regime for Internet Service Providers, Telecom Public Notice CRTC 97-37, 3 November 1997, Internet service providers (ISPs) should be exempt from licensing requirements, as long as they are offering contribution-exempt Internet services only and no other service provider is offering PSTN voice or any other contribution-eligible telecommunications services from the same service location(s).
294.CWTA and Cantel expressed views similar to Stentor's with regard to the need to license hotel/motels, etc. In addition, they submitted that to the extent that the Commission considers licensing necessary, there is no reason for the licensing regime to capture persons who act as rebillers or "domestic operators who provide international services via a termination and settlement arrangement with an international carrier." Rather, the regime should focus on those who own or control international transmission facilities or utilize the IPLs of facilities-based carriers to provide international services to other carriers and/or to end-users. They submitted that it is these service providers who make direct arrangements with foreign carriers and who may be able to achieve a dominant position in respect of a certain route.
295.London Telecom submitted, among other things, that there is no need to license domestic service providers that only originate international services to end-users in Canada, and then hand that traffic off to a licensed service provider for international termination.
296.The Commission considers that resellers who only resell the switched services of other service providers are not capable of independently routing traffic and will not be in a position to make direct arrangements with foreign carriers. Therefore, in the Commission's view, the primary concern with regard to this type of reseller is that they may be able to exploit their affiliation with a "service provider" located in Canada. For example, a retail affiliate of Teleglobe might be in a position to resell Teleglobe's switched services at rates below the cost to the affiliate. Specifically, while such an affiliate might pay Teleglobe a tariffed rate for services obtained from Teleglobe, the affiliate could then nonetheless provide the service to end-users at a lower rate. As long as the rate charged to end-users was higher than Teleglobe's cost to provide the service (as opposed to higher than the tariffed rate), the combined entity could still make a profit. Other service providers could be unduly disadvantaged thereby.
297.The Commission considers that imposing conditions of licence on service providers who are not themselves responsible for transporting international traffic would be of assistance in minimizing the potential for anti-competitive effects in the Canadian market place resulting from behaviour such as that described above.
298.The Commission also considers that there are other advantages to requiring most resellers to obtain a licence. In particular, the Commission considers that such a requirement would facilitate enforcement of the mechanism for the reporting and remittance of contribution to LECs. Specifically, a switchless reseller could be required to provide, with its licence application, a declaration or statement that it operates no telecommunications facilities used in transporting basic telecommunications traffic between Canada and another country, and thus should not be subject to a condition of licence to report and remit contribution. An obligation to keep up-to-date information on file with the Commission would ensure that the Commission is notified of any change in its status, and thus should become subject to such a condition.
299.In light of the above, the Commission considers it appropriate that most telecommunications service providers who provide international telecommunications services be subject to licensing. However, the Commission agrees with Stentor that exclusions for certain service providers are warranted. In addition, the licensing of all service providers, without exception, would constitute a considerable administrative burden and, particularly with regard to hotels and motels, would be difficult to impose and enforce. The Commission will therefore not subject hotels and motels offering services under arrangements that were the subject of Hotel and Motel Commission Plans, Telecom Decision CRTC 95-2, 3 February 1995 (Decision 95-2), to the licensing regime.
300.The Commission notes that, in Decision 95-2, the Commission eliminated the reseller registration requirement for resellers who resell only toll services and for sharing groups who share only toll services. The Commission also notes that the rule established in Affiliate Rule, Telecom Decision CRTC 94-6, 4 March 1994 (Decision 94-6), prevents the resale of the services of the telephone companies by affiliates (by application dated 16 March 1998, Stentor has requested that the rule be eliminated). Therefore, the concern identified above with regard to Teleglobe did not exist when the Commission abolished the registration requirement for resellers of toll services (the affiliate rule does not apply to Teleglobe itself, although Call-Net recently filed an application to make it applicable).
301.The Commission has also determined that it would not be appropriate to subject certain ISPs to a licensing regime at this time, as described below. The Commission considers Internet telephony to be in the development stage. At present, Internet telephony does not afford a mechanism to manipulate international settlements on a significant scale. The Commission notes that this situation may change in the future.
302.In Telecom Order CRTC 98-929, 17 September 1998, the Commission is providing for automatic exemptions from contribution charges for certain ISPs, generally consistent with Stentor's submissions in the proceeding. In particular, subject to certain requirements, the Commission concluded that ISPs should be exempt from contribution, and not be required to register with the Commission, if the ISP offers only contribution-exempt ISP services and no other service provider offers PSTN voice or any other contribution-eligible telecommunications services from the same location. The Commission considers that such ISPs should similarly be excluded from any licensing requirement. However, the Commission puts ISPs on notice that this may change in the future as Internet telephony develops.
303.Stentor also considered that LECs that act as agents for the international services of other carriers would not require a licence. The Commission notes that the circumstances of LECs may vary considerably. Absent further clarification as to the scope of Stentor's proposal, the Commission is not specifying such an exclusion at this time.
D. Conditions of Licence Pertaining to Competitive Abuses and Remedies
304.In order to address possible anti-competitive practices, the Consensus Framework proposed the condition of licence set out below:
A licensee shall not enter into or continue to participate in an arrangement or agreement in respect of the carriage of telecommunications traffic with a major supplier in a foreign country where that arrangement or agreement has, or would likely have, the effect of preventing or lessening competition substantially in the provision of a telecommunications service or services in Canada in respect of an international route or routes.
305.The Consensus Framework stated that this condition would allow the Commission to prevent the following types of arrangements, but only where it found as a fact that these types of arrangements have or would be likely to have a substantial anti-competitive effect in Canada:
(a) provisions for settlement rates or terms of interconnection that are more favourable than those available to competing licensees;
(b) any arrangement for the termination of outbound traffic where the foreign dominant carrier (i.e., a major supplier in a foreign country) has unreasonably refused to accept termination of traffic from any other licensee;
(c) restrictions on the type of services or geographic area where the licensee may offer telecommunications services in Canada;
(d) restrictions or inducements to influence upward or discourage the reduction of the price at which telecommunications services are offered in Canada; and
(e) provision for routing inbound traffic from a foreign dominant carrier (i.e., a major supplier in a foreign country) to a licensee which results in an unfair cost advantage for a licensee relative to its competitors in the Canadian market.
306.The document proposed another condition of licence that would allow the Commission to impose more far-reaching remedies (such as parallel accounting and proportionate return) on licensees, as may be necessary to counter the abuse of dominance by a foreign major supplier, but only in order to remedy anti-competitive effects in Canadian markets.
307.The parties to the Consensus Framework submitted that the Commission should not create licence conditions intended to deal specifically with Teleglobe, and impose them on other parties. Rather, the Commission should deal with concerns about Teleglobe by continuing to regulate it under the Telecommunications Act.
308.Generally, parties to the proceeding favoured a comprehensive and generic approach to licensing, whereby the Commission would prescribe conditions applicable to all members of a particular class (although, as noted above, some proposed distinctions between dominant and non-dominant carriers, or between resellers and facilities-based service providers). Some, however, proposed conditions different from, or in addition to, those suggested in the Consensus Framework.
309.While generally supporting the Consensus Framework, ACE noted that it only appears to recognize the existence of major suppliers in foreign markets. ACE submitted that there are also some domestic service providers who compete in the international market on a retail basis who control a very large share of traffic on certain international routes (e.g., Stentor). In order to take into account the fact that certain domestic service providers can exercise market power through their control over bottleneck facilities and/or their market dominance on specific international routes, ACE submitted that the Commission's licensing framework should adopt a broader definition of major supplier than that contemplated by the Consensus Framework. NAG also submitted that prohibitions on exclusive or preferential dealings should include all anti-competitive arrangements.
310.CBTA proposed a prohibition on the licensee conferring an undue preference or advantage on itself or on affiliates.
311.Cantel considered the Consensus Framework was too broad. Cantel stated that only dominant service providers should be required to avoid anti-competitive interconnection arrangements and be subject to remedies the Commission may impose for anti-competitive behaviour.
312.The Director submitted that the Commission should identify in licence conditions what remedies it might impose. Stentor replied that it is not possible to predict the circumstances that can arise in the emerging globally competitive marketplace, the abuses that might take place or the most effective remedies.
313.The Director noted that NAG proposed a general prohibition on abuse of dominant position that would prohibit "any act which has or is intended to have or is likely to have the effect of preventing or lessening competition substantially" in a market for telecommunications services between Canada and another country, while Call-Net proposed a licence condition containing similar language. The Director did not support specific language such as this, which currently exists in the abuse of dominant position provisions in sections 78 and 79 of the Competition Act. The Director argued that this language was designed to apply to matters involving market power within relevant product or geographic markets as defined in an antitrust or competition law context. The Director submitted that the adoption of identical language by the Commission for licensing conditions could cause confusion, and could result in inconsistent interpretation. Further, the language may not lend itself to use in a trade policy context, and may be less effective in dealing with matters such as undue preference, advantage or discrimination by a service provider with a monopoly in its own country. Finally, the test would require the Commission to define the relevant market and assess whether a test given meaning in a competition law context has been met.
314.In its reply, NAG noted that the Director did not propose alternate text. NAG further stated that it is clear that the dominant position of foreign carriers poses a threat to the launch of competitive services by Canadian carriers, and submitted, among other things, that the Commission "would be failing its mandate if it deferred in this respect to the Director".
315.The Commission notes that, generally, parties supported licence provisions prohibiting conduct that would have a material negative impact on competitive conditions in Canada. The Commission agrees that licences should contain a provision to address the potential for this type of conduct.
316.The Commission also notes the concern expressed that any licence condition pertaining to anti-competitive behaviour not be limited to arrangements involving only a foreign major supplier. As discussed above, the Commission considers that the conditions prohibiting anti-competitive behaviour should not be limited to arrangements involving only foreign suppliers. The Commission is therefore prescribing a licence condition that will encompass arrangements with both foreign and domestic suppliers. In particular, the Commission will include in licences the following condition:
The licensee shall not engage in anti-competitive conduct in relation to the provision of an international telecommunications service or services.
For the purposes of this condition, anti-competitive conduct includes entering into or continuing to participate in an agreement or an arrangement that has, or is likely to have, the effect of preventing or lessening competition unduly in Canada, or otherwise providing telecommunications services in a manner that has, or is likely to have, the effect of preventing or lessening competition unduly in Canada.
317.The Commission will not include as licence conditions specific prohibitions on certain kinds of conduct. The Commission agrees with those who argued that it is impossible to foresee all the kinds of anti-competitive conduct that might arise. In addition, certain kinds of behaviour may or may not constitute anti-competitive conduct, depending on the circumstances and the effect on the market in Canada. The Commission therefore considers it necessary to refer to the effects of certain conduct, and considers the language above appropriate to that end.
318.In addition to its general remedial powers under the Telecommunications Act, section 16.3(3) specifies that the Commission may, on application by any interested person or on its own motion, amend any condition of a licence. The Commission may, if appropriate, amend the licence condition set out above to include any specific remedies that may be required (for example, proportionate return on a specific route or routes), should the Commission find that anti-competitive conduct has taken place. The Commission will therefore not include a further specific condition of licence specifying that the Commission may impose such conditions as it deems appropriate to remedy the effects of anti-competitive conduct. The Commission notes by way of example that behaviours such as those indicated in the Consensus Framework may give rise to concern, as well as the type of "price squeezing" mentioned by some parties as a concern with regard to Teleglobe, either alone or in conjunction with a resale affiliate.
E. Reporting Requirements
319.Some of the proposals advanced in the proceeding advocated the use of routine reporting requirements imposed on licensees in order to detect distortions in traffic patterns that might indicate practices that are having a negative effect on competition in Canada.
320.Under the Consensus Framework proposals, licensees responsible for transporting basic international telecommunications services (Canadian originating and foreign terminating, or foreign originating and Canadian terminating) would be required to report, on a quarterly basis, the amount of international minutes transported in the quarter to each country broken down by inbound and outbound minutes. Parties to the Consensus Framework submitted that, since only those responsible for actually transporting the traffic would report, there would be no double-counting of minutes. The Consensus Framework proposed that the Commission publish the total amounts of Canadian inbound and outbound traffic sent to or received from each country.
321.The Consensus Framework would also require each licensee obliged to file traffic reports with the Commission to provide for the public record a list of all agreements for interconnection, exchange of traffic and termination of traffic entered into by the licensee with any service provider in respect of Canadian originating or terminating basic international telecommunications traffic.
322.Stentor submitted that traffic reporting would provide useful information regarding Canada's trade in telecommunications and, more importantly, could be used by the Commission as a tool to (a) monitor and understand the progress of Canada's transition to international telecommunications market from a monopoly to full competition, and (b) help in the detection of possible anti-competitive behaviour. In addition, it would help to monitor compliance with Commission directives such as the implementation of any mandatory proportionate return imposed as a remedy on a particular route.
323.PIAC submitted that all licensees should be required to provide annually traffic information by country of origin and destination, along with routes and capacity owned or controlled by the licensee or a foreign affiliate, in order to permit the Commission to monitor the state of competition. PIAC also submitted that the Commission should compile the information by route and publish the results annually, indicating to parties, for example, if there was excessive concentration on some routes.
324.Some parties advocated reporting requirements only for dominant service providers and/or opposed reporting requirements for non-dominant service providers. ACE, for example, submitted in its comments that dominant service providers should be required to file both traffic and revenue information on a quarterly basis as well as annual circuit capacity by country, and should publicly file traffic settlement agreements with correspondents on routes on which they are dominant. AT&T Canada LDS initially proposed a similar requirement for dominant carriers, as well as a requirement to maintain a description of their international facilities networks on file with the Commission.
325.Teleglobe considered that routine reporting would be unduly cumbersome and inefficient to implement, and would impose an undue regulatory burden on licensees and the Commission. Rather, Teleglobe suggested that the Commission include as a condition of licence the ability to request that all licensees maintain books and records of the specifics of their respective traffic routing, on a route-by-route basis, that would allow them to produce reports on request. Teleglobe also noted section 37(2) of the Telecommunications Act, and submitted that a licensee could be required to provide any report the Commission deemed necessary, if the Commission were to have reasonable grounds to suspect unduly discriminatory behaviour, unfair dealing or abuse of settlement process. CWTA, Cantel and fONOROLA made similar submissions. fONOROLA added that it considered competitive abuses unlikely, and stated that it was difficult to envisage an anti-competitive practice that could not be "routed around".
326.In response to proposals calling for the filing of information beyond that proposed in the Consensus Framework, Stentor submitted that the filing of revenue data was not necessary and of no real value in using traffic reporting to monitor routing and volumes of Canada's overseas traffic. In addition, reporting of annual circuit capacity would add to the burden of licensees, without necessarily providing the Commission with information useful in monitoring anti-competitive behaviour. In its reply, Stentor also opposed AT&T Canada LDS' proposal to require reporting of transit traffic. Stentor considered that, normally, the filing of this information would be unnecessary. However, the Commission should have the ability to require such reporting when the information is relevant to its ability to know what is happening in the market and to remedy abuses (for example, preferential arrangements for routing Canadian-originating or terminating traffic in return for transit traffic). Stentor also opposed the filing of market share information for foreign affiliates, or information as to their regulatory status, submitting that it is unnecessary.
327.In its reply, Teleglobe re-iterated that reporting was unnecessary and burdensome since, if anti-competitive conduct occurred on any given route, service providers would, through sudden or significant changes in traffic volumes, have reason to suspect anti-competitive activity, and could file a complaint with the Commission. Teleglobe also opposed a requirement for service providers to publicly file a list of all foreign entities with which they had concluded agreements related to the transport of Canadian international traffic. Teleglobe submitted, among other things, that this would be anti-competitive, and would amount to requiring service providers to publicly file their customer and supplier lists. Teleglobe also opposed suggestions for filing of information related to transit traffic and details of international facilities (including circuits in operation).
328.The Commission will require, as a condition of licence, the quarterly filing of traffic reports, specifically, reports on inbound and outbound traffic, by country of origin/destination, to be filed in confidence by service providers responsible for transporting basic international service traffic into or out of Canada. The Commission will require this information to be provided by affidavit made by a senior officer of the licensee.
329.The Commission considers such reports necessary to detect the distortion in traffic flows that may indicate that anti-competitive conduct is occurring. Such reports would indicate, for example, if a foreign monopolist was routing all Canadian-bound traffic to a Canadian affiliate, possibly providing it with an undue cost advantage.
330.The Commission also considers that the only entities who could participate in such arrangements are those who have control over the transport of traffic. The Commission therefore considers it appropriate that the reporting obligation only be imposed on such entities. The Commission notes that this is consistent with the contribution regime, as these are the same entities that will be obliged to report and remit contribution.
331.The Commission does not agree with Teleglobe that individual service providers would necessarily detect anti-competitive conduct from surges in traffic volumes carried on their networks. In a competitive environment, there are many factors that could lead to a particular service provider switching its traffic to another international carrier. Therefore, the mere gain or loss of traffic would not necessarily lead facilities providers to suspect anti-competitive conduct.
332.The Commission does not consider that the filing of the traffic information in question would be unduly burdensome to licensees, as suggested by fONOROLA and Teleglobe. The Commission notes that service providers would generally have this information in their possession. Further, some of the proposals would require that service providers have the information available in the event that the Commission requested it. Therefore, the only difference in regulatory burden from the point of view of service providers is the effort to compile and file the report.
333.The Commission considers that the information should be filed in confidence. The Commission agrees that the information is commercially sensitive and considers that the specific direct harm resulting from disclosure would likely outweigh the public interest in disclosure.
334.The Commission will place the aggregated information on the public record. The Commission considers that the publication of aggregate information would assist other service providers to detect behaviour that may form the basis of a complaint to the Commission, but not in all cases. For example, the aggregate information would not permit other parties to identify the traffic flows with particular service providers. The Commission therefore intends to monitor the information that is filed, and will initiate the appropriate process should it indicate that an investigation is warranted.
335.The first quarterly traffic reports are to be filed by 17 May 1999 and are to cover the period beginning the effective date of the licence and ending 31 March 1999. Subsequent reports are to be filed within 45 days of the end of each quarter.
336.The Commission also considers that it would be in the public interest to require parties to file publicly a list of agreements with foreign service providers. Such information would, for example, assist in detecting instances where a foreign monopolist had entered into an exclusive agreement for the direct exchange of traffic. The Commission will require that both oral and written agreements be reported.
337.With regard to the objections raised to licensees having to provide such information, the Commission notes that it is only a list of agreements that would be filed on the record. No rate information, or other particulars, would be required pursuant to this condition of licence. The Commission does not consider that the public availability of such lists would generally result in specific direct harm to the licensee that would outweigh the public interest in disclosure.
338.The Commission will therefore require licence applicants to file, on the record and by affidavit, a list of all agreements or arrangements entered into with any foreign telecommunications service providers for interconnection, exchange of traffic or termination of traffic in respect of Canadian originating or terminating basic international telecommunications service traffic. The licensee will be obliged to keep this information current. Therefore, the licensee will be obliged to file a revision to the list each time it enters into such an agreement. In addition, the licensee will be obliged to file a consolidated updated list once a year, by affidavit made by a senior officer of the licensee. Consolidated updated lists are to be filed within two weeks of each anniversary of the effective date of the licence, and are to include all agreements in effect as of the anniversary date.
339.The Commission considers that the filing of revenue and circuit quantities to particular countries would be of some assistance, but on balance is not persuaded that it is warranted, in that it would not add significantly to information as to traffic flows and agreements entered into.
340.The Commission notes that, pursuant to its general powers under the Telecommunications Act, it can require such further information as may be needed (to investigate a complaint, for example) on a case-by-case basis.
F. WTO/Non-WTO Countries
341.For non-WTO member countries, ACE supported the retention of the rule, currently embodied in Teleglobe's tariffs, stating that:
Any resale and sharing arrangements between persons in Canada and persons in another country are conditional upon such arrangements being allowed in both countries.
342.Call-Net and NAG were of the view that this provision violates Canada's GATS commitments, and should be eliminated. Further, Call-Net submitted that its proposed licence conditions would enable the Commission to address anti-competitive effects whether or not the service provider is from a WTO-member country.
343.The Director, NAG and CWTA considered that there should be no distinction in the licensing conditions or process between WTO and non-WTO countries. The Director considered that there is insufficient evidence on the record to conclude ex ante that a firm linked to a non-WTO member is more likely to engage in anti-competitive behaviour than a WTO-member firm. Further, to create a distinction on this basis would offer the opportunity for incumbents to delay or prevent entry. The Director considered that concerns linked to non-WTO member countries could be addressed on an ex post complaint basis in the same manner as any other complaint.
344.NAG submitted that the amount of traffic flowing directly between Canada and non-WTO member countries is relatively small, and that any difficulties that arise can be dealt with on a case-by-case basis.
345.Teleglobe submitted that the Commission should make it a policy objective to create incentives for non-WTO member countries to adopt more liberal entry policies and to make policy choices necessary to accede to the WTO. Teleglobe proposed that licensees affiliated with entities owning, controlling or using network in non-WTO countries be prohibited from establishing IPLs or leased or owned capacity from Canada to such countries, either directly or indirectly, absent a showing that the country affords Canadian operators the same resale and/or facilities-based opportunities as are available in Canada. However, such licensees would be allowed to resell the international switched services of other Canadian carriers, and could establish circuits on non-affiliated routes. Teleglobe also submitted that the Commission should retain the existing prohibition on ISR as it applies to all non-affiliated Canadian carriers and resellers establishing circuits to non-WTO countries. Non-affiliated facilities-based carriers would, however, be permitted to exchange traffic with a foreign monopolist through the traditional settlement process.
346.Stentor submitted that, with respect to applicants affiliated with companies from non-WTO member countries, the licensing process should be more rigorous and should include an opportunity for comment by interested parties, as well as the possibility to activate conditions ex ante, where warranted. Stentor noted Teleglobe's proposal, and considered that such solutions should only be resorted to only in extreme circumstances, lest they have the effect of creating undue advantages for Teleglobe "with its long-established network of international operating agreements." It considered Teleglobe's proposal more burdensome than necessary to safeguard competition.
347.The Commission notes that the Teleglobe tariff provision cited above is regarded by some as a protection against one-way ISR, a practice that could have anti-competitive effects in the Canadian market. The Commission considers that the licensing regime established here will allow the Commission to address any instances of such practices, regardless of whether they involve WTO or non-WTO member countries. The Commission is therefore eliminating the above-noted tariff provision and will not require a similar provision as a condition of licence.
348.Teleglobe is directed to issue, by 14 December 1998, revised tariff pages deleting the provision, effective 1 January 1999.
349.The Commission considers Teleglobe's proposal regarding the establishment of non-settled direct routes between Canada and any non-WTO country to be unduly onerous.
350.The Commission notes that, under the process prescribed below, licence applications will remain on the public record for a period of time before a licence is issued. Parties will therefore have an opportunity to raise any particular concern with respect to individual applications from non-WTO member applicants. However, the Commission will not, as a general rule, impose more onerous conditions on non-WTO service providers, absent a showing that such conditions are warranted by the applicant's circumstances.
G. Establishment of Classes of Services and Service Providers
351.The Commission considers it appropriate to establish two classes of licence reflecting the substantive differences in the obligations of licensees as discussed in this Decision. Pursuant to section 16.1 of the Telecommunications Act, and subject to the exclusions noted in Section C above, the Commission therefore establishes, effective 1 January 1999, the following two classes of telecommunications service providers: (a) those who operate telecommunications facilities, whether owned by them or leased from a separate facilities provider, used in transporting basic telecommunications service traffic between Canada and another country (Class A licensees); and (b) those who do not operate telecommunications facilities owned by them or leased from a separate facilities provider used in transporting basic telecommunications service traffic between Canada and another country (Class B licensees). The Commission notes that telecommunications facilities include exempt transmission apparatus as defined in the Telecommunications Act. For greater clarity, Class B licensees include service providers who only resell the switched services of other service providers or who hand off all of their international traffic to another service provider in Canada for termination in another country. Effective 1 January 1999, telecommunications service providers that fall within either of these two classes shall not provide basic international telecommunications services except in accordance with an international telecommunications service licence issued by the Commission.
352.The Commission will require licence applicants to provide with their applications a statement (on the record) as to whether or not they operate telecommunications facilities used in transporting basic telecommunications service traffic into or out of the country. The Commission will also require licensees to keep information on file with the Commission current. Thus, licensees will be required to notify the Commission if they began to transport such traffic after being issued a licence, or if they cease to transport such traffic.
H. Application Process and Requirements
1. Information to be Provided by the Applicant
353.The consensus parties proposed that, in order to obtain a licence, each applicant would be required to file (on the public record) the following: (1) corporate name, (2) address, (3) a description of its corporate ownership structure; (4) a list of foreign affiliates that provide basic telecommunications services (with "affiliate" defined as in section 35(3) of the Telecommunications Act, i.e., a person who controls the carrier, or who is controlled by the carrier or by any person who controls the carrier), and (5) a "declaration" as to whether the licensee is responsible for transporting any basic international telecommunications services into or out of Canada. Licensees would be obliged by condition of licence to keep this information current.
354.Another suggestion was to define the term "affiliate" to include a "related party", as defined in Decision 94-6. That is, the definition would incorporate the concept of a "related" company, with the threshold level of interest set at 20%.
355.Teleglobe proposed similar information requirements, including a requirement that the applicant provide a list of any foreign affiliates of the applicant that provide basic telecommunications services. Teleglobe proposed that foreign "affiliates" include affiliates, associates, or joint marketing partners. Teleglobe submitted that the term "affiliate" as defined in the Telecommunications Act would fail to identify many situations where major supplier abuse might arise, based on joint marketing efforts and interests of non-equity alliance partners.
356.Parties advocating that the Commission distinguish between dominant and non-dominant service providers proposed that applicants be obliged to file (1) information as to their own market share and the market share of any foreign affiliate, and/or (2) any rulings from regulators in the relevant foreign jurisdiction(s) as to the dominance of the applicant or its foreign affiliate(s).
357.Given that the Commission will not distinguish prior to issuing licences between dominant and non-dominant service providers, the Commission considers information as to market share, etc., irrelevant to the licensing process. The Commission notes that it can require that such information be provided, should it become necessary to investigate whether any particular licensee is engaging in practices having an anti-competitive effect in Canada.
358.The Commission considers it appropriate that the term "affiliate" be defined as in section 35(3) of the Telecommunications Act.
359.Applicants for licences will be required to file (on the public record and by affidavit) the following: (1) the applicant's name(s) (legal name, and any name or names under which it does business); (2) the jurisdiction in which the applicant is incorporated; (3) address information and telephone numbers; (4) name and title of a contact person; (5) a description of its corporate ownership structure; (6) information as to affiliates that provide basic telecommunications services; and (7) a statement as to whether the licensee operates telecommunications facilities used in transporting basic international telecommunications service traffic between Canada and another country. As noted earlier, licensees will be obliged by condition of licence to keep this information current. Any changes in this information are to be filed with the Commission within two weeks of the licensee becoming aware of the change. Any change with regard to item 7 above is to be filed by affidavit made by a senior officer of the licensee. In addition, with regard to items 5 and 6, a statement is to be provided annually by affidavit made by a senior officer of the licensee, confirming and consolidating any changes during the year or confirming that no changes have occurred. This statement is to be filed within two weeks of the anniversary date of the effective date of the licence, and is to include all changes in effect as of the anniversary date of which the licensee is aware.
360.Licence applications are to be filed as set out in Attachment 1 to this Decision. The licence conditions themselves are set out in Attachment 2.
361.Any affidavit to be filed pursuant to this Decision must be executed in accordance with Canadian law. The Commission notes that, pursuant to section 53 of the Canada Evidence Act, R.S., c. E-10, an affidavit taken outside Canada by any officer of Her Majesty's diplomatic services while performing services in a foreign country or any other person identified in section 52 of that Act is as valid and effectual as if it had been taken in Canada.
362.Various proposals were filed as to the process for issuing a licence. Some parties submitted that the Commission should routinely issue public notices; others that licences should be issued automatically.
363.The Commission considers that some opportunity for public comment is warranted. Licence applications will therefore be placed on the public record in its examination rooms. If the application is satisfactory on its face, and no adverse comments are received, a licence will be issued after 21 days.
364.If adverse comments are received, the Commission will consider those comments and dispose of the application as expeditiously as possible. The Commission anticipates that comments opposing the applications will likely be minimal, limited (for example) to cases where the licensee has made an erroneous statement as to its status.
365.Parties will be notified in instances where the application is deficient on its face.
I. Licence Term
366.Most parties commenting on the issue argued that the term of the licence should be the maximum allowable by law. Section 16.3(4) of the Telecommunications Act specifies a maximum term of 10 years. Some parties argued that a shorter period would jeopardize licensees' ability to raise capital on reasonable terms.
367.Licences will be issued initially for a period of five years. After the Commission has gained some experience with the regime, it will consider extending the term of licences.
IX TELEGLOBE'S RETAIL MARKET ACCESS PROPOSALS
368.Teleglobe argued that, with the end of its monopoly, the competitive advantage will reside with those service providers that originate overseas traffic from end-users, set retail rates for such traffic and bill end-users. Teleglobe maintained that liberalization of the international and overseas telecommunications industry will make it vulnerable as a wholesaler, and jeopardize a significant portion of its traffic. Teleglobe submitted that it will have neither regulatory nor market protection from the risk of being left with stranded investment if, from the outset, a framework is not established which assures fairness in access to the international retail market, including equal network access. Teleglobe submitted further that all Canadian end-users should have the ability to select their international service provider independent of any other telecommunications service choices that they make. Teleglobe therefore proposed the following retail market mechanisms:
(a) the introduction of a separate PIC mechanism for international calling, concurrent with the introduction of facilities-based competition;
(b) a consumer balloting process for residential customers and small business customers (five lines and less) to enable them to select a carrier to provide international services; and
(c) the unbundling and provision to international service providers of billing and collection services by certain incumbent local exchange carriers (ILECs).
369.Teleglobe also proposed specific measures related to Canada Direct Service, which it stated is jointly provided by it and the Stentor companies.
B. Separate International PIC Mechanism
1. Positions of Parties
370.Teleglobe submitted that a separate international PIC mechanism would:
(a) "unbundle" domestic long distance and international long distance service, permitting end-users to optimize their selection of service providers by making separate buying decisions for each; and
(b) allow consumers to choose their primary international carrier, rather than being delivered to one by default based on a prior PIC decision, which was likely based on the consumer's domestic [long distance] usage criteria and not on the new international alternatives available after 1 October 1998.
371.Teleglobe also maintained (among other things) that, if a separate PIC for international calls is not established, (a) new entrants who provide international calling services will be penalized, since they will not be able to build a clientele for their services, and (b) consumers will be deprived of the maximum benefit of competition in international services.
372.Teleglobe indicated that its proposed separate international PIC mechanism was intended to cover all international traffic, including traffic to the U.S., rather than distinguishing between North American calls (known as World Zone 1 calls) and Canada-overseas calls.
373.Teleglobe noted that, in the U.S., a two-PIC system was implemented for inter-LATA (local access and transport area) and intra-LATA long-distance calls as a pre-condition for Regional Bell Operating Company provision of in-region long distance service. As well, some state public utility commissions imposed a similar requirement for LECs within their states. Teleglobe added that, since most of the Canadian LECs' switch vendors sell their products to American LECs, and have the software modifications to meet this requirement, the vendors should be able to readily adapt the software for the two-PIC arrangement proposed by Teleglobe.
374.In response to Teleglobe(CRTC)18Dec97-5, Teleglobe suggested two alternative solutions if existing switch software cannot provide an international PIC mechanism that includes World Zone 1 calls: (a) provide special treatment to World Zone 1 calls at the pre-translation level of call processing, or (b) utilize intra-LATA software to process Canadian calls, and inter-LATA software to process World Zone 1 and overseas calls.
375.Two parties, CBTA and GeoReach, supported the international PIC proposal. However, most parties submitting comments on this issue opposed Teleglobe's proposal on the basis that it is unnecessary, and that it would be complex, costly and time consuming for both LECs and IXCs. A number of parties stated that these considerations would far outweigh any perceived benefits to international service providers and customers alike.
376.Stentor submitted, among other things, that Teleglobe's proposal would create a number of problems related to current call processing software in the equal access end offices, interoperability of the network and other network elements. Further, the integrated North American dialing plan used in Canada, the U.S. and other World Zone 1 countries supports the continued treatment of World Zone 1 calls as domestic.
377.Stentor maintained that treating World Zone 1 calls (i.e., calls to the U.S. and the Caribbean) as international calls would require custom PIC software development. Stentor noted Teleglobe's suggestion that World Zone 1 calls could be handled as international by providing special treatment to calls at a pre-translation level, or by utilizing intra-LATA and inter-LATA software. Stentor submitted that neither of the alternatives suggested by Teleglobe is feasible, and that both would require the Stentor companies to make custom modifications, either to the switch translation software or call set-up signalling protocols.
378.Stentor also noted that the treatment of World Zone 1 calls as international would be a deviation from American National Standards Institute (ANSI) standards and Bellcore specifications.
379.Call-Net stated that Teleglobe's proposal raises problems at both the level of switch software and the internal PIC systems established by industry participants.
380.Teleglobe stated that a separate PIC could be implemented at a reasonably low cost that would be more than offset by the benefits of additional choices and lower net costs for the end-users. Teleglobe estimated that implementation of a separate PIC would cost in the range of $10 million to $25 million. In response to interrogatory Teleglobe(AT&T CLDS)18Dec97-12, Teleglobe stated that it would be reasonable that the service providers offering international services as a group reimburse the local telephone companies for costs associated with implementing the international PIC mechanism, and that this would be fairly distributed if based on actual minutes of usage. Teleglobe considered that this would amount to less than one third of a cent per minute of outbound international traffic over a three year period.
381.Stentor estimated that the costs of modifications for a separate international PIC mechanism for calls other than World Zone 1 calls would be about $55 million. Stentor submitted that the appropriate minutes of traffic to be used with its cost estimate should be the total for Canada-overseas minutes only (1.1 billion minutes in 1997), since a separate international PIC mechanism is not required to provide equal access dialing to the U.S. Stentor calculated that this would result in an approximate cost of 1.6 cents per minute, a significant cost in comparison to other access charges to which this traffic is subject. Further, Stentor considered the 1.6 cents per minute to be understated, since the full costs of implementation for all affected telecommunications service providers would make the total implementation cost significantly higher than $55 million. Additionally, if World Zone 1 calls were to be treated as international, the costs of the required modifications would be incremental to Stentor's estimate of $55 million.
382.Parties also raised issues related to (among other things) the time it would take to implement a separate PIC process for international service providers. Some parties suggested that a requirement for a separate international PIC concurrent with the introduction of facilities-based competition would unduly delay entry. Parties opposing the proposal questioned whether the splitting of the toll market into two separate components is warranted. Some considered such a separation to be both uneconomic and artificial, as well as confusing to customers. Some parties submitted that Teleglobe had not presented evidence to show that customers need or require a separate international PIC choice. AT&T Canada LDS maintained that the cost of the proposed PIC mechanism would ultimately be passed on to consumers, thereby reducing the price benefits that should accrue to Canadians from a new regulatory framework for international services.
383.The Commission notes that, under Teleglobe's proposal, calls to the U.S. would be considered international long distance calls. At present, Canada, the U.S. and the Caribbean Islands are part of World Zone 1. Destinations in World Zone 1 are reached by dialing "1", plus the area code, plus the local number. Destinations outside of World Zone 1 are reached by dialing "011" plus the country code, plus the city code, plus the local number. The Commission shares the concerns raised by Stentor and other parties regarding the technical feasibility of implementing a separate international PIC mechanism and compliance with ANSI standards regarding World Zone 1 calling.
384.With respect to cost recovery for a second PIC mechanism, the Commission agrees with Stentor that the full costs of implementation for all affected telecommunications service providers have yet to be determined. Further, if an international PIC were to be implemented, there would have to be a cost recovery mechanism that would ensure that the costs are wholly borne by the international service providers who would benefit from it.
385.With respect to the per minute charge to be recovered, the Commission notes the significant difference in magnitude between the estimated costs in this proceeding and the start-up costs at issue in the proceeding leading to Decision 92-12. In the Decision 92-12 proceeding, a per minute charge for the recovery of start-up costs for equal access was, in the case of Bell, 0.1 cent per minute of originating or terminating traffic. In this proceeding, the start up costs to be recovered would be 0.33 cent per minute, as estimated by Teleglobe, and 1.6 cents per minute, as estimated by Stentor. Further, in contrast to the present proceeding, parties to the proceeding leading to Decision 92-12, were largely in agreement on equal access and the need for end-users to select their primary long distance carrier in advance and place long distance calls using the chosen carrier by 1+ dialing.
386.Teleglobe submitted that a separate international PIC would benefit both international service providers and consumers. However, the majority of other service providers either opposed the proposal or provided no indication of the degree to which a separate PIC would benefit them or their customers.
387.The Commission notes CBTA's support for Teleglobe's proposal, and its submission that there may be differences in a customer's international and domestic traffic volumes and calling patterns, with the result that the customer's "default" to the domestic carriers would not necessarily provide the optimum solution for the carriage of the customer's international traffic. While agreeing with CBTA's general point, the Commission notes that no direct evidence was presented as to demand among Canadian consumers for the ability to pre-subscribe to separate domestic and international long distance service providers.
388.Based on the above, the Commission considers that, although the implementation of a separate international PIC mechanism might benefit some service providers and some consumers, it cannot be justified in the public interest, given the time, cost and complexity involved. Further, the Commission is of the view that Teleglobe has adequate means and opportunity to enter the retail market without the creation of a dual PIC mechanism. Among other things, as pointed out by some parties, Teleglobe has the option of using extra-digit dialing to market and provide services to those consumers who might wish to have their international calls carried by a service provider other than their primary domestic service provider.
389.In light of the above, the Commission rejects Teleglobe's proposal that a separate PIC mechanism be established for customer selection of an international service provider.
C. Customer Balloting
390.Teleglobe submitted that end-user balloting would benefit residential and small business consumers by alerting them to the choices available in selecting their primary domestic interexchange and international carriers separately. Teleglobe argued that this would create an incentive for all carriers to improve the quality and reduce the prices of their international services. Teleglobe also submitted that balloting would help to overcome some of the disadvantages it faces as it enters a market dominated by retail competitors who have already established strong brand identities.
391.Teleglobe stated in its proposal that it would be a simple matter for a LEC to place a ballot in each of its customers' bills. Teleglobe added that customers who did not indicate a choice of international carrier would be assured of uninterrupted international service if the Commission adopted an allocation process by which such customers were distributed among international carriers listed on the ballot in proportion to users' affirmative selection of such carriers nation wide.
392.Teleglobe stated that the present circumstances with respect to establishing competition for international services differ substantially from those considered by the Commission at the time of Customer Balloting to Select a Long Distance Service Provider, Telecom Decision CRTC 95-12, 8 June 1995 (Decision 95-12), in which the Commission rejected an application from Unitel Communications Inc. (Unitel, now AT&T Canada LDS) to conduct customer balloting. Teleglobe stated that the Commission noted in Decision 95-12 that the competitive market had educated customers so that they are well equipped to exercise a carrier pre-subscription right when given the opportunity to do so. Teleglobe argued that, in this instance, customers have had no prior opportunity to select an international carrier of choice, since no such choice has been available.
393.The Commission agrees with parties who submitted that balloting would be a costly exercise for all participants in the process. Before requiring such an exercise, the Commission would require evidence that those costs would be outweighed by associated benefits. The Commission considers such evidence lacking on the record of this proceeding. Among other things, the Commission also shares the concerns expressed by parties about Teleglobe's proposed "negative allocation" mechanism.
394.The Commission notes that, in its comments and in its reply, Teleglobe did not actively pursue its balloting proposal, stating that its proposals for a separate international PIC mechanism and the provision of billing and collection services are of primary importance. In its reply, Teleglobe submitted that consumers are sufficiently sophisticated to choose whether to purchase international services separately from their domestic services and to decide themselves whether or not they wish to follow industry's marketing trends. Finally, the Commission notes that, in response to interrogatory Teleglobe(AT&T CLDS)18Dec97-38, Teleglobe stated that it would not continue to support a balloting process if the Commission decided not to order the implementation of a separate PIC mechanism for international traffic.
395.In light of the above, the Commission denies Teleglobe's request that it order customer balloting.
396.The third mechanism that Teleglobe proposed to facilitate the entry of new international service providers was the unbundling and provision of billing and collection services by certain ILECs for international calls.
397.Teleglobe stated that, at the beginning of the new competitive regime, Teleglobe and some new entrants will not have access to subscriber billing systems. By contrast, local and interexchange companies have billing systems in place for local and interexchange domestic services on which they can continue to "piggy-back" for international services. Teleglobe stated that, in order to address this inherent disadvantage to Teleglobe and new entrants, as well as to avoid inconvenience to consumers who do not wish to have multiple bills, it was proposing that Canadian LECs be obliged to offer unbundled billing and collection service to all international carriers pursuant to an approved tariff.
398.In response to interrogatory Teleglobe(CRTC)18Dec97-8, Teleglobe stated that the LECs that should be required to provide unbundled billing and collection services "include the Stentor members, Québec-Téléphone and Télébec."
399.Teleglobe submitted that, while its proposal may appear to run counter to previous Commission determinations with respect to competition in the provision of interexchange services (for example, Decision 92-12), the circumstances concerning competition in the provision of international services are fundamentally different. Teleglobe argued that paramount in this respect is the fact that it has no market power in the provision of international services to end-users, as a result of its historical role as a carrier's carrier. In other words, the circumstances concerning competition in the provision of international services are the opposite of those that existed in 1992 concerning competition in the provision of interexchange services.
400.Other parties to the proceeding opposed Teleglobe's proposal. Among other things, they noted that, in Decision 92-12, the Commission had not required the provision of billing and collection for direct dial calls. Teleglobe's proposal would therefore benefit only Teleglobe, as other service providers have already invested effort and resources to put billing systems in place. They added that, in Decision 92-12, the Commission had ordered the telephone companies to provide billing and collection services to all alternative service providers for casual calls, collect calls, and calls billed to third numbers and to 900 services. They submitted that billing and collection services are therefore already available to Teleglobe and future international service providers.
401.With respect to billing and collection for direct dial calls, parties argued that Teleglobe had failed to describe what distinguishes it from the many IXCs and resellers that have already entered the retail toll market and have been able to render bills to their customers.
402.In response to arguments that billing and collection services are not "essential services" as defined in Decision 97-8, Teleglobe noted that, in that Decision, some services or functions were ordered unbundled and priced based on the rating principles for essential facilities, even where they did not meet the criteria to be considered essential. Teleglobe therefore submitted that the question of whether or not the proposed billing and collection service is essential is irrelevant, as the proposal would benefit Canadian consumers by providing them with a greater choice of services and service providers. Call-Net replied that the unbundling of certain non-essential services was considered important in order to promote the introduction of local competition at a much faster pace than would otherwise occur. By contrast, the international market is already well developed in Canada.
403.As for arguments that only Teleglobe would benefit from its proposed unbundling, Teleglobe submitted that, under its proposal, any new international licensee could request billing and collection service for international services, provided it was based in the territory of a Stentor member, Québec-Téléphone or Télébec.
404.Teleglobe disagreed with parties who argued that the number of bills received by a customer is not a significant factor. Teleglobe argued that some customers prefer one bill, and that many customers continue to take long distance services from a Stentor member because of the convenience of one bill, even if in some cases it would be more advantageous to subscribe to an alternative service provider.
405.In the proceeding leading to Decision 92-12, Unitel requested that the incumbent telephone companies be directed to bill and collect on its behalf when, for example, the billed line was not pre-subscribed to Unitel. In Decision 92-12, the Commission considered that for IXCs to build a billing and collection system for infrequent calls would be unnecessarily expensive and an inefficient use of resources. The Commission stated that, by refusing to provide IXCs (i.e., those IXCs whose operator service tariffs contained sufficient safeguards) with access to billing and collection services that they make available to themselves, the telephone companies would be giving themselves an undue preference. However, the Commission's order that the telephone companies provide billing and collection services to IXCs extended only to casual calls and calls charged to a line not pre-subscribed to the carrier handling the call. It did not include billing and collection for direct dial calls placed by a customer pre-subscribed to the carrier, as Teleglobe proposes here.
406.In Decision 97-6, the Commission finalized the details for the provision of billing and collection services by the Stentor companies, consistent with Decision 92-12. In Regulatory Framework for Québec-Téléphone and Télébec ltée, Telecom Decision CRTC 96-5, 7 August 1996, the Commission approved a competitive interexchange regime in the territories of Québéc-Téléphone and Télébec based on the terms and conditions established in Decision 92-12. Further, by letter dated 6 August 1998, the Commission found that equal access provided by CLECs must include billing and collection services consistent with Decisions 92-12 and 97-6.
407.In the Commission's view, Teleglobe has not adequately justified its request that certain LECs be required to provide billing and collection services on behalf of international service providers. Among other things, Teleglobe has not sufficiently distinguished its present situation from that of new entrants at the time of Decision 92-12. In particular, the Commission considers that Teleglobe has not justified its argument that the fact that Stentor companies no longer hold virtually 100% of the long distance market will make Teleglobe's entry more difficult than was the case for IXCs immediately after Decision 92-12. The Commission acknowledges Teleglobe's argument that, in entering the retail market, it will not have the same contribution discounts as were available immediately after Decision 92-12. However, unlike entrants immediately after Decision 92-12, Teleglobe will have the advantage of entering a market where consumers are accustomed to long distance competition and can therefore be expected to be less averse to switching service provider, and where arrangements for equal access are in place.
408.The Commission notes that Teleglobe's proposal appears to contemplate that the billing and collection service would be made available only to international service providers. This would only be possible if the Commission had accepted Teleglobe's proposal for a separate PIC for international calling. Given that the Commission has rejected that proposal, billing and collection services would have to be provided to all IXCs, in contradiction to the Commission's finding in Decision 92-12. The Commission considers that such a ruling would be inequitable to existing service providers, who have now invested time and resources in developing their own billing and collection systems.
409.The Commission notes that, had it accepted Teleglobe's proposals for a separate international PIC mechanism and the unbundling of billing and collection services, some customers would still be in the position of receiving two bills (i.e., one bill for local and international calls, and another bill for domestic long distance calls). Thus, Teleglobe's proposal, even if accepted in its entirety, would not address the perceived problem of customers receiving more than one bill.
410.The Commission notes, as acknowledged by Teleglobe, that billing and collection services are not essential as defined in Decision 97-8. The Commission considers that Teleglobe, like IXCs entering the market after Decision 92-12, can feasibly construct its own billing and collection system, or obtain service from a third party. The Commission notes that billing for casual calls, collect calls, calls billed to third numbers and to 900 services are available under the terms and conditions established in Decision 97-6.
411.Based on the above, the Commission denies Teleglobe's request that the Stentor companies, Québec-Téléphone and Télébec be obliged to offer unbundled billing and collection services to international service providers requesting such services.
E. Canada Direct Service/Freephone Numbers
1. Positions of Parties
412.Teleglobe submitted that it was particularly vulnerable with respect to Canada Direct Service. Teleglobe stated that it offers this service jointly with the Stentor companies.
413.Teleglobe stated that this service, trademarked by Teleglobe and offered exclusively to Stentor cardholders, allows callers in some 130 countries to use toll free (freephone) telephone numbers to reach Canada, and then to complete their calls at competitive rates and through Canadian operators. Teleglobe submitted that, in a competitive environment where Stentor will be free to migrate its customers to a new country direct service, Teleglobe would face the potential of a significant and dramatic loss of business for a service it has helped to develop and in which it has invested.
414.Teleglobe requested that, in order to provide necessary protection to Canada Direct users and Teleglobe, the Commission require the Stentor companies to unbundle services associated with Canada Direct, specifically, that they be required to provide Teleglobe with the following unbundled services on reasonable terms: (a) access to Stentor member calling cards for use of Canada Direct by telephone subscribers holding such cards, including verification services and the billing of calling card users on behalf of Teleglobe, (b) access to Stentor international operator services for the purpose of providing Canada Direct, and (c) information reports to allow Teleglobe to settle with foreign correspondents.
415.In response to interrogatory Teleglobe(CRTC)18Dec97-23, Teleglobe stated that its proposal would allow customers of Canada Direct to continue to use the service should they so desire, and avoid the inconvenience and frustration of a service disruption or a unilateral migration on the part of their service provider.
416.Teleglobe also stated that "access to Stentor member company calling cards" for these purposes would mean that the Stentor member companies would bill their calling card customers for calls made via Canada Direct on behalf of Teleglobe and at retail rates provided by Teleglobe. Teleglobe submitted that this proposal is similar to the measure adopted by the Commission in the case of billing and collection of users of casual calling services. Teleglobe had no data as to the costs entailed in the provision of such billing and collection services, but believed that they "should not be excessive".
417.In its comments, Stentor submitted that, in determining the functionalities that the Stentor companies should be obliged to provide to all telecommunications service providers, the Commission should be guided by its determinations in Decision 97-8 regarding essential facilities and services. Stentor considered that the provision of billing and card services, including related validation and billing functions, operator and information reports, would not be considered essential services as defined in that Decision, as competitive alternatives are available. Therefore, the Stentor companies should not be obliged to provide these functionalities.
418.Stentor noted that Teleglobe supports the provision of a similar country direct service for AT&T Canada LDS in which the calling cards and operator capability of that company are used. Stentor submitted that the fact that AT&T Canada LDS has been successful in developing its service demonstrates that the components to which Teleglobe requests access are not essential. Stentor added that, if Teleglobe wishes to offer a Teleglobe branded country direct service directly to end-users in Canada, and is unable to develop its own calling card and operator service capabilities, it would be able to obtain these functions from alternate suppliers, at market rates.
419.Call-Net agreed that the components were not essential, while AT&T Canada LDS submitted that Teleglobe did not need such measures to protect its market share and that other providers would be able to compete in the provision of Canada-overseas telecommunications services without the unbundled components identified in Teleglobe's proposal.
420.Stentor submitted that it is Teleglobe that is in the more favourable position with regard to the provision of Canada Direct as the market opens to facilities-based competition. Stentor submitted that it is Teleglobe that has established the most critical components of such a service (i.e., agreements with foreign administrations, freephone access numbers from each country, and the country direct platform in Canada upon which the service is provided). Stentor submitted that it would be a significant task for any service provider to develop and launch a competing country direct type service without Teleglobe's wholesale services.
421.Stentor also supported the position of AT&T Canada LDS disputing Teleglobe's assertion that the freephone numbers used to access Canada Direct (and the country direct service of AT&T Canada LDS) had been negotiated by and granted to Teleglobe. Stentor submitted that these access numbers were obtained by Teleglobe in its role as a wholesale provider of these country direct type services and are directly associated with the respective retail offerings of Stentor and AT&T Canada LDS. Stentor supported AT&T Canada LDS' view that Teleglobe should be ordered not to block transfer of carrier status for any country direct type service freephone number in any foreign jurisdiction that the retail provider of the service wishes to transfer to another overseas carrier. Stentor submitted that Teleglobe secured these numbers on behalf of the retail provider of the home country direct service, and therefore the retail provider should have control over these numbers.
422.In its reply, Teleglobe agreed that the unbundled services requested are not essential as defined in Decision 97-8. However, Teleglobe submitted that a strict application of the Decision 97-8 definition of "essential facilities" would be inappropriate without considering the circumstances of the Canada Direct offering.
423.Teleglobe stated that its request essentially aims to ensure parity between itself and the current joint service providers with the introduction of competition in the provision of international telecommunications services. Teleglobe submitted that Stentor enjoys the stronger position in the Canada Direct joint offering, in that it will be able to migrate its customers to a new country direct service. In reply, Teleglobe stated that, even if it is currently Teleglobe's role (as wholesaler in the Canadian international market) to negotiate the necessary agreements with foreign carriers for the provision of the home country services offered by Teleglobe's customers, all Canadian service providers will be free as of 1 October 1998 to negotiate such agreements directly with foreign administrations in order to offer their own home country direct services.
424.With regard to the possibility that Teleglobe could block the transfer of home country direct numbers in foreign jurisdictions, Teleglobe stated that it is the foreign administration, not Teleglobe, which owns these numbers. Thus, on 1 October 1998, if the Stentor companies or AT&T Canada LDS wish to transfer to another service provider or to offer a home country direct service themselves, Teleglobe would have no power over the decision of the foreign administration to refuse or to allow the transfer of the numbers, since the decision would essentially be a commercial issue in a competitive market. Teleglobe also stated that, although these numbers have been negotiated by and granted to Teleglobe by foreign administrations, it is well known by almost all foreign administrations that these numbers serve a joint offering in Canada, particularly since AT&T Canada LDS introduced its home country direct service.
425.Concerning the automation of the service, Teleglobe submitted that nothing prohibits Stentor or AT&T Canada LDS from quickly obtaining their own platform or outsourcing the treatment of their home country direct calls; further, Teleglobe has no market power in the offering of the home country direct service. Therefore, the request of Stentor and AT&T Canada LDS should be rejected.
426.The Commission notes that Stentor company operator services are available for resale.
427.The Commission notes that Stentor company calling card services can also be resold, but that this would entail the use of network arrangements selected by the Stentor company in question, not necessarily those selected by Teleglobe. In Decision 92-12 (in a somewhat different context), the Commission considered that calling cards have been developed primarily for long distance (as opposed to local) service and could be characterized as a competitive tool. On this basis, the Commission considers it inappropriate to order Stentor to provide Teleglobe with "access to Stentor member calling cards" as described by Teleglobe.
428.The Commission considers that the arguments opposing Teleglobe's more general request for the provision of billing and collection services apply equally in this context. Among other things, as acknowledged by Teleglobe, billing and collection services are not essential as defined in Decision 97-8. The Commission considers that Teleglobe, like new facilities-based domestic long distance service providers who entered the market after Decision 92-12, can feasibly construct its own billing and collection system, or obtain service from a third party.
429.On the basis of the above, the Commission denies Teleglobe's request for the unbundling of services associated with Canada Direct Service.
430.The Commission notes that there are two ITU-T recommendations relevant to the provision of the freephone numbers, E.152 and E.169.
431.In general, the Commission considers the portability of freephone numbers important for the development of competition to Teleglobe, and thus to be in the public interest. Accordingly, the Commission considers as a general principle that Teleglobe should not be able to prevent the transfer of freephone numbers to another service provider, and should facilitate that transfer pursuant to the procedures set out in the relevant ITU recommendations.
432.With regard specifically to Canada Direct Service, the Commission notes that Teleglobe stated in its proposal that the service was launched at Teleglobe's initiative and that Teleglobe has been actively involved in its development. Teleglobe also stated that the service is trademarked by it. Stentor, in its comments, asserted that Teleglobe secured these numbers of behalf of the retail provider of the home country direct service and therefore the retail provider should have control over them. In light of the conflicting claims on the record, the Commission will not at this time direct Teleglobe to facilitate transfer of the freephone numbers in question, should the Stentor companies wish to offer the service other than in conjunction with Teleglobe. The Commission is prepared to undertake a more detailed examination of the equities between the parties in relation to this issue, should the need arise.
X PROPOSALS OF GEOREACH
433.GeoReach proposed a prohibition on any significant degree of ownership in or control by Canadian telephone companies (Stentor members, for example) of an entity providing international telecommunications services. It also proposed a prohibition on the direct offering of international services by these companies until workable competition in the provision of international telecommunications services takes hold (GeoReach suggested approximately five years). GeoReach submitted that, absent such prohibitions, telephone companies could leverage their control in the local exchange market to frustrate competition in international services.
434.GeoReach also proposed that Teleglobe be prohibited from involvement in the local exchange service market during the early years of competition. Otherwise, it argued, Teleglobe could leverage the advantage of its historical monopoly through bundling its international traffic with other services carried through bottleneck facilities controlled by incumbent LECs, making it difficult for emerging providers of international services to capture a portion of the international market.
435.GeoReach submitted, among other things, that the above conditions would reduce the opportunity of LECs and international service providers to behave in ways that interfere unduly with the development of workable competition in international services. Accordingly, regulation of international service providers could be streamlined.
436.The Commission considers the measures adopted in this Decision sufficient to provide the necessary safeguards against anti-competitive conduct by Teleglobe and/or telephone companies. In this context, the Commission notes the licensing conditions regarding anti-competitive conduct, the establishment of a CSG by Teleglobe, and the Commission's retention of powers under sections 27(2) and (4) with regard to access to networks and resale and sharing. Accordingly, the Commission rejects GeoReach's proposals.
Laura M. Talbot-Allan
This document is available in alternative format upon request.
INSTRUCTIONS FOR AN APPLICATION TO OBTAIN A LICENCE FOR THE PROVISION OF BASIC INTERNATIONAL TELECOMMUNICATIONS SERVICES
The application is to be filed with: Secretary General
Canadian Radio-television and
Copies of the application, and any correspondence related to it, are placed in the Commission's public examination rooms and are available for inspection by the public.
The applicant must ensure that all pages of the application and all exhibits are dated, and that all necessary information or exhibits that must be included or attached by the applicant are included or attached.
An application is to indicate the class of licence applied for, and include the information set out below, provided by affidavit made by a senior officer of the applicant, executed in accordance with Canadian law.
1. Identification of the Applicant
Indicate whether the applicant is a company, a company to be incorporated, or other (specify, if other).
Provide the legal name of the applicant, and any other name(s) under which the applicant does business.
If a company, provide the jurisdiction in which the applicant is incorporated.
Provide the applicant's mailing address (including postal code), telephone and fax numbers, and e-mail address.
Identify the name and title of the individual who will serve as a contact person, including the individual's address, telephone and fax numbers and e-mail address (if different from that specified above).
2. Ownership and Affiliations
Include, or attach as an exhibit, a description and/or diagram of the applicant's ownership structure, setting out the following information: (a) any shareholder
holding 20% or more of any class of the applicant's shares, indicating the type of shares held (e.g., voting, non-voting); and (b) the identity of any person who controls the applicant, directly or indirectly, and a description of the means by which that person exercises that control (e.g., shareholder agreement, voting trust agreement).
Include, or attach as an exhibit, a list of all affiliates of the applicant that provide basic telecommunications services ("affiliate" is defined as any person who controls the applicant, or who is controlled by the applicant or by any person who controls the applicant). Indicate the jurisdiction(s) in which the affiliate or affiliates is/are incorporated and in which it/they provide basic telecommunications services. Describe in detail the relationship to the applicant.
3. Agreements or Arrangements
Include, or attach as an exhibit, a list of all agreements or arrangements that the applicant has entered into with any foreign telecommunications service provider(s) for the purposes of interconnection, exchange of traffic or termination of traffic in respect of Canadian originating or terminating basic international telecommunications traffic. Indicate the parties to the agreements or arrangements, the foreign jurisdiction(s) in question, and the nature of each agreement or arrangement. If no such agreements or arrangements have been entered into, the applicant should so state.
4. Operation of Telecommunications Facilities
Include, or attach as an exhibit, a statement as to whether or not the applicant operates telecommunications facilities, whether owned by the applicant or leased by the applicant from a separate facilities provider, used in transporting basic telecommunications service traffic between Canada and another country. The Commission notes that "telecommunications facilities" include exempt transmission apparatus as defined in the Telecommunications Act.
Conditions Applicable to All Licensees
1.(a) The licensee shall not engage in anti-competitive conduct in relation to the provision of an international telecommunications service or services.
1.(b) For the purposes of this condition, anti-competitive conduct includes entering into or continuing to participate in an agreement or an arrangement that has, or is likely to have, the effect of preventing or lessening competition unduly in Canada, or otherwise providing telecommunications services in a manner that has, or is likely to have, the effect of preventing or lessening competition unduly in Canada.
2.(a) The licensee shall keep current any information filed with the Commission in connection with its licence application. The licensee shall file with the Commission particulars of any change to such information within two weeks of the licensee becoming aware of the change in question.
2.(b) The licensee shall file with the Commission by affidavit made by a senior officer of the licensee any change with regard to the licensee's statement as to whether or not the licensee operates telecommunications facilities, whether owned by the licensee or leased by the licensee from a separate facilities provider, used in transporting basic telecommunications traffic between Canada and another country.
3. The licensee shall file annually with the Commission an affidavit made by a senior officer of the licensee containing an updated consolidated statement as to its corporate ownership structure and/or affiliates that provide basic telecommunications services, or confirming that no changes have taken place. The licensee shall file the affidavit within two weeks of each anniversary of the effective date of the licence. The updated information shall include all changes, of which the licensee is aware, in effect as of the anniversary date.
4. Any information required to be filed shall be filed in such form as may be prescribed by the Commission.
Conditions Applicable to Class A Licensees Only
5.(a) The licensee shall file quarterly reports with the Commission with respect to traffic that the licensee transports between Canada and another country using telecommunications facilities operated by the licensee, whether those facilities are owned by the licensee or leased by the licensee from a separate facilities provider. Such traffic reports are to provide details of the international traffic transported by the licensee, broken down by the number of outbound (Canadian originating) and inbound (Canadian terminating) minutes, indicating the country of ultimate destination or origin. Such reports are to be provided by affidavit made by a senior officer of the licensee, and are to be filed within 45 days of the end of each quarter (or as may otherwise be specified in Commission rulings).
5.(b) The licensee shall provide annually a consolidated updated list of all agreements or arrangements entered into with foreign telecommunications service providers for interconnection, exchange of traffic or termination of traffic in respect of Canadian originating or terminating basic international telecommunications service traffic. Such lists are to be filed within two weeks of each anniversary of the effective date of the licence, are to include all agreements or arrangements in effect as of the anniversary date, are to indicate the parties to the agreement(s) and arrangement(s) and the foreign jurisdiction(s) in question, and are to be provided by affidavit made by a senior officer of the licensee.
6. The licensee shall report and remit contribution with respect to contribution eligible traffic, as may be defined by the Commission from time to time, that the licensee transports between Canada and another country using telecommunications facilities operated by the licensee, whether those facilities are owned by the licensee or are leased from a separate facilities provider.
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ACE AT&T Canada Enterprises Inc.
ANSI American National Standards Institute
APLDS alternative provider of long distance services
AT&T Canada LDS AT&T Canada Long Distance Services
CBTA Canadian Business Telecommunications Alliance
CFA Central Fund Administrator
CLEC competitive local exchange carrier
CSG Carrier Services Group
CWTA Canadian Wireless Telecommunications Association
Decision 91-10 Teleglobe Canada Inc. - Resale of Transborder Services, Telecom Decision CRTC 91-10, 27 June 1991
Decision 92-12 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 94-6 Affiliate Rule, Telecom Decision CRTC 94- 6, 4 March 1994
Decision 94-19 Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994
Decision 95-2 Hotel and Motel Commission Plans, Telecom Decision CRTC 95-2, 3 February 1995
Decision 95-12 Customer Balloting to Select a Long Distance Service Provider, Telecom Decision CRTC 95-12, 8 June 1995
Decision 95-19 Forbearance - Services Provided by Non-dominant Canadian Carriers, Telecom Decision CRTC 95-19, 8 September 1995
Decision 96-2 Teleglobe - Review of the Regulatory Framework, Telecom Decision CRTC 96-2, 2 February 1996
Decision 97-6 Unbundled Rates to Provide Equal Access, Telecom Decision CRTC 97-6, 10 April 1997
Decision 97-8 Local Competition, Telecom Decision CRTC 97-8, 1 May 1997
Decision 97-10 Teleglobe Canada Inc. - Resale and Sharing of International Private Line Services, Telecom Decision CRTC 97-10, 5 May 1997
Decision 97-19 Forbearance - Regulation of Toll Services Provided by Incumbent Telephone Companies, Telecom Decision CRTC 97-19, 18 December 1997
Decision 97-20 Stentor Resource Centre Inc. - Forbearance from Regulation of Interexchange Private Line Services, Telecom Decision CRTC 97-20, 18 December 1997
DGTP-006-98 Policy Consultation Paper Respecting the Authorization of Earth and Space Stations for Fixed Satellite Services Following the Coming into Force of the GATS Agreement on Basic Telecommunications, Canada Gazette Notice No. DGTO-006-98, 14 March 1998
Director, the Director of Investigation and Research, the Competiton Bureau
FCC Federal Communications Commission
GATS General Agreement on Trade in Services
HKTel Hong Kong Telecommunications (Pacific) Limited
ILEC incumbent local exchange carrier
Inmarsat International Maritime Satellite Organization
Intelsat International Telecommunications Satellite Organization
IPL international private line
IRU indefeasible right of use
ISP Internet service provider
ISR international simple resale
ITU International Telecommunications Union
IXC Interexchange carrier
LATA local access and transport area
LEC local exchange carrier
MFN most favoured nation
NAG North American Gateway Inc.
PIAC Public Interest Advocacy Centre
PIC primary interexchange carrier
PN 97-34 Competition in the Provision of International Telecommunications Services, Telecom Public Notice CRTC 97- 34, 2 October 1997
PSTN public switched telephone network
SOC Stentor operating company
TCC telecommunications common carrier
Teleglobe Act Teleglobe Canada Reorganization and Divestiture Act
WTO World Trade Organization