ARCHIVED -  Telecom Decision CRTC 98-20

Telecom Decision
CRTC 98-20

Ottawa, 6 November 1998

APPLICATION TO REVIEW AND VARY TELECOM DECISION CRTC 98-4: JOINT MARKETING AND BUNDLING

File No.: 8662-M16-02/98

I INTRODUCTION

1. On 15 May 1998, Microcell Telecommunications Inc. (Microcell) filed an application on behalf of numerous Applicants (the "Applicants") to review and vary, pursuant to section 62 of the Telecommunications Act (the Act), Joint Marketing and Bundling, Telecom Decision CRTC 98-4, 24 March 1998 (Decision 98-4).

2. The application was filed on behalf of the following companies: ACC TelEnterprises Ltd., AT&T Canada Long Distance Services Company, Call-Net Enterprises Inc., Clearnet Communications Inc., Echelon Internet Corp., fONOROLA Inc., Integrated Messaging Inc., Interlog Internet Services Inc., Madison Telecommunications Inc., MetroNet Communications Group Inc., Microcell, Optel Communications Corp., PageMart Canada Ltd., Rogers Cantel Inc., TAS Communications Systems Ltd., TelcoPlus Services Inc. and Vidéotron Télécom ltée.

3. The Applicants requested that the Commission review and vary that portion of Decision 98-4 that permits the federally-regulated Stentor Resource Centre Inc. (Stentor) companies to bundle tariffed telecommunications services with services of an affiliated or non-affiliated company or with non-telecommunications services.

4. The Applicants also requested that, on a going-forward basis, the Stentor companies should not be permitted to bundle tariffed local services – including both primary exchange services and optional local services – with competitive services.

5. The Applicants seek relief until such time as the barriers to local competitive entry have been substantially removed.

6. The Applicants submitted that the barriers to entry will persist until at least the following conditions are in place: (1) Local Number Portability (LNP) is available with respect to a substantial proportion of the network access services or lines (NAS) served by the Stentor companies; (2) the Commission has approved the Stentor company tariffs for essential and near-essential facilities required to give effect to Local Competition, Telecom Decision CRTC 97-8, 1 May 1997 (Decision 97-8); and (3) the work assigned by the Commission in Decision 97-8 to the CRTC Interconnection Steering Committee (CISC) regarding technical requirements for interconnection is substantially complete.

7. The Applicants submitted that the continuing inability of facilities-based competitors to enter the market for local telecommunications services casts substantial doubt on the correctness of the Commission’s decision to permit the Stentor companies to bundle a broader range of services. According to the Applicants, such bundling would enable the Stentor companies to grant their own competitive activities (and those of their affiliates) an undue preference or advantage, and enable them to entrench their monopoly position in the local market and retard the development of local competition.

II BACKGROUND

8. In Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994, (Decision 94-19), the Commission stated that the term bundling generally refers to a situation where one rate covers a number of service elements, and that bundling includes situations where there may be separate rate elements for each service element, but a number of service elements are aggregated for purposes of applying volume discounts, with the result that the discount available is greater than it would be were the service elements not aggregated. In Forbearance - Regulation of Toll Services Provided by Incumbent Telephone Companies, Telecom Decision CRTC 97-19, 18 December 1997 (Decision 97-19) and Stentor Resource Centre Inc. - Forbearance From Regulation of Interexchange Private Line Services, Telecom Decision CRTC 97-20, 18 December 1997 (Decision 97-20), the Commission also described bundling as the inclusion of different services or service elements under a rate structure. The Commission noted that this rate structure may be a single rate, a set of rates for various service elements, and/or rates for one or more service elements which are dependent on the usage of other services.

9. In Decision 94-19, the Commission stated that bundling by the Stentor companies of monopoly elements with competitive elements is generally appropriate, subject to three conditions:

1) the bundled service must cover its cost, where the cost study for the bundled service includes:

(a) the bottleneck component(s) "costed" at the tariffed rate(s) (including, as applicable, start-up cost recovery and contribution charges); and

(b) the Phase II causal cost for component(s) not covered in (a);

2) competitors are able to offer their own bundled service through the use of stand-alone tariffed bottleneck components in combination with their own competitive elements; and

3) resale of the bundled service is permitted.

10. In Decision 97-8, the Commission stated that the Stentor companies may continue to bundle their utility and other telecommunications services in accordance with Decision 94-19. In Decision 97-8, the Commission further stated that, with the introduction of competition in the local exchange market, the following modifications to the bundling regime set out in Decision 94-19 are appropriate:

1) The Stentor companies should not be prevented from bundling forborne services with local exchange services. However, when a forborne service is included in a new bundled service, its Phase II costs must be filed as part of the imputation test, and the rates for the bundled service are to be filed for approval by the Commission.

 

2) If the Stentor companies bundle below-cost single line residential exchange services with other telecommunications services, the Commission will deem that the cost of the residential exchange services is equal to the tariffed rate for the purposes of the imputation test.

III THE REVIEW AND VARY APPLICATION

11. The Applicants noted that the Commission recently restated its test for whether to review and vary its past determinations, pursuant to section 62 of the Act. In Guidelines for Review and Vary Applications, Telecom Public Notice CRTC 98-6, 20 March 1998 (PN 98-6), the Commission stated that: "applicants must demonstrate that there is substantial doubt as to the correctness of the original decision" and that "substantial doubt as to correctness will be the primary test". The Commission also provided the following non-exhaustive list of concerns which may give rise to substantial doubt:

(i) an error in law or in fact;

(iii) a failure to consider a basic principle which had been raised in the original proceeding; or

(iv) a new principle which has arisen as a result of the decision.

12. The Applicants submitted that there is substantial doubt as to the correctness of Decision 98-4 because it is premature and will enable the Stentor companies to entrench their dominance over the market for local exchange service before the conditions necessary to enable competition in this market have been satisfied. The Applicants also submitted that Decision 98-4 is contrary to the policies of the Government of Canada and the Commission, which favour the introduction of facilities-based competition. The Applicants argued that substantial doubt arises due to three circumstances.

13. First, the Applicants submitted that there has been a fundamental change in circumstances since 8 August 1997, the date on which the pleadings closed in the proceedings commenced by Review of Joint Marketing Restrictions, Telecom Public Notice CRTC 97-14, 25 April 1997 (PN 97-14) and Review of Bundling and Joint Marketing Restrictions, Telecom Public Notice CRTC 97-21, 6 June 1997 (PN 97-21). The Applicants argued that at the time the Commission issued Decision 97-8, it expressed the expectation that the conditions required to enable facilities-based local competition would be substantially in place by 1 January 1998. The Applicants submitted that the objective of eliminating barriers to facilities-based competition by 1 January 1998 has not been met, and that these barriers are not likely to be removed in the near future.

14. Second, the Applicants submitted that Decision 98-4 fails to take into account a fundamental principle established by the Commission in Telecom Order CRTC 97-1764, 27 November 1997 (Order 97-1764), which states that:

"The Commission notes that arrangements have not yet been implemented to permit facilities-based local competition, and is of the view that the bundling of primary exchange service and toll service would provide the telephone companies with an undue advantage over emerging local service providers, as well as toll competitors, given that the telephone companies have established facilities in both the local and long distance markets.

The Commission is of the view that promotions which bundle primary exchange service with toll services would not be appropriate until the barriers to facilities-based local competition are largely eliminated."

15. The Applicants argued that this statement constitutes a principle, established by the Commission, that requires that the barriers to local competition be eliminated before the Stentor companies are allowed to bundle local services with competitive services (including services of affiliate and non-affiliate companies). The Applicants submitted that the Commission either failed to take this principle into account in rendering Decision 98-4, or allowed a new and incorrect principle to arise; namely, that bundling is permitted irrespective of the state of local competition.

16. Third, the Applicants submitted that the Commission erred either by failing to take into account the state of competition in the market for local exchange services or by mistaking the extent to which barriers to entry into this market continue to exist. The Applicants noted that the Commission considered the state of competition in the wireless market served by the Stentor affiliates. However, the Applicants suggested that there is no indication in Decision 98-4 that the state of competition in the local market itself was properly considered.

17. The Applicants argued that bundling enables the Stentor companies to establish a "circle of dominance". They alleged that the Stentor companies will be able to leverage their monopoly in local telephony markets to the advantage of their divisions and affiliates, thereby raising barriers to entry. The Applicants argued that the Stentor companies will be able to build linkages among their service offerings in the minds of consumers, with each service from the Stentor family helping to promote other Stentor services. In support of this view, the Applicants noted that in the proceeding leading to Decision 98-4, Mobility Canada (Mobility) submitted results from surveys indicating that 63% of its cellular phone users would be interested in consolidated telecommunications accounts (defined to include local telephone service, long distance, paging, cellular and cable television services), and that 72% of its corporate wireless accounts were interested in one service provider for all local, long distance and wireless services.

18. The Applicants submitted that the Commission’s expectation that LNP would be available in the first quarter of 1998 has not been met. They argued that LNP is necessary because real local competition cannot occur if customers must change their phone numbers when they switch suppliers. They noted that LNP is itself dependent on the implementation of database LNP, the development of which represents an enormous technological challenge, and that further delays are possible.

19. The Applicants noted that a year after the release of Decision 97-8, tariffs for unbundled essential and near-essential network components have yet to be finalized. Without final rates for unbundled local loops, potential wireline entrants are unable to quantify their single most important cost of providing local service. Another significant barrier to entry cited by the Applicants is the uncertainty concerning the terms on which the Stentor companies will transit traffic between competitive local exchange carriers (CLECs) or between CLECs and an alternative long distance service provider or wireless service provider. They submitted that even after the resolution of such issues at the CISC, it will take some time for the Commission to finalize the tariffs for these functions.

20. While Decision 97-8 established the broad policy principles governing interconnection, the actual technical and legal arrangements necessary to implement this principle were left to the CISC process. The Applicants submitted that at least until the following matters have been resolved, significant barriers to entry will remain:

(i) principles for the selection of points of interconnections (POI);

(ii) principles for the interconnection of signalling networks and the co-location of POIs and signalling points of interconnection;

(iii) inside wiring: designation of a demarcation point and rules for access to facilities owned and controlled by Canadian carriers;

(iv) network-to-network technical interfaces (not resolved by Telecom Order CRTC 98-40) and network architecture data to be exchanged by interconnecting LECs [local exchange carriers]; and

(v) network operations guidelines.

21. The Applicants argued that in the absence of facilities-based local competition, the only way that competitors can offer a suite of services similar to those offered by the Stentor companies is to resell Stentor services in combination with their own offerings. However, the Applicants argued that they cannot economically match services by the Stentor companies which bundle local telephony and Stentor affiliate offerings. In their view, competition on the basis of the resale of Stentor company primary exchange and optional local services, acquired at retail rates, is neither economically viable nor an effective means of differentiating the competitor’s services. According to the Applicants, the need to counter this type of bundling will distract potential competitors from building the facilities required to contest the local market effectively. They argued that competitors will be required to devote considerable resources towards acquiring and rebranding telephone company services rather than towards the development of their own local facilities.

22. The Applicants also alleged that permitting bundling will create new hindrances to competition. They stated that as an example, not all wireless handsets are operable between the networks of different carriers. They suggested that a customer wanting one-stop shopping and one bill for telecommunications services can at present only get that service from a Stentor company. However, once having "invested" in that wireless handset, the handset becomes a disincentive to the customer to not only change wireless service provider, but also to change primary exchange provider. They also argued that a similar disincentive exists for bundled internet service, if the customer risks having to change its electronic mail address in order to change internet service provider.

23. The Applicants also argued that, since the bundle has the effect of making the price charged on individual elements less transparent to the customer, the customer’s ability to compare the cost of equivalent toll or internet services provided on a stand-alone basis may be hampered. This may make the customer more resistant to change to a CLEC as local competition rolls out.

24. The Applicants proposed that bundling be defined as:

"any packaging of separate services, whether through pricing, tying, or any other arrangement that holds out an advantage to the consumer by obtaining the bundled offering as opposed to the separate components".

25. The Applicants also argued that joint billing of cellular and personal communications services (PCS) with wireline services should constitute bundling, and thus be subject to the Commission’s bundling rules. However, they did not argue that joint billing of wireline and wireless services other than cellular and PCS be categorized as bundling, on the basis that such types of joint billing have traditionally been accepted by the Commission.

IV REMEDY SOUGHT

26. The Applicants requested that the Commission review and vary that portion of Decision 98-4 that permits the Stentor companies to bundle tariffed telecommunications services with services of an affiliated or non-affiliated company or with non-telecommunications services. The Applicants also requested that on a going-forward basis the Stentor companies not be permitted to bundle tariffed local services (including primary exchange services and optional local services) with competitive services. The Applicants also submitted that these limitations on bundling by the Stentor companies should be maintained until the barriers to local competitive entry have been substantially removed.

27. The Applicants proposed the following test, based on the completion of certain regulatory milestones, to discern when effective local competition can develop:

(i) implementation of database LNP;

(ii) approval of Stentor company tariffs for all essential and near-essential facilities listed in Decision 97-8, including unbundled local loops, transiting and transporting, and traffic imbalance over bill-and-keep trunks; and

(iii) finalization of interconnection agreements, together with Schedules describing network and operational requirements to enable effective local interconnection.

28. The Applicants proposed that, once these conditions are met, a Stentor company should be allowed to bundle services in its territory, either alone or with affiliated or non-affiliated companies, subject to meeting the Commission’s imputation test and making the bundled service as a whole (and in the case of in-house bundling, its component elements) available for resale.

29. Regarding LNP, the Applicants proposed that, with the exception of Island Telecom Inc. (Island Tel) and TELUS Communications Inc. (TCI), each Stentor company be permitted to bundle local services with competitive elements and services offered by affiliates, and non-affiliate companies or non-telecommunications services only when the earlier of two events occurs: either LNP is available in all of its Priority 1 and 2 exchanges or 66% of its NAS are LNP compatible.

30. Since no exchanges served by Island Tel appear in the list of Priority 1 and Priority 2 exchanges, Island Tel would be permitted, under the Applicants’ proposal, to bundle optional local services and to implement the rules established in Decision 98-4 when 18% of its NAS are LNP compatible.

31. The Applicants proposed that TCI should be required to meet the 66% threshold before being allowed to bundle optional local services and to implement the rules established in Decision 98-4.

V INTERVENERS’ COMMENTS

32. Comments were received from AT&T Canada Enterprises Company (AT&T Canada), London Telecom Network Inc. (London Telecom), Mobility, Responsible Internet Service Companies (RISC), Stentor and TCI. Mobility, Stentor and TCI argued that the application fails to meet the test for review and variance, and therefore should be denied. AT&T Canada, London Telecom and RISC support the application.

33. AT&T Canada, London Telecom and RISC supported the application, on the grounds that there is substantial doubt as to the correctness of Decision 98-4, due mainly to unanticipated delays in the introduction of competition in the local market. These parties also supported the remedy requested by the Applicants.

34. AT&T Canada submitted that Decision 98-4 gives the Stentor companies an unfair headstart in the one-stop shopping telecommunications market. It also submitted that the Commission itself, in Order 97-1764, recognized the dangers inherent in service bundling prior to competition in the local market. London Telecom reiterated the position taken in the application that Decision 98-4 grants the Stentor companies the ability to leverage their monopoly in the local market into adjacent markets, such as the forborne competitive toll market.

35. AT&T Canada also argued that there is substantial doubt as to the correctness of Decision 98-4 in light of commitments which were made by Canada in the context of the GATS negotiations on Trade in Basic Telecommunications Services. A commitment made by Canada in the regulatory framework "Reference Paper" was that appropriate measures shall be maintained for the purpose of preventing a major supplier from engaging in or continuing anticompetitive practices. According to AT&T Canada, Stentor company bundling in accordance with the rules contained in Decision 98-4 would be anticompetitive.

36. RISC argued that Decision 98-4 is inconsistent with the general conditions for forbearance developed by the Commission in Decision 94-19. RISC noted that in Decision 94-19, the Commission required as a condition for forbearance that significant barriers to entry be removed and that competition had to have occurred or would occur within one or two years. RISC argued that the second condition (i.e., actual competition) has not been fulfilled because significant barriers to entry (i.e., the first condition) remain.

37. Mobility, Stentor and TCI submitted that the application relies upon incorrect factual assumptions, and thus should be dismissed by the Commission. They noted that the chronology of the proceeding leading to Decision 98-4 does not support the application to review and vary Decision 98-4 which is based substantially on the premise that the Commission was not aware of the changed circumstances of local competition. Mobility, Stentor and TCI argued that the Commission was fully aware of the progress of local competition. Mobility noted that between the release of Decision 97-8 on 1 May 1997 and the release of Decision 98-4 on 24 March 1998, there were numerous CISC meetings, and that at meetings convened on 24 November 1997 and 20 February 1998, there was considerable round-table discussion of the progress of activities and milestones associated with the opening of local telephony markets to competitive entry. Mobility thus submitted that the Commission was fully apprised of the progress of local competition.

38. TCI noted that the Applicants did not argue that there has been a change in circumstances since Decision 98-4 was issued on 24 March 1998, but rather that there has been a change in circumstances since the record of PN 97-14 and PN 97-21 closed on 8 August 1997. Stentor and TCI argued that, contrary to the case made by the Applicants, it is not the circumstances at the close of the record for a proceeding that are relevant in determining whether there has been a fundamental change in circumstances to warrant a review and vary. Rather, it is the circumstances at the time of the decision itself that are relevant to such a determination. Stentor noted that an expert tribunal such as the Commission can have regard for developments that have occurred since the close of the record, particularly when such developments relate to matters within the tribunal’s area of expertise. Stentor and TCI argued that the Applicants’ assertion that when the Commission issued Decision 98-4, it relied on a record that did not reflect the changed circumstances of local competition suggests that the Commission deliberately ignored its own knowledge of the industry and developments in the implementation of local competition.

39. TCI argued that the effect of granting the application would be to vary not only Decision 98-4, but also Decision 97-8 and, on a prospective basis, Telecom Order CRTC 97-1345, 22 September 1997 (Order 97-1345), which permits the bundling of optional local with competitive services as long as the optional local service is also made available for resale.

40. Concerning specific grounds for the application, Mobility, Stentor and TCI submitted that the application does not raise, or cast new light, on any issues that were not previously identified on the record of the proceeding leading to Decision 98-4. Mobility and TCI noted that the Applicants’ argument essentially revolves around the progress and timing of the removal of barriers to entry (i.e., competitive thresholds) and the appropriateness of the bundling of Stentor local and optional services, among other things, and the services of an affiliated entity. Mobility noted that the record of the proceeding culminating in Decision 98-4 clearly shows that each of these concerns was raised by parties to the proceeding, and thus was considered by the Commission. Mobility submitted that rather than meeting the test for a review and variance, the application is an attempt to selectively re-argue portions of the proceeding leading up to Decision 98-4.

41. Regarding the timing of the roll-out of LNP, TCI argued that neither the Commission nor the industry contemplated the roll-out of LNP by 1 January 1998, and certainly not to the percentage of exchanges that the Applicants claim is necessary before bundling can be permitted. Moreover, TCI argued that neither Decision 98-4 nor Decision 97-8, which set out the conditions for bundling tariffed local services with forborne services, require preconditions such as LNP before such bundling is permitted.

42. Regarding the definition of bundling proposed by the Applicants, Mobility and Stentor note that the definition would capture the joint-billing of cellular and PCS with wireline services. Mobility submitted that the proposal by the Applicants to re-define bundling to include instances of wireless and wireline services on a single bill, is an attempt to expand the scope of the proceeding. In this regard, it noted that the Commission, in PN 97-21, provided the operative definition of the term bundling (as originally defined in Decision 94-19) for the purposes of this proceeding. Mobility argued that the definition in PN 97-21 of the term bundling is suitable and should not be expanded to include the concept of a single bill. Mobility and Stentor note that a single bill may or may not involve a bundle (i.e., bundled rate, discount package, or linking the availability of one service or price to that of another service).

43. Mobility also argued that the Applicants mischaracterized the Commission’s view of the role of resale in evolving competitive markets. It noted that the Applicants selectively quoted paragraph 237 of Decision 97-8 in order to bolster their claim that competition must be facilities-based and that resale of Stentor services would serve only to divert new entrants from the task of constructing their networks. Mobility noted that paragraph 237, in full, of Decision 97-8 states that:

"The Commission is of the view that resale can promote the development of a competitive market while allowing competitors time to construct their own facilities. While resale competition can help promote the development of a competitive market, it is the Commission’s view that the full benefits of competition can only be realized with facilities-based competition."

44. Mobility and Stentor submitted that not only did the Commission not eliminate any of the bundling requirements established in Decisions 94-19 and 97-8, but it augmented them; as for example the added requirement for prior Commission approval of such bundles and an imputation test for affiliate and non-affiliate services. Moreover, Mobility and Stentor submitted that these requirements are designed to foster competition in the local market, by enabling entrants to be responsive to customer demands for innovative, integrated service options while they build their own facilities.

45. Stentor argued that the Applicants are incorrect to claim that Order 97-1764 established a "fundamental principle" that barriers to local competition should be eliminated before the Stentor companies are allowed to bundle local service with competitive services. According to Stentor, the general principle adopted by the Commission permits bundling of utility and competitive services. This principle was adopted in Decision 94-19, and since that time, other Commission decisions have firmly established that such bundling is permitted. Decision 97-8 continued the bundling principles in Decision 94-19 and established additional filing requirements for the bundling of forborne services with local exchange services.

46. Stentor noted that in Order 97-1345 the Commission reiterated the acceptability of bundling of utility and competitive elements, and confirmed the bundling rules established in Decisions 94-19 and 97-8, in the context of a tariff filing which bundled local optional features with toll services. Stentor noted that, while the Commission denied the tariff filing, it did so on the sole basis that the optional features included in the bundle were not available for resale on a stand-alone basis.

47. Stentor argued that the statement in Order 97-1764 does not establish a "fundamental principle" as alleged by the Applicants. Stentor noted that subsequent to that Order, Decision 97-19 reiterated the bundling rules established in Decisions 94-19 and 97-8, and explicitly stated that it would permit the bundling of toll and toll free service with local exchange service.

48. Stentor and TCI argued that the Applicants have overstated their claim that there has been a change in the status of the implementation of local competition and have understated important developments that have occurred to remove barriers to entry. They noted, for example, that interim CLEC interconnection agreements have been signed and approved; many important issues have been resolved by CISC; the portable contribution regime has been implemented; and the Commission has established and implemented going-in rates reflecting local rate increases for most of the Stentor companies. TCI noted that at least one new entrant in the Alberta local market has availed itself of the TCI interconnection tariff and entered into interim interconnection agreements. Also, TELUS Communications (Edmonton) Inc. (TCEI) was directed by the Commission to file interim tariffs based on TCI’s interim inter-carrier tariffs, for unbundled and inter-carrier network components, effective as of 1 July 1998. Upon Commission approval of these tariffs, competitors will be able to also enter the Edmonton market.

49. Stentor also noted that the Commission has and will continue to have the authority to examine, via the tariff approval process, any bundle incorporating local exchange services. Through this process, the Commission can determine whether a particular bundle includes an essential facility not already available on a stand-alone basis. Also, interested parties would be able to intervene and present arguments to the Commission if they consider that a particular bundle does not comply with the applicable requirements.

50. TCI and Stentor submitted that the public is increasingly demanding one-stop shopping for their communications needs, and that the Commission is recognizing those demands by allowing the Stentor companies to offer bundled solutions, albeit subject to imputation and other conditions. They noted that, in Decision 98-4, the Commission stated that the framework for bundling attempts to strike an appropriate balance between the concerns of competitors with respect to the potential for anticompetitive price abuses and the concerns of the Stentor companies regarding their ability to provide cost-effective integrated solutions.

VI APPLICANTS’ REPLY COMMENTS

51. The Applicants submitted that Mobility, Stentor and TCI have not effectively countered the main ground of the application, namely, that there is substantial doubt as to the correctness of Decision 98-4 because there will be "deleterious effects" in local and adjacent markets if the Stentor companies are permitted to bundle tariffed local and competitive services prior to removal of barriers to competitive local entry.

52. Regarding the fundamental change in circumstances, the Applicants argued that while the Commission may have been aware of developments in the implementation of local competition when it issued Decision 98-4, the interested parties to that proceeding relied on different assumptions when they made their pleadings. While Decision 98-4 was based on the record of that proceeding, the Applicants allege that the "Commission seems to have ignored a relevant change in circumstances, i.e., that barriers to competitive local entry were not being removed at the pace anticipated when pleadings closed".

53. The Applicants argued that although the principle upon which the application is based was raised in the initial proceeding, the principle was not given due consideration by the Commission. They note that according to PN 98-6, a failure to consider a basic principle which had been raised in the original proceeding, provides sufficient grounds for the review and variance of a past Commission determination.

54. The Applicants argued that the inclusion of joint billing in the definition of bundling is appropriate. They argued that in the submissions by Mobility to the PN 97-14/PN 97-21 proceeding, it considered joint billing as bundling. They also argued that the Commission has never fully defined the term bundling, and that the definition contained in PN 97-21 is neither comprehensive nor determinative.

55. In response to the fact that interim interconnection and unbundled facility tariffs have received Commission approval, the Applicants reiterated their position that interim tariffs are not the basis for the development of widespread competition in the local market.

56. The Applicants reiterated their position that it is not economic for them to resell Stentor primary local exchange and/or optional local services as part of their own bundled offerings. They noted that Mobility provided no evidence to support its assertion that competitors have cost advantages that may outweigh disadvantages from reselling Stentor’s tariffed local services. The Applicants argued that they are at a cost disadvantage because they have a higher cost of capital and do not enjoy the economies of scale and/or scope of the integrated Stentor companies.

VII CONCLUSIONS

57. The Applicants submitted that there is substantial doubt as to the correctness of Decision 98-4 on three grounds:

(1) a fundamental change in circumstances, in particular delays in eliminating barriers to facilities-based local competition, since 8 August 1997 when the pleadings closed for the proceeding leading to Decision 98-4;

(2) a failure by the Commission to take into account a fundamental principle, established in Order 97-1764, that bundling of primary exchange services with toll services before barriers to facilities-based local competition are largely eliminated would give the Stentor companies an undue preference and is inappropriate; and

(3) the Commission erred by not taking into account the state of competition for local exchange services or by mistaking the extent to which barriers to entry into this market continue to exist.

58. For the reasons set out below, the Commission considers that the Applicants have not demonstrated that there is substantial doubt as to the correctness of Decision 98-4.

59. Regarding the first ground, that there has been a delay in the elimination of entry barriers to local competition and thus a fundamental change in circumstances after the close of pleadings in the proceeding leading to Decision 98-4, the Commission concludes that any such delay has no bearing on the correctness of Decision 98-4.

60. The Commission notes that the rules and safeguards applicable to the bundling of the Stentor companies’ monopoly and competitive tariffed services, were not established in Decision 98-4, but rather in Decisions 94-19 and 97-8. The Commission established the bundling rules specifically to allow the bundling of monopoly and competitive services with appropriate competitive safeguards. These safeguards are: 1) the bundled service must cover its costs; 2) competitors must be able to offer their own bundled service through the use of stand-alone tariffed bottleneck components in combination with their own competitive elements; and 3) resale of the bundled service is permitted. The Commission considers that the above conditions allow competitors to offer bundled services on a competitive basis even when monopoly or near-monopoly services are involved. The complete elimination or indeed the partial elimination of barriers to entry in the local market was not and is not a precondition for the Stentor companies to bundle services. Accordingly, the Commission considers that any delay that may have occurred in reducing local entry barriers cannot be characterized as a fundamental change in circumstances such as to cast doubt upon the correctness of Decision 98-4.

61. The Commission notes in passing that many of what the Applicants characterize as barriers to entry into the local telephony market, which they allege still remain, have in fact been resolved. The CISC process is functioning as intended. Interim CLEC interconnection agreements have been signed and approved; and the portable contribution regime has been implemented. The Commission also notes that many important issues regarding the principles for interconnection have been resolved within CISC. While some issues concerning inside wiring, network-to-network technical interfaces and network operations guidelines are not entirely resolved, these are not considered to be significant deterrents to entry. In addition, LNP was available in Calgary and Vancouver on 31 July 1998 and in Toronto and Montréal on 31 August 1998. The roll-out of LNP for other exchanges is expected to progress as originally scheduled in the summer of 1997. As noted by TCI, at least one new entrant in the Alberta local market has availed itself of the TCI interconnection tariff and entered into interim interconnection agreements. Also, TCEI was directed by the Commission to file interim tariffs for unbundled and inter-carrier network components which have been approved.

62. Regarding the Applicants’ second ground, that the Commission in Decision 98-4 ignored a "fundamental principle" established in Order 97-1764, the Commission notes that Order 97-1764 did not establish a fundamental principle on bundling. The general principles concerning bundling were established in Decisions 94-19 and 97-8. As noted above, these principles do not require that local competition, or the arrangements to allow for such competition, be in place as a pre-condition for bundling.

63. Not only do Decisions 94-19 and 98-7 establish the general principles on bundling, but more recent Commission rulings, issued after Order 97-1764, have reaffirmed that bundling is permitted. For example, in Decision 97-19, the Commission stated that bundling of forborne toll and toll free services with local exchange and other tariffed services is appropriate, subject to the bundling rules established in Decisions 94-19 and 97-8.

64. The Commission also notes that in PN 97-21, which initiated the bundling proceeding that culminated in Decision 98-4, it stated that it did not intend to reconsider issues concerning the bundling of telecommunications services provided solely by the Stentor companies, because issues concerning such bundling had been addressed in Decision 94-19 and Decision 97-8.

65. Thus, Decision 98-4 in no way changes the fundamentals of bundling; it merely extends the competitive safeguards established in earlier Commission decisions, in order to address the bundling of tariffed services with affiliate and non-affiliate services and with non-telecommunications services.

66. The third ground that the Applicants advanced was that the Commission erred by not taking into account the state of competition for local exchange services or by mistaking the extent to which barriers to entry into this market continue to exist. The Commission notes, however, that, in view of the facts set out above, the state of local competition has no relevance to the bundling rules and safeguards established in 1994 and extended through Decision 98-4 to affiliates and non-affiliates.

67. Given the above, the Commission finds the Applicants’ second and third grounds in support of their position that there is substantial doubt as to the correctness of Decision 98-4 to be without merit.

68. The Commission notes the Applicants’ submission regarding their provision of bundles of services, similar to what the Stentor companies provide, on the basis of reselling components of Stentor company local exchange services. As stated by the Commission in Decision 97-8, resale can promote the development of a competitive market while allowing competitors time to construct their own facilities. The Commission notes, also, that the requirement contained in Order 97-1345, that optional local features be available on a stand-alone basis for resale, provides competitors with a greater number of options in designing their own bundles of services if they choose to include Stentor company local services on a resale basis in their bundles (e.g., by reselling optional local features and/or primary exchange services).

69. In addition, the Commission is of the view that it would be contrary to the interests of consumers to curtail the provision of bundled services by the Stentor companies. Consumers are benefiting from one-stop shopping through bundling. Further, the Commission considers that the conditions under which the Stentor companies may bundle services strike an appropriate balance between the concerns of the Stentor companies and those of the competitors.

70. Regarding the Applicants’ proposal to redefine bundling to include packaging of separate services, whether through pricing, tying, or any other arrangement that holds out an advantage to the consumer by obtaining the bundled offering as opposed to the separate components, the Commission concludes that its existing definition of bundling adequately addresses the underlying concerns.

71. Similarly, the Commission considers the Applicants’ proposal to treat the joint billing of cellular/PCS and wireline services provided by the Stentor companies as bundling, not to be appropriate. In the Commission’s view, joint billing in and of itself cannot properly be characterized as bundling. The Commission notes in this regard that the Stentor companies have included local and toll services on the same bill for many years. Bundling is involved, for example, where one or more of the services offered is billed at a rate that is not available if billed separately.

72. Regarding RISC’s position that Decision 98-4 is inconsistent with the forbearance criteria developed by the Commission in Decision 94-19, the Commission notes that those criteria are not relevant to the bundling regime developed by the Commission. The criteria for forbearance were established to determine if a particular market was sufficiently competitive to protect the interests of users, in order that the Commission could forbear from regulating those markets. The bundling rules, on the other hand, were established to provide certain competitive safeguards, such as ensuring that bundled prices are not anticompetitive (e.g., comply with the imputation test), that bottleneck or essential components are available to competitors at tariffed, non-discriminatory rates in order for competitors to be able to offer their own bundled services, and that the bundle is available for resale.

73. The Commission also notes that according to the existing rules, it will continue to consider all proposed bundled offerings by the Stentor companies that involve tariffed services to ensure that they conform to the safeguards set out in Decisions 94-19, 97-8 and 98-4.

74. In sum, the Commission concludes that the Applicants have not demonstrated that there is substantial doubt as to the correctness of Decision 98-4 and, accordingly, denies the application.

Secretary General

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