ARCHIVED -  Telecom Decision CRTC 98-4

In this Decision, the Commission removes, for both the federally-regulated Stentor member companies (Stentor companies) and independent telephone companies, the prohibition against the joint marketing of wireless and wireline services. Further, the Commission sets out the rules for the Stentor companies for the bundling of tariffed telecommunications services with services of an affiliated or a non-affiliated company, or with non-telecommunications services. The requirement that resale of the bundled service be permitted will not apply with respect to a bundle containing non-telecommunications services (e.g., broadcast services). The Commission is also initiating two proceedings to consider the removal of the restriction against bundling terminal equipment with network service elements, and to consider the appropriate framework for customer-specific bundled services.

This Decision deals with issues raised in two public notices issued by the Commission: 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).

In PN 97-14, the Commission sought comments on whether, in light of developments in the market-place, it is appropriate to continue to impose on the Stentor companies and independent telephone companies the joint marketing restrictions set out in Cellular Radio - Adequacy of Structural Safeguards, Telecom Decision CRTC 87-13, 23 September 1987 (Decision 87-13) and Rogers Cantel Inc. v. Bell Canada - Marketing of Cellular Service, Telecom Decision CRTC 92-13, 29 June 1992 (Decision 92-13).

In PN 97-21, the Commission stated that it would be timely to consider broader issues related to the bundling of tariffed services with other types of in-house services or with services of other entities. Accordingly, the Commission announced that it was expanding the scope of the proceeding established in PN 97-14 to include consideration of bundling issues. In particular, the Commission sought comments on the bundling of a tariffed service with:

1) services of an affiliated company;

2) services of a non-affiliated company; and

3) non-telecommunications services offered in-house by the telephone company (e.g. pursuant to the Broadcasting Act).

In PN 97-21, the Commission also invited comments on the appropriate competitive safeguards that may be required in order to prevent anti-competitive abuses (e.g., cross-subsidy and predatory pricing) that may arise from bundling by the Stentor companies.

The Commission also stated in PN 97-21 that it did not intend to reconsider issues concerning the bundling of telecommunications services provided in-house by the Stentor companies. Issues concerning such bundling have been addressed in Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994 (Decision 94-19) and Local Competition, Telecom Decision CRTC 97-8, 1 May 1997 (Decision 97-8).

Comments were received from: ACC TelEnterprises Ltd. (ACC), the Association des compagnies de téléphone du Québec inc., AT&T Canada Enterprises Inc. (AT&T Enterprises), AT&T Canada Long Distance Services Company (AT&T Canada LDS), Call-Net Enterprises Inc. (Call-Net), the Canadian Business Telecommunications Alliance (CBTA), the Canadian Cable Television Association (CCTA), the Canadian Wireless Telecommunications Association (CWTA), Canadian Association of Internet Providers (CAIP), Clearnet Communications Inc. (Clearnet), the Director of Investigation and Research, Competition Act (DIR), Microcell Telecommunications Inc. (Microcell), Mobility Canada, Pathway Communications, the Public Interest Advocacy Centre, Rogers Cantel Inc. (Cantel), Rogers Communications Inc. (RCI), Stentor Resource Centre Inc. (Stentor) and Sogetel inc. Separate comments were also received from The New Brunswick Telephone Company, Limited (NBTel) and TELUS Communications Inc. (TCI). Cable Atlantic Inc., Canadian Satellite Communications Inc., fONOROLA Inc. and TMI Communications did not file comments, but filed reply comments.

As noted in PN 97-14, the restrictions commonly referred to as "the joint marketing restrictions" are actually a series of safeguards designed to prevent a wireline telephone company from conferring on itself or its cellular affiliate an undue preference or advantage, contrary to subsection 27(2) of the Telecommunications Act (the Act). These safeguards include: (1) a prohibition on joint marketing and advertising; (2) a requirement for neutral customer referrals; (3) a prohibition on the exchange of confidential customer information; and (4) a prohibition on the cross-subsidization of cellular services by wireline services.

The Commission’s rules regarding joint marketing have evolved considerably since Decisions 87-13 and 92-13, largely due to competitive developments in the market. For example, in Canadian Association of Message Exchanges Inc. v. Bell Canada - Marketing of Paging Services, Telecom Decision CRTC 95-16, 15 August 1995, the Commission did not extend the joint marketing restrictions to the distribution of paging products through Bell Canada’s (Bell) Phonecentres. In a Commission letter dated 15 November 1996, the Commission allowed Bell to distribute Bell Mobility’s Liberti cellular phones through Bell’s Phonecentres.

As noted in PN 97-21, the Commission in Decision 94-19 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.

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

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 ILEC 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; and

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.

Stentor, Mobility Canada, NBTel and TCI argued that the joint marketing restrictions are no longer relevant to today’s competitive and dynamic wireless telecommunications marketplace, and therefore all four of the safeguards should be removed. They noted that these restrictions were introduced in Decision 87-13, based on the view that participation by the wireline telephone companies in the new cellular market would result in an undue or unreasonable preference being granted to the cellular affiliates. However, Mobility Canada argued that the Commission’s competitiveness objectives in the wireless market have already been achieved. Stentor and Mobility Canada noted that the wireless services market has grown considerably over the past ten years (at about 30% per year), and there are now 4.2 million subscribers with 29% of Canadian households having at least one wireless telephone. According to Mobility Canada, Cantel now serves 1.5 million customers, provides coverage to 90% of the Canadian population and has developed a distribution network which includes 3,000 retail outlets in addition to Cantel’s network of corporate stores and affiliated distributors. Stentor, Mobility Canada, NBTel and TCI also argued that the wireless services market is becoming more competitive as new types of wireless services such as Personal Communications Services (PCS), Enhanced Specialized Mobile Radio (ESMR), and Local Multipoint Communications Systems (LMCS) are being rolled out, and that consumers are very aware of the choices of wireless service providers, options, packages and products now available to them through highly publicized mass media campaigns. They also noted that the Commission in Regulation of Wireless Services, Telecom Decision CRTC 94-15, 12 August 1994 (and later in Regulation of Mobile Wireless Telecommunications Services, Telecom Decision CRTC 96-14, 23 December 1996 (Decision 96-14)) found the cellular/PCS market to be sufficiently competitive to permit forbearance.

Stentor argued that PCS services do not need protection against joint marketing because the market conditions under which PCS services are being implemented are significantly different than those under which the Commission found it appropriate to impose the joint marketing restrictions in 1987. Stentor noted that PCS is not a new technology or service which is foreign to consumers; it is simply an enhancement of mobile cellular service that is well understood by consumers. Stentor also noted that the new PCS providers have already been granted certain protections. The spectrum licensing process restricts the incumbent wireless providers from providing 1.9 GHz PCS services until one of the new PCS providers is operating in the incumbent’s servicing area with a cellular resale and roaming agreement or, in the absence of a new PCS provider being in operation, until a cellular resale and roaming agreement between an incumbent and a new PCS provider has been in place for one year.

Stentor, Mobility Canada and TCI argued that the joint marketing (and bundling) restrictions have now become an impediment to competition and customer choice. Customers are increasingly demanding integrated solutions, one stop shopping, packaging and bundling, but are not receiving the benefits of many pricing, packaging and service capability offerings that unrestricted joint marketing and bundling could provide. Such integrated solutions would result in increased consumer choice, more innovations, and more efficient and cost effective delivery of services (i.e., consumers are being denied the benefits of economies of scope in marketing and distribution).

Stentor, Mobility Canada and TCI submitted that it was no longer necessary to require the incumbent Stentor companies to provide neutral customer referrals to inquiries for cellular/PCS services. The wireless market is competitive and characterized by aggressive marketing and advertising, which has intensified with the entry of other competitive services such as PCS services, and consumers are well aware of competitive alternatives in the wireless market.

Regarding the restrictions on the exchange of confidential customer information, Stentor, TCI and Mobility Canada argued that there is no need for a separate provision for protection of confidential information dealing with activities between the companies and their respective cellular affiliates or any other affiliate. They argued that this provision is unnecessary because it duplicates provisions set out in the companies’ Terms of Service under "Confidentiality of Customer Records". TCI also noted that similar conditions imposed on the wireless carriers as a condition of forbearance already restrict the use of confidential customer information. As well, TCI referred to Industry Canada’s Privacy Principles for telecommunications services. Mobility Canada added that the development of the telephone companies’ Carrier Services Groups (CSGs) ensures that information concerning the telephone companies’ dealings with competitors is protected. Mobility Canada stated that it has no access to such information, and does not seek such access.

TCI submitted that the dominance of the Stentor companies should not raise concerns about joint marketing. TCI argued that as long as all competitors have equivalent opportunities to joint market and as long as all telecommunications markets are open to competition, there can be no undue preference where telephone companies joint market their local services with other types of services.

Stentor and TCI argued that competitors could enter into all sorts of arrangements to provide a wide range of telecommunications services. Competitors can become facilities-based local carriers, they can form strategic alliances with companies offering complementary services, or they can resell Stentor services (including residential basic services) as part of their service packages.

Stentor observed that it is not the purpose of regulation to attempt to eliminate any advantage one group of competitors may have; and that different competitors will have different advantages, affiliations and burdens. It argued that attempts to achieve parity among competitors by regulatory means would be harmful to competition, because it would create artificial advantages and disadvantages. TCI argued that the current joint marketing and bundling restrictions have the effect of preserving artificial market segments and distinctions, thus preventing the market from evolving naturally in response to consumer demands for one-stop shopping and integrated service offerings.

Most non-Stentor parties argued that the joint marketing restrictions should not be removed. ACC, AT&T Canada LDS, AT&T Enterprises, Call-Net, Cantel, CWTA, Clearnet, and Microcell argued that the Commission should maintain all the current joint marketing restrictions. The DIR and CBTA, however, argued that the joint marketing restrictions should be removed.

The DIR stated that many of the concerns that gave rise to the imposition of the joint marketing restrictions are no longer valid as telecommunications markets are now open to competition. The DIR argued that removal of the joint marketing restrictions would not likely enable the Stentor and independent telephone companies to engage in anticompetitive practices. The DIR noted that technological developments in network infrastructures are causing once disparate services and industries to converge (e.g., Internet, local and long distance telephony, fax, data, direct broadcast satellites) and are creating business opportunities that did not exist previously. Joint marketing of such services will allow for cost savings, due to economies of scale and scope in the distribution and marketing of what were once regarded as distinct and separate technologies and markets, thereby offering consumers direct benefits, akin to obtaining a new and higher quality product.

CBTA stated that the restrictions on (1) joint marketing and advertising and (2) neutral customer referrals are no longer necessary in light of the current competitive environment. CBTA recommended that the Commission maintain the prohibition on the exchange of confidential customer information by wireline service providers and their wireless affiliates.

CCTA argued against joint marketing of local services with competitive services until the same opportunities are available to other market participants. CCTA argued that although resale of Stentor local services will be available to competitors to round out their service offerings, resale is not a substitute for facilities-based competition. CCTA did not oppose other forms of joint marketing and bundling by the Stentor companies.

AT&T Canada LDS argued that no further liberalization of the joint marketing of wireline and wireless services is justified at this time. AT&T Canada LDS proposed that the joint marketing restrictions should be extended to cover all telephone company telecommunications services such as broadcasting or affiliate services until such time that their dominance in wireline markets has been significantly eroded.

Clearnet proposed that the Commission continue to enforce the existing joint marketing restrictions until it issues a forbearance decision with respect to the toll or local telecommunications markets. Upon issuance of a forbearance decision for the toll market, the telephone companies should be permitted to joint market, bundle, bill, and submit joint bids for the provision of toll and wireless services. Upon issuance of a forbearance decision with respect to the local market, the Commission should eliminate all restrictions and safeguards regarding the joint marketing or bundling of wireline and wireless services.

Call-Net proposed that the Stentor companies be prohibited from joint marketing and bundling wireless and wireline services. Call-Net, as well as ACC and AT&T Enterprises, argued that the Stentor companies are the only parties who are able to engage in joint marketing of a full range of telecommunications services.

ACC stated that joint marketing and bundling should continue to be prohibited where the end result is to confer a preference on the service offered by the regulated entity. ACC also stated that if the Commission forbore from regulating toll services, the joint marketing restrictions should continue to apply.

Microcell and ACC proposed that the requirement for neutral customer referrals is necessary even if the Commission decides to eliminate the joint marketing restrictions. AT&T Canada LDS, Cantel and Microcell argued that the joint marketing restriction dealing with cross-subsidies be maintained. Clearnet and Microcell stated that the restriction on the exchange of confidential customer information should not be removed.

Stentor, TCI and Mobility Canada noted that there are currently a number of effective safeguards which ensure against the potential for anticompetitive abuses arising from bundling; in particular, that there is no ability or incentive to cross-subsidize, engage in a profitable strategy of predatory pricing, or to otherwise constrain competition in telecommunications markets.

First, Stentor, TCI and Mobility Canada argued that the Split Rate Base, coupled with Price Caps on Utility services, ensures that revenues from the Utility segment cannot be used to subsidize services in the Competitive segment. They also submitted that additional protection is provided through the Intercorporate Transactions regime which protects against cross-subsidies between the Utility segment or integral affiliates and non-integral (including cellular and PCS) affiliates as well as between integral affiliates and the Utility or Competitive segment.

Second, Stentor, TCI and Mobility Canada argued that the absence of barriers to entry into telecommunications markets and increasing competition in all telecommunications markets also safeguard against the potential for anticompetitive pricing, and thus there is no need for explicit restrictions on bundling. In their view, numerous Commission decisions establishing the terms for emerging competition have ensured that new entrants can enter the market with relative ease. Examples of such measures cited by Stentor include: network/terminal unbundling, disclosure of network-to-terminal and network-to-network interfaces, equal access for alternative long distance providers, terms for co-location and access to support structures, portable subsidies and mandated resale of the companies’ services, and unbundling of the local loop and other essential network components.

Third, Stentor, TCI and Mobility Canada noted that the Terms of Service ensure equitable treatment of customers and protection of the privacy of confidential customer information.

Stentor and TCI also noted that affiliate and non-telecommunications services are most likely services that have been forborne or are outside the scope of the Act. Stentor and TCI submitted that imposing additional regulatory safeguards on bundling such services with tariffed services is regressive in that it results in either re-regulation of services that have already been found to be sufficiently competitive for forbearance, or a form of regulation of non-telecommunications services pursuant to theAct. For these reasons, TCI argued that extending the bundling rule developed in Decision 97-8 would be inappropriate.

Regarding the bundling of tariffed services with in-house non-telecommunications services (such as broadcast services), Stentor, Mobility Canada and TCI submitted that the Commission should adopt the approach contained in Bell Canada - Applications Under the Broadcasting Act and the Telecommunications Act for authority to conduct technical and market trials, Telecom Decision CRTC 97-11/ Broadcasting Decision CRTC 97-192, 8 May 1997 (Decision 97-11) and in TELUS Cable Holdings Inc. - Applications under the Broadcasting Act and the Telecommunications Act for authority to conduct technical and market trials, Telecom Decision CRTC 97-12/Broadcasting Decision CRTC 97-193, 8 May 1997 (Decision 97-12). In those Decisions, Bell and TELUS were permitted, without the requirement to file tariffs, to bundle tariffed telecommunications services with non-telecommunications services subject to the condition that the bundled service must not be sold for less than the sum of the tariffed rates of the telecommunications services and that the bundled service must not be designed to circumvent the tariff for any tariffed service included in the bundle. The companies were also required to itemize the tariffed services on the customer’s bill and to ensure that payments for bundled services were allocated first to primary exchange services and other tariffed services. Stentor argued that under this approach, the Commission would still maintain oversight of tariffed services in the bundle, without the need to file separate tariffs, and it would obviate the need for the Commission to intervene into the pricing of non-telecommunications services.

Most non-Stentor parties argued that the existing bundling conditions should not be removed.

AT&T Canada LDS and Microcell argued that relaxation of the telephone companies’ ability to bundle services should only occur when certain competitive thresholds are met. AT&T Canada LDS submitted that bundling of toll services with affiliate or broadcasting services should only occur after the Stentor companies’ market share falls below 40%, and certainly not before forbearance in the toll market. AT&T Canada LDS also argued that bundling of affiliated or broadcasting services with local services should not be permitted until the telephone companies’ dominance in the local market has significantly eroded. Microcell stated that the bundling restrictions should be reviewed after facilities-based competitors attained 25% of the local services market.

AT&T Canada LDS also argued that where bundling is permitted, the approach taken in Decision 97-8 should be extended to cover the types of bundling considered in PN 97-21, albeit with additional conditions, such as:

(1) the telecommunications component of all bundled offerings must be available to competitors at the bundled rates; (2) the current prohibition on bundling terminal equipment with network services must be extended to prohibit bundling by the Stentor companies of tariffed or forborne network services with terminal equipment provided by any other entity; (3) a prohibition on bundling of Internet services with local, toll or broadcasting services; (4) the Affiliate Rule, Telecom Decision CRTC 94-6, 4 March 1994, should remain, and be extended to prohibit the resale by telephone company affiliates of local exchange services, whether wholesale or retail; and (5) a prohibition on joint marketing and bundling of yellow pages advertising by a telephone company affiliate with telephone company services until the emergence of sufficient competition in the directory market.

CCTA stated that if bundling is permitted, the Decision 97-8 imputation test used for bundling of tariffed local services with in-house forborne services should apply to all forms of bundling. ACC stated that even if the Commission decides to lessen the joint marketing restrictions, the imputation test for bundling should be expanded beyond that implemented in Decisions 94-19 and 97-8. CBTA proposed that bundling be allowed, but that the safeguards contained in Decision 97-8, including the imputation test, be applied. Call-Net proposed that bundling of services should be subject to an imputation test and the filing of bundled proposals with the Commission, without the requirement to file tariffs.

The DIR stated that there are numerous benefits of bundling, including: reductions in distribution and marketing costs through joint provision of services, offering consumers the convenience of one-stop shopping (and one bill), and increasing the degree of competition in communications markets. The DIR supported the bundling of all communications services. However, the DIR, along with CCTA and CWTA, proposed that the Commission should proceed cautiously in relaxing restrictions on the bundling of basic local telephone services with competitive services until the Commission is assured that all barriers to entry into local telecommunications markets have been eliminated. The DIR’s concerns in this regard were based on the incumbent Stentor companies’ control over access to their local networks, and their ability to offer local services at prices below what competitors would have to pay if they sought to bundle through reselling local services. According to the DIR, until local interconnection, unbundling (of essential facilities) and resale initiatives are implemented, incumbents will be the only firms that can bundle local service with unregulated services. The DIR (and CCTA) suggested that a prohibition on bundling basic local telephone services with competitive services would provide an incentive for the Stentor companies to cooperate in opening up local markets to facilities-based competition.

RCI opposed bundling monopoly and competitive services. It stated that it does not believe that resale will provide equivalent opportunities for competitors to market bundled packages. The local telephony market is not yet open to competition: interconnection or unbundled facilities are not yet available and number portability has not taken place.

AT&T Enterprises stated that only the Stentor companies will be able to provide the full menu of services.

The Commission notes that the current joint marketing restrictions apply to both the Stentor companies and the independent telephone companies, whereas the bundling restrictions apply to the Stentor companies and have not been extended to the independent telephone companies. Also, the joint marketing restrictions and the bundling rules do not apply to competitive local exchange carriers (CLECs), including cable companies, that enter the local exchange market, on the basis that these service providers would not be dominant in telephony.

The Commission also notes that its views with respect to joint marketing have evolved considerably, particularly since 1995, when the Commission concluded that there was no need to extend the restrictions to the paging market on the basis that the paging market was mature and competitive. In a number of Commission decisions since 1995, the Commission has allowed the joint marketing of Sympatico Internet services through Bell’s Phonecentres and the joint marketing of the Liberti line of cellular phones through Bell’s Phonecentres and BC TEL’s PhoneMarts. In each of these cases, the Commission determined that the markets in question were sufficiently competitive to prevent any undue preference or unjust discrimination by the telephone companies, contrary to section 27(2) of the Act.

The Commission accepts the position of the Stentor companies and Mobility Canada that the wireless services market has grown considerably during the past ten years, that it is dynamic and competitive (and becoming more competitive as new competing services such as PCS and ESMR are being rolled out), that there is significant rivalry among competitors as demonstrated by the media advertising blitzes and price rivalry, and that consumers are aware of alternate wireless service providers.

The Commission also agrees with the DIR, Stentor and Mobility Canada that joint marketing and advertising will better satisfy consumer demands for one-stop shopping and integrated services, and will lead to more cost effective provisioning of telecommunications services through economies of scale and scope.

With respect to the four safeguards contained in the joint marketing restrictions that were designed to prevent a wireline telephone company from conferring on itself or its cellular affiliate an undue preference contrary to section 27(2) of the Act, the Commission’s views are as follows.

The Commission is of the view that there is no longer a need to prohibit the joint marketing and advertising of wireline and wireless services. The Commission considers that the market for wireless services is competitive and that the wireline market is becoming increasingly competitive. The Commission also considers that the incumbent telephone companies do not have market power in the advertising, marketing or distribution markets, and would not be able to limit competition in telecommunications markets through control of advertising, marketing and distribution of wireless products and services. The Commission is of the view that joint marketing and advertising of wireline and wireless services would not result in the granting of an undue preference under section 27(2) of the Act. Moreover, the Commission also notes that as a condition of forbearance for wireless services, pursuant to Decision 96-14, the provision of mobile voice wireless services connected to the public switched telephone network would remain subject to section 27(2) of the Act.

The Commission is also of the view that the requirement for neutral customer referrals is no longer necessary. Cantel has a substantial share of the cellular services market, and PCS suppliers have entered the market and are aggressively advertising their services. In the Commission’s view, consumers are well aware of the availability of competitive wireless services from alternate suppliers.

The Commission also considers that there is no longer a requirement for a separate provision regarding a prohibition on the exchange of competitively sensitive confidential customer information. The Commission notes that the rules regarding CSGs ensure that information concerning the telephone companies’ dealings with competitors is protected. Further, there are other safeguards, such as those contained in the companies’ Terms of Service and similar conditions imposed on the wireless carriers as a condition of forbearance, which restrict the use of confidential customer information, and provide sufficient consumer protection.

Regarding the explicit prohibition on the cross-subsidization of cellular services by wireline services, the Commission is of the view that this prohibition is no longer necessary. The Commission notes that there are fewer incentives and opportunities for anticompetitive cross-subsidization as more telecommunications markets become subject to competition and there are fewer sources of monopoly revenues.

The Commission notes that the independent telephone companies are subject to regulatory costing safeguards, and moreover, the Commission considers that because of their relatively small size, the independent telephone companies would not be in a position to unduly limit competition in the wireless market.

Thus, the Commission concludes that the joint marketing prohibitions on wireline and wireless services as contained in Decisions 87-13 and 92-13 should be removed for the Stentor and independent telephone companies.

The Commission notes that some parties proposed that the bundling of local monopoly services with competitive services be prohibited, while others proposed that the current bundling rules for local and competitive services be maintained and extended to cover services that are the subject of PN 97-21. The Stentor companies and Mobility Canada proposed that the bundling rules be relaxed considerably and, in particular, that the Commission not extend bundling rules to, in effect, regulate non-telecommunications services or re-regulate forborne telecommunications services.

In the Commission’s view, the framework set out below for bundling tariffed and other services strikes 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. In the Commission’s view, the framework provides the Stentor companies with sufficient flexibility to meet consumer demands for one-stop shopping and to exploit economies of scale and scope in the provision of these services.

The Commission found in Decision 94-19 that it is generally appropriate to bundle monopoly and competitive services, and in Decision 97-8, that it is appropriate to bundle tariffed local exchange services with detariffed services, subject to the conditions contained in the two decisions. In the Commission’s view, these conclusions remain valid. The Commission does not agree with the DIR and CCTA, that competitive criteria should be met prior to allowing the bundling of local exchange and competitive services, or with AT&T Canada LDS, which listed competitive thresholds that should be met prior to allowing the bundling of various types of competitive services.

The Commission does not consider it appropriate to order the general application of the bundling pricing rules established in Decisions 97-11 and 97-12 for the market trials then under consideration. Under the pricing rule established in those Decisions, the Stentor companies would in effect be able to price non-telecommunications (or in this case, also forborne) services at zero. In the Commission’s view, this would create the potential for anticompetitive below cost pricing and unjust discrimination in the provision of tariffed service elements in the bundle. Moreover, the Commission notes that those Decisions specifically stated that the bundled pricing rule was for the purpose of the market trials in question.

As stated above, the Commission found it appropriate in Decision 97-8 to permit the bundling of forborne services with local exchange services offered by the ILECs. While interveners objected to the Stentor companies bundling of tariffed services with services that are the subject of PN 97-21, on the grounds of the Stentor companies’ dominance in wireline markets, the Commission finds, consistent with Decision 97-8, that the Stentor companies should not be prevented from bundling tariffed services with services that are the subject of PN 97-21, namely, services of an affiliated company, services of a non-affiliated company, and non-telecommunications services offered in-house by the telephone company.

Consistent with the foregoing, for bundled services including one or more tariffed service elements and services that are the subject of PN 97-21, the bundled service must receive prior Commission approval. Further, to prevent anti-competitive pricing, an imputation test is to be submitted with the application for approval of the bundled service.

As indicated above, Decision 94-19 set out an imputation test for bundled services whereby the bundled service must cover its cost, where the cost study for the bundled service includes the bottleneck component(s) "costed" at the tariffed rates(s) (including as applicable, start-up cost recovery, switching and aggregation and contribution charges) and the Phase II costs for the other components of the service.

Further, in Decision 94-19 the Commission determined that it would be appropriate to provide increased pricing flexibility for customer-specific arrangements, subject to safeguards against unjust discrimination. In this regard, the Commission set out an imputation test for a customer-specific bundled service, involving elements available from the general tariffs. This test requires that the present worth of revenues for the customer-specific service equal or exceed the sum of the present worth of revenues under General Tariff rates for those service elements available under the General Tariff and the present worth of Phase II costs for those elements not covered by General Tariff rates.

As indicated above, the imputation test for bundled services was modified in Decision 97-8 such that in the bundling of an ILEC local exchange service with a forborne service, the forborne service is to be costed employing Phase II costs and, unless the local exchange service is a below-cost single-line residential exchange service, the local exchange service is to be costed such that essential facilities are costed at tariffed rates with other local exchange components at Phase II costs.

For the imputation test for a bundled service including one or more tariffed service elements and services that are the subject of PN 97-21, the Commission concludes that essential services (for the purposes of this Decision includes those referred to as "bottleneck" services in Decision 94-19) used in the provision of the bundled service are to be costed at tariffed rates. Consistent with Decision 97-20, Interexchange Private Line Services are to be costed at tariffed rates, for those routes which remain tariffed. Below-cost single-line residential exchange service is to be costed at tariffed rates. Other components and service elements are to be costed using Phase II costs. Finally, the acquisition costs of any service elements in the bundle acquired from an affiliate or non-affiliated company are to be included in the imputation test.

The Commission also considers that one of the conditions for bundling contained in Decision 94-19, in particular, that the "resale of the bundled service is permitted" should continue to apply. The Commission notes that parties did not specifically address this issue. However, the Commission does not consider that this requirement for resale should be extended to situations involving the bundling of tariffed telecommunications and non-telecommunications services (e.g., broadcast services). The Commission considers that the Stentor companies are not dominant in the provision of non-telecommunications services and that other service providers would be in a position to bundle non-telecommunications services with their respective telecommunications services. The Commission also notes that under the Broadcast Distribution Regulations, SOR/97-555, which came into force 1 January 1998, the resale of broadband services is permitted but not required.

The Commission notes that, contrary to the views expressed by Stentor and TCI, the requirement to obtain prior tariff approval of bundled services which include one or more tariffed telecommunications service elements with other service elements, does not constitute regulation of non-tariffed services. The Commission notes that the Stentor companies can be expected to have market power with respect to services that remain tariffed. Consequently, the Stentor companies can be expected to have market power in the provision of bundled services containing tariffed elements. The requirement for prior approval ensures that there is no undue preference with respect to the charging for the tariffed service elements in the bundle.

The Commission also notes that this approach does not require the telephone company’s affiliates (e.g., broadcast, wireless) to conduct cost studies, as was suggested by Mobility Canada. The onus will be on the telephone company to demonstrate that its acquisition costs of such services are covered.

The Commission notes that, as a result of this Decision, two pending proceedings have been rendered moot: (1) Joint Marketing by Telephone Companies and Cellular and Public Cordless Telephone Service Affiliates or Operations, Telecom Public Notice CRTC 95-32, 15 June 1995, and (2) Cantel’s 25 October 1996 application to review and vary the Commission’s 16 September 1996 approval of Maritime Tel & Tel Limited’s proposal to close its Phonecentres and distribute its services through the MT&T Mobility network of cellular dealers.

Given the evolution of competition in the terminal market, the Commission is of the preliminary view that it is appropriate to remove the restriction against the bundling of terminal equipment with network service elements. This approach is consistent with the Commission's conclusions in Decision 97-19. Accordingly, interested parties are requested to file comments by 25 May 1998. Those who have not filed comments but who may wish to file replies are to so advise the Commission, in writing, by 25 May 1998. The Commission will prepare a list of those who have filed comments or who have so advised the Commission and will send the list to the listed parties. Following receipt of the list, those who have filed comments are directed to serve their comments on the other listed parties by the next business day. Any person wishing to file reply comments may do so by 22 June 1998 serving a copy on the listed parties. All documents to be filed or served are to be received, and not merely sent, by the dates indicated. In addition to hard copy filings, parties are encouraged to file with the Commission electronic versions of their submissions in accordance with the Commission's Interim Telecom Guidelines for the Handling of Machine-Readable Files, dated 30 November 1995. The Commission's Internet email address for electronically filed documents is public.telecom@crtc.gc.ca. Electronically filed documents can be accessed at the Commission's Internet site at http://www.crtc.gc.ca.

With regard to customer-specific bundled services, the Commission considers that it would be appropriate to examine whether the framework established in Decision 94-19 should be extended to tariffed services bundled with forborne services and tariffed services bundled with services which are the subject of PN 97-21. Accordingly, interested parties are invited to submit comments by 25 May 1998 on the extent to which such customer-specific arrangements are appropriate and, if so, whether the imputation test should be the same as prescribed in Decision 94-19 for customer-specific bundled services. Those who have not filed comments but who may wish to file replies are to so advise the Commission, in writing, by 25 May 1998. The Commission will prepare a list of those who have filed comments or who have so advised the Commission and will send the list to the listed parties. Following receipt of the list, those who have filed comments are directed to serve their comments on the other listed parties by the next business day. Any person wishing to file reply comments may do so by 22 June 1998 serving a copy on the listed parties. All documents to be filed or served are to be received, and not merely sent, by the dates indicated. In addition to hard copy filings, parties are encouraged to file electronic versions of their submissions with the Commission, as noted in the preceding paragraph.