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Ottawa, 23 January 1998
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Telecom Order CRTC 98-28
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By letters dated 1, 2, and 16 October 1997, ShadowTel Communications (Ontario) Inc. (ShadowTel) applied for contribution exemption for a network used in Ontario for the provision of voice and data communication services marketed under the trademark TheLinc. ShadowTel provided a technical audit in support of its application.
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File No.: 8626-S21-01/97
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1. ShadowTel stated that in Applications for Contribution Exemptions, Telecom Decision CRTC 93-2, 1 April 1993, the Commission determined that interconnecting circuits carrying only data traffic would be exempt from contribution. ShadowTel stated that the technical audit report would demonstrate that its network configuration is based on a data network premised on data network protocols (i.e., Internet Protocols and Frame Relay). ShadowTel stated that Internet Service Providers (ISPs) have traditionally been exempt from contribution, and submitted that it should not be treated differently from an ISP. ShadowTel submitted that to do otherwise would be unduly discriminatory, thereby placing it at a competitive disadvantage. ShadowTel stated that toll quality on its network is distinct and different from toll quality found on the networks of other resellers.
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2. ShadowTel submitted that contribution from it would currently have minimal impact on the overall contribution base. ShadowTel argued that were ISPs to pay contribution, which is not currently the case, the overall contribution base would be impacted much more significantly.
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3. ShadowTel submitted that by making it pay contribution, but not ISPs and other non-paying entities that access the Public Switched Telephone Network (PSTN), the Commission would be sanctioning an undue preference contrary to Section 27(2) of the Telecommunications Act (the Act).
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4. ShadowTel stated that the benefits to consumers of the unique application of its technology is arguably unprecedented in the industry. ShadowTel stated that Section 7(a) of the Act states that one of the Act's objectives is: "to facilitate the orderly development throughout Canada of a telecommunications system that serves to safeguard, enrich and strengthen the social and economic fabric of Canada and its regions." ShadowTel submitted that it should not be "discriminated" against, not merely in light of Section 27(2), but also in light of Parliament's policy objectives in drafting the Act. ShadowTel submitted that in order to "strengthen the social and economic fabric of Canada and its regions", the Commission must make telecommunications services accessible to persons who otherwise could not afford them. ShadowTel submitted that such was the essence not only of the Act itself but of Competition in the Provision of Public Long Distance Voice Telephone Services and Related Resale and Sharing Issues, Telecom Decision CRTC 92-12, 12 June 1992.
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5. ShadowTel stated that the Commission accepted Unitel Communications Inc.'s (now AT&T Canada Long Distance Services Company) submission that greater competition would force Stentor companies to increase their efforts to minimize costs and improve productivity.
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6. ShadowTel submitted that the unique application of its technology will benefit the consumer such that there are greater overall market efficiencies, as well as the growth of a new emerging market. ShadowTel stated that its services are distinct, and can almost be considered as value-added services. ShadowTel submitted that, therefore, its services should be treated differently.
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7. ShadowTel stated that in the Act: (1) Section 7(b) enumerates affordability of services as an objective of the Act; (2) Section 7(f) enumerates, as an objective, the fostering of increased reliance on market forces for the provision of telecommunications services and to ensure that regulation, where required, is efficient and effective; and (3) Section 7(g) enumerates the objective of "stimulat[ing] research and development in Canada in the field of telecommunications and to encourag[ing] innovation in the provision of telecommunications services. "
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8. ShadowTel submitted that the contribution issue is crucial to ShadowTel's survival and long-term price and value-added benefits to customers.
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9. ShadowTel requested retroactive exemption, and stated that it will likely request the Commission to review and vary Telecom Order CRTC 97-590 of 1 May 1997 (Order 97-590). ShadowTel stated that a review and vary request will be more specific with respect to the problems facing start-up, innovative companies in the resale of long distance switched minutes.
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10. ShadowTel also provided a technical overview of its network configuration. ShadowTel stated that TheLinc is the first voice over Frame Relay network with public access gateways to the PSTN. ShadowTel stated that in addition, it uses new compression technology to optimize the volume of calls over its network, and that a voice conversation is digitized and compressed. ShadowTel stated that this advantage, combined with the lower lease cost of the public Frame Relay network, allows ShadowTel to reduce its per-minute, long distance telephone rate, while maintaining a healthy return on investment.
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11. By letter dated 30 October 1997, Bell Canada (Bell) submitted that the description provided by ShadowTel clearly establishes that ShadowTel's service is intended to provide voice communication between regular PSTN connections using normal telephone equipment. Bell stated that the audit report further established that ShadowTel's intention is to provide an alternative long distance voice service, and that it provides services on an interexchange basis. Bell noted that in paragraph 82 of Order 97-590, the Commission stated: "The Commission notes that, where the Internet network is used as the underlying transmission facility by a service provider to provide public switched IX voice or data services, the service provider is to register as a reseller and to pay contribution." Bell submitted that in the present case, ShadowTel's service is identical to that contemplated by the Commission in paragraph 82 of Order 97-590.
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12. Bell submitted that contrary to ShadowTel's allegations, the approval of a contribution exemption for ShadowTel would result in conferring an undue preference upon ShadowTel in relation to other resellers that provide a "viable alternative to traditional service providers" and are also required to pay contribution charges with respect to their jointly-used interexchange networks.
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13. Bell noted that no specific quality criteria or standards apply to the interexchange services of resellers or other toll service providers, and contribution charges are not based on the quality of service provided. In fact, Bell submitted that with respect to line-side resale network configurations, the quality of the network can vary depending on the specific network routing configuration employed by resellers. Moreover, Bell submitted that the digitization and compression of voice communications is not a new or innovative technology and that such techniques are commonly employed by carriers and long distance resellers when provisioning their networks. Accordingly, Bell submitted that ShadowTel's service quality argument has no bearing on the applicability of contribution to ShadowTel's service.
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14. Bell submittted that the requirement to pay contribution is not based on the size or scope of the operations of an individual firm. Bell stated that contribution does apply equally, however, to all service providers who offer long distance voice or data services to the public. Bell submitted that ShadowTel's service is clearly intended to do exactly that.
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15. Based on ShadowTel's own submissions, and on the above, Bell submitted that the arguments advanced by ShadowTel are irrelevant to the issue of whether contribution charges apply to its service. Further, Bell noted that the technical audit provided offers no evidence to demonstrate that an exemption is warranted pursuant to the Commission's well-established guidelines. Rather, Bell submitted that the audit confirms that the services provided are consistent with those that are subject to contribution charges. Accordingly, Bell submitted that ShadowTel's application for contribution exemptions has no merit and should be denied.
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16. By letter dated 28 November 1997, ShadowTel disagreed with Bell's submissions and generally reiterated its previous arguments.
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17. Based on the evidence of this proceeding, the Commission considers that ShadowTel is providing public switched interexchange voice services, albeit over the Internet and that, consistent with Order 97-590, ShadowTel is clearly required to register as a reseller and pay contribution. Given this, the Commission considers that ShadowTel does not fit within one of the contribution exemption categories.
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18. The Commission disagrees with ShadowTel that requiring ShadowTel, but not ISPs, to pay contribution charges constitutes undue discrimination against ShadowTel. The Commission notes that while they ride on the same Internet protocol, the services offered by ISPs are very different from the services provided by ShadowTel. The Commission agrees with Bell that approval of a contribution exemption for ShadowTel would result in ShadowTel receiving an undue preference, given the requirements imposed on other switched voice IX resellers to pay contribution. The Commission also agrees with Bell that issues relating to the quality of service provided by ShadowTel and to the impact of ShadowTel's contribution on the overall contribution base are irrelevant to the disposition of ShadowTel's application.
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19. In light of the above, ShadowTel's application is denied.
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Laura M. Talbot-Allan
Secretary General
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This document is available in alternative format upon request.
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