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Ottawa, 18 March 1998
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Telecom Order CRTC 98-281
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On 16 January 1997, Stentor Resource Centre Inc. (Stentor) filed, further to Telecom Order 96-1157, 18 October 1996 (Order 96-1157), on behalf of the federally regulated Stentor carriers, Tariff Notice 409 (TN 409) for approval of tariff revisions providing for the introduction of competitive swipe card access to the Stentor companies' public telephones equipped with card readers.
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File No.: TN 409
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1. The Commission initiated a proceeding to consider TN 409 in Stentor - Tariffs for Competitive Swipe Card Access, Telecom Public Notice CRTC 97-5, 18 February 1997.
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2. In the course of that proceeding, AT&T Canada Long Distance Services Company (AT&T Canada LDS), on behalf of itself, Call-Net Enterprises Inc. (Call-Net), fONOROLA Inc. (fONOROLA), ACC TelEnterprises Ltd. (ACC) and Westel Telecommunications Ltd., requested that the Commission establish an alternative dispute resolution process to help resolve the various technical and competitive issues on a timely basis.
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3. The dispute resolution meeting took place on 28 and 29 April 1997. As a result of that meeting, on 30 May 1997, the Commission issued Telecom Order CRTC 97-730 (Order 97-730) granting interim approval to TN 409. Concurrently, a non-binding Staff Opinion (the Staff Opinion) was issued with respect to the various matters in dispute regarding swipe card access.
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4. In the proceeding that led to Order 96-1157, ACC submitted that the telephone companies have a tremendous advantage with respect to calling cards due to the lack of ability of the end customers of competitors to swipe their cards through the payphones provided by the telephone companies (swipe card access), the lack of access to the calling card database, as well as the lack of billing and collection arrangements. In Order 96-1157, the Commission agreed with ACC and other interveners that the lack of swipe capability for their 800 access calling cards was a major disadvantage for competitors.
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5. At the dispute resolution meeting, nearly all the competitors (including AT&T Canada LDS, Call-Net and fONOROLA) submitted that TN 409 was unacceptable for postpaid cards because it failed to provide for the same level of functionality as the Stentor companies make available to their own postpaid card customers. The competitors noted that the functionality proposed by the Stentor companies in TN 409 is that provided to the Stentor companies' prepaid card customers.
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6. Staff concluded in the Staff Opinion that, on balance, the differences between the two sets of functionalities were not material. Given this, staff considered that the differences in functionality available to the Stentor companies as compared to that available under TN 409 are not unjustly discriminatory, nor do they confer an undue preference on the Stentor companies. Staff considered that, in the circumstances, TN 409 adequately addressed the bottleneck concerns identified by the Commission in Order 96-1157.
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7. The competitors further submitted that the Stentor companies should be required to offer the ANSI numbering standard in addition to the standard proposed in TN 409. The competitors submitted that the ANSI 212 numbering standard is an industry wide standard in North America administered by the American National Standards Institute and that it would give the competitors equivalent functionality to that which the Stentor companies make available to themselves.
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8. In response to this issue, staff further noted in the Staff Opinion that Bell Canada, BC TEL and TELUS Communications Inc. had indicated their willingness to release three card table routing slots in their card-swipe capable payphones to competitors to enable competitors to provide enhanced swipe card access service. Staff considered that the rates for the three slots should be market based, designed to promote the use of all three slots by competitors, and that they should be made available on a first come first served basis.
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9. Pursuant to the Staff Opinion, on behalf of the federally-regulated Stentor companies, Stentor proposed an enhanced swipe card access service that would provide each of up to three customers with its own routing slot in the payphone processing table. This functionality is provided in conjunction with swipe cards for the purpose of local and long distance calling.
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10. No negotiated agreements on the enhanced swipe card access service were reached between Stentor and potential customers and, accordingly, parties were invited to file comments. Stentor, AT&T Canada LDS, Call-Net and fONOROLA filed comments on 15 August 1997. Stentor, AT&T Canada LDS and Call-Net filed reply comments on 22 August 1997.
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RATES
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11. In the Staff Opinion, staff considered that a rate structure for the three slots could include an initial one-time charge, an ongoing usage charge and a second ongoing usage charge as a proxy for an access charge to provide for a contribution to the costs of the payphone operations. The first of the two usage charges is intended to permit a lower initial charge than would otherwise apply. It also allows compensation to vary in accordance with the use of slots, thus making a slot more affordable for a competitor with a lower usage.
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12. Stentor proposed $700,000 for the initial one-time charge, while AT&T Canada LDS and Call-Net proposed $500,000.
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13. The parties proposed widely divergent usage rates. While Stentor proposed a first usage charge of $0.25 per swipe, AT&T Canada LDS proposed a charge of $0.01 per swipe. Call-Net proposed a $0.05 per swipe combined first and second usage charge. Stentor and AT&T Canada LDS expected that this second usage charge would be addressed in the proceeding initiated by Local Pay Telephone Competition, Telecom Public Notice CRTC 97-26, 8 July 1997 (PN 97-26). The Commission notes that this rate element was not addressed in the PN 97-26 proceeding.
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14. Stentor noted that in setting a fair market value for these slots, among many factors, it had to consider the potential value of the slot to the Stentor companies (e.g., for alternative billing purposes or enhanced applications) and the alternatives available to the competitors. At the dispute resolution meeting, Stentor suggested that the value of a slot was in the $1 million to $1.5 million range, based on an estimate of the contribution generated from a slot utilized for swipe card access with a typical credit card application. Stentor noted that, in deriving its estimate, it had selected a commercial credit card application to represent swipe usage because credit cards are lower usage applications which Stentor considered would more adequately reflect the initial usage levels of potential customers of enhanced swipe card access. Stentor submitted that had the Stentor companies' calling cards been used as the basis for estimating the market value of a routing slot, the resultant value would have been significantly higher.
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15. AT&T Canada LDS and Call-Net submitted that there can be no business case made for a competitor to subscribe to a slot at Stentor's proposed rates. AT&T Canada LDS argued that Stentor's proposal would obligate competitors to pay back directly to the telephone companies over two thirds of the entire revenue associated with the call. In addition, the competitor would have to pay for switching of the call, carriage of the call over its own network, billing costs, marketing costs, and other related expenses. AT&T Canada LDS submitted that little, if any, revenue would be left with which to make a contribution towards a profit for the competitor.
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16. Call-Net submitted that it could not make a commitment to purchase a slot without knowing the amount of the second usage charge. As a business necessity, Call-Net submitted that the rate for the second usage charge must be established in this proceeding. Call-Net proposed that its combined 5 cent usage charge be unbundled once the second usage charge is set. AT&T Canada LDS submitted that competitors cannot be expected to reach agreement with respect to rates for a slot when one of the three rate components remains unknown.
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17. As the PN 97-26 proceeding does not address this matter, the Commission is of the view that the second usage charge should be determined in this proceeding, in order that competitors may determine if they have a business case.
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18. The Commission notes that the rates proposed by Stentor are based on the contribution which the Stentor companies derive from slots designated for commercial credit cards such as Mastercard, VISA and American Express. Given the revenue estimates for the three commercial credit cards, the Commission finds the range of $1 million to $1.5 million to be a reasonable estimate of the contribution derived with a typical commercial credit card.
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19. The Staff Opinion stated that an annual charge equivalent to $1 million to $1.5 million would be an excessive charge for the use of a slot. In determining rates for a slot, the Commission considers that the estimate of equivalent annual revenues derived from the revenues for a slot should be less than $1 million.
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20. As discussed above, the Staff Opinion suggested a rate structure for the three slots which would include an initial one-time charge, an ongoing per swipe usage charge and a second ongoing usage charge as a proxy for an access charge.
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21. To determine the total payment that would be derived from a competitor's use of a slot requires an estimate of the number of swipes, since both the first and second usage charges are per swipe charges. In determining this estimate, the Commission has relied upon the commercial card demand estimates provided by Stentor that the contribution estimates of $1 million to $1.5 million are based on.
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22. Accordingly, in estimating the number of average annual swipes per slot, the Commission has used an estimate of 2 million swipes. This estimate will also be used for the purpose of transforming the initial charge to an equivalent per swipe charge, using a five year amortization period.
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23. The Staff Opinion stated that the second usage charge is intended to be a proxy for an access charge to provide for a contribution to the costs of payphone operations. Compensation to location providers is included as a cost of payphone operations. Currently, there is no explicit access charge. As noted in the Staff Opinion, the Stentor companies implicitly pay an access charge to provide a contribution to the costs of the payphone operations through the Phase III cost assignments. The Commission further notes that at the dispute resolution meeting, Stentor submitted that a second usage charge of $0.25 would not be sufficient. No information was provided in the course of this proceeding regarding the compensation currently paid by Stentor's 0+ calling cards to the costs of payphone operations or to the Stentor companies' Utility segments.
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24. In light of the above and in consideration of the record of this proceeding, the Commission is of the view that the combination of rates listed below meets the objective that the estimate of equivalent annual revenues would be less than $1 million, while providing Stentor companies with adequate compensation for the use of the slots:
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Initial Charge $700,000
First Usage Charge $0.05 per swipe
Second Usage Charge $0.25 per swipe
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25. The Commission is further of the view that for business planning purposes, competitors require a degree of certainty regarding the level of rates approved in this Order. In the event that a review of the approved rates should become necessary, the Commission is of the view that such a review should have regard to a comparison of the compensation deemed to be paid by Stentor companies 0+ calling card to the companies' Utility segments with the compensation payable under the rates approved for slots in this Order.
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OTHER ISSUES
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26. Stentor proposed a monthly minimum billing commitment of $20,000 to apply to the first usage charge. Stentor stated that it requires a monthly minimum billing commitment to ensure cost recovery and to recognize a minimum market value.
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27. fONOROLA and Call-Net submitted that Stentor's insistence on minimum usage charges of $240,000 per year is not consistent with the Staff Opinion that a slot should be more affordable for a competitor with a lower usage.
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28. The Commission considers that the Stentor companies should be allowed to apply to the Commission to terminate a customer's service if the Stentor companies consider that the slot activity is or will soon be dormant or minimal, including, for example, the situation where a customer goes out of business or merges with another competitor. The Commission considers that this would ensure that the slots are readily available to other customers. In light of this ruling and in light of the $700,000 initial payment, the Commission considers that a minimum monthly commitment is not necessary. Accordingly, Stentor's request for a minimum monthly commitment is denied.
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29. Stentor's proposal for enhanced swipe card access service includes a prohibition on resale. Stentor submitted that if customers of this service can resell or share their routing slots with other customers, it will likely reduce the number of customers who will subscribe to TN 409 Card Swipe Access service, causing the companies to not recover their costs of providing this service. For this and other reasons, Stentor submitted that limitations on the sharing and resale of the routing slots are appropriate.
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30. The Commission disagrees with Stentor, and considers that resale and sharing should be allowed. In the Commission's view, allowing more than three customers to make use of the card slots will result in more efficient use of the slots and a more competitive market.
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31. Stentor proposed to make enhanced swipe card access service available to competitors within 6 months of the date the customer enters an agreement with Stentor. Stentor argued that such an interval would allow adequate time for designing, implementing, testing and marketing launch activities.
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32. In AT&T Canada LDS's view, a six month service availability interval is unacceptable and patently unnecessary. As competitors have already endured significant delay for the rollout of enhanced swipe card access, AT&T Canada LDS argued that the service should be provisioned in not longer than three months after agreements with the telephone companies have been achieved.
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33. The Commission considers that a three month provisioning time is reasonable and that an agreement should be signed between the competitor and the telephone companies before service start-up. However, for the first customer request, the Commission considers an extension to the three months acceptable if the telephone companies can demonstrate extenuating circumstances.
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34. The Staff Opinion states, among other things, that TN 409 adequately addressed the bottleneck concerns identified in Order 96-1157. In Order 97-730, the Commission noted that the granting of interim approval to TN 409 was without prejudice, consistent with the procedures established with respect to the Commission resolution process, to the rights of parties to request that the Commission rule on any matter parties consider not to have been satisfactorily resolved.
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35. fONOROLA disagreed with the view in the Staff Opinion that the bottleneck concerns were eliminated by Stentor TN 409. fONOROLA argued that TN 409 only addresses competitors' current 1+800 access requirements and that if the interim approval of TN 409 is made final, the Stentor member companies would essentially be granted an infinite monopoly on 0+ calling. In fONOROLA's opinion, this would not promote a truly competitive market.
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36. Stentor submitted that through the use of TN 409 Card Swipe Access service, competitors could easily provide their customers with a service that emulates 0+ calling. Stentor also argued that the Stentor companies do not have a monopoly on 0+ calling as Alternate Providers of Long Distance Services (APLDS) have been permitted to provide operator services. Furthermore, APLDS have been allowed to provide their own toll payphones with their own 0+ calling for a number of years.
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37. For the reasons stated in the Staff Opinion, the Commission disagrees with fONOROLA's contention that TN 409 does not eliminate the bottleneck for swipe card access capability. Accordingly, the Commission considers that the differences in functionality available to the Stentor companies as compared to that available under TN 409 are not unjustly discriminatory, nor do they confer an undue preference on the Stentor companies.
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38. In light of the foregoing, the Commission orders that:
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(1) Stentor TN 409 is granted final approval.
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(2) Stentor is to file a Special Facilities Tariff on behalf of the federally-regulated Stentor companies, within 30 days of this Order, for enhanced swipe card access based on the determinations in this Order.
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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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