|
|
|
Ottawa, 20 May 1998
|
|
Telecom Order CRTC 98-489
|
|
On 5 June 1997, AT&T Canada Long Distance Services Company (AT&T Canada LDS) filed an application pursuant to section 62 of the Telecommunications Act and Part VII of the CRTC Telecommunications Rules of Procedure requesting the following relief: (1) make the 0.7 cent per minute per end rate for Direct Connection service approved in Unbundled Rates to Provide Equal Access, Telecom Decision CRTC 97-6, 10 April 1997 (Decision 97-6) interim as of 1 July 1997; (2) review the rates for Direct Connection service in conjunction with the determination of rates for Local Exchange Carrier (LEC) traffic termination in the follow-up to the Local Competition decisions; and (3) vary the rate for the Direct Connection service in a manner which is consistent with any interim or final rates approved for LEC traffic termination, using Phase II costs associated with the end-office traffic termination function plus a 25% mark-up. AT&T Canada LDS also requested an expedited process to consider the first two elements of the relief. AT&T Canada LDS provided a copy of its application to all interested parties to the proceeding leading to Decision 97-6.
|
|
File No.: 97-8662-A4-02
|
|
1. In a letter dated 25 June 1997, the Commission ruled on the first two elements of the relief, denying both of AT&T Canada LDS's requests.
|
|
2. In a letter dated 4 July 1997, Stentor Resource Centre Inc. (Stentor), on behalf of BC TEL, Bell Canada, The Island Telephone Company Limited, Maritime Tel & Tel Limited, MTS Communications Inc. (formerly known as MTS NetCom Inc.), The New Brunswick Telephone Company, Limited, NewTel Communications Inc., and TELUS Communications Inc. (the Stentor operating companies or the SOCs) addressed the third request sought by AT&T Canada LDS.
|
|
3. AT&T Canada LDS filed further comments on 14 July 1997. None of the other competitors, for which the Direct Connection service rates are applicable, filed comments in this proceeding.
|
4. AT&T Canada LDS submitted that there is substantial doubt as to the correctness of the Commission's decision concerning the rate for Direct Connection service and that reappraisal of this aspect of its decision is therefore warranted. AT&T Canada LDS argued that the adoption of inconsistent approaches to setting rates for end-office termination of long distance traffic and the termination of local exchange traffic in Decision 97-6 and Local Competition, Telecom Decision CRTC 97-8, 1 May 1997 (Decision 97-8) respectively, just 21 days apart, raises substantial doubt concerning the uniform rate for Direct Connection service approved in Decision 97-6.
|
|
5. AT&T Canada LDS submitted that application of the different methodologies will result in very different rates for an identical sub-set of services. AT&T Canada LDS further submitted that the establishment of different rates for service elements which involve the same costs and provide the same functionality is inconsistent with a basic requirement for economic efficiency. AT&T Canada LDS argued that if the service elements are the same, and the costs are the same, the rates respecting these service elements should be the same and carriers should be indifferent as to which service they provide or use. Conversely, the establishment of different rates for the same service element will provide an incentive for competing carriers to engage in distortionary and inefficient schemes to circumvent the higher traffic termination charges, and to take advantage of the lower termination charges.
|
|
6. As further support for its application, AT&T Canada LDS referred to four additional specific aspects of the Commission's decision which give rise to substantial doubt as to the correctness of the Decision:
|
|
(i) Rejection of carrier-specific costing information in Decision 97-6 is inconsistent with Decision 97-8 and is not supported by the evidence;
|
|
(ii) Divergence from the 25% mark-up for Direct Connection service is inconsistent with Decision 97-8 and is inappropriate;
|
|
(iii) Approval of 0.7 cent per minute per end as the rate for Direct Connection service implies an enormous error in costing information which is not supported by the evidence in the proceeding leading to Decision 97-6; and
|
|
(iv) Decision 97-6 is inconsistent with the Commission's policy objectives of fostering competition and efficient outcomes.
|
|
7. Stentor argued that it is necessary to set rates for Direct Connection service that ensure the recovery of incremental costs and contribute to the recovery of the fixed and common costs of the facilities utilized. Stentor submitted that failure to do so would mean that the SOCs would incur the full burden of the recovery of these costs. Stentor stated that, in recognition of the need to set rates for Direct Connection service at levels which ensure that fixed and common costs are recovered and in light of the evidence which indicated that the mark-up required to recover fixed and common costs is greater than 25 %, in Decision 97-6, the Commission set the rate for Direct Connection service at 0.7 cent per minute.
|
|
8. With respect to the cost information filed by the SOCs in the Equal Access proceeding, Stentor noted that this proceeding was exceptionally lengthy and detailed and that the Commission, as well as all parties, including AT&T Canada LDS, had ample opportunity to submit interrogatories. Moreover, Stentor stated that the Commission's determinations regarding Direct Connection rates are amply explained in Decision 97-6.
|
|
9. The Commission considers that the argument put forward by AT&T Canada LDS is based on the view that the Direct Connection service in Decision 97-6 and the LEC termination service in 97-8 are the same, the respective costs are the same and, accordingly, the rates respecting these service elements should be the same.
|
|
10. AT&T Canada LDS noted that Direct Connection service provides for end-office termination of long distance traffic and the LEC termination service referred to in Decision 97-8 provides for local termination of LEC traffic. This latter service is rated on the basis of a charge per trunk, as opposed to a per minute based rate.
|
|
11. Although the two services employ similar network-related resources in that they provide for an end-office switching functionality and the termination of traffic on individual end-customer local loops, the Commission notes that there are also certain differences between the two services:
|
|
(1) Direct Connection service provides for call origination through a SOC end-office and call termination through a SOC end-office. In conjunction with the Access Tandem (AT) Connection service, the competitors can serve a larger area, likely encompassing a number of exchanges, with one point of interconnection. Unless other arrangements are negotiated, LEC termination service provides for call termination within an exchange at a single point of interconnection designated as a gateway.
|
|
(2) In the case of Direct Connection service, the SOCs are providing switching and aggregation services to the competitors at both the originating and terminating ends of the call. In the case of the exchange of local traffic between LECs, the SOCs are only providing traffic termination services at the terminating end of the call.
|
|
(3) In the case of Direct Connection service, the tariffed service is applicable to the total demand for the service from both competitors and the SOCs' Competitive segments. In contrast, in Decision 97-8, the Commission concluded that, in those instances where it is demonstrated that traffic between LECs is not balanced for a significant period of time, mutual compensation is appropriate. The tariffed service element for LEC termination service thus only applies in cases where the exchange of traffic between the carriers is not balanced for a significant period of time.
|
|
(4) Activities that were identified to be specific to the Direct Connection service (e.g. Interexchange Carrier Trouble Report Centre activities, software switch start-up activities for BC TEL) are not required for LEC traffic termination service.
|
|
(5) In Decision 97-6, the Commission indicated that the ongoing costs of performing the major switching and aggregation functions for competitors other than billing would not be materially different from those of the SOCs and that it would be inappropriate to set separate rates for competitors and the SOCs, but with respect to the billing functionality, the cost of billing for the SOCs' Competitive segments was assumed to be minimal, while this cost input for competitors represented a significant component of the costs. As a result, the Commission approved the use of an approximate method to measure and determine switching and aggregation charges for both the SOCs and competitors based on conversation minutes used for billing contribution charges along with appropriate connect to conversation minute ratios. In the case of LEC termination service, the Commission notes that the SOCs could be expected to incur significant incremental billing costs that would have to be considered in determining the rate should this service be offered to LECs based on a per minute rate.
|
|
12. The Commission further notes that to the extent that the same call termination functionality is being costed for each of Direct Connection service and LEC termination service, cost differences would arise as a result of differences in costing assumptions such as the use of different demand drivers and different study periods.
|
|
13. Regarding the rate for Direct Connection service, the Commission stated its rationale for this rate in Decision 97-6. The Commission notes that the rates set in Decision 97-6 to provide local network access for toll carriers and those set in Decision 97-8 to provide local network access for LECs have been established to achieve different objectives.
|
|
14. AT&T Canada LDS argued that the Commission's decision to set a uniform rate for Direct Connection service for all eight of the participating SOCs represents a serious departure from the principle that rates should be based on carrier-specific costs. AT&T Canada LDS further argued that the Commission's reliance on Bell Canada's estimates of Phase III costs associated with Direct Connection service is also inconsistent with the principle that Phase III costs are not reliable at the individual service level and accordingly, should not be used for individual rate-setting purposes. Moreover, even if it were appropriate to set rates for individual services based on Phase III costing information, which is clearly not the Commission's practice, the 0.7 cent per minute per end rate approved in Decision 97-6 for Direct Connection service would appear to be excessive. In this regard, AT&T Canada LDS noted that the only Phase III information on the record was the evidence filed by Bell Canada, namely 0.5 cent per minute per end, which is well below the rate approved by the Commission for Direct Connection service.
|
|
15. The Commission notes that the AT&T Canada LDS analysis of the differences does not take into account the need for a contribution to fixed and common costs.
|
|
16. The Commission notes that it established rates for the Direct Connection service on the basis of a very detailed and extensive record. The Commission concluded that a Direct Connection service rate of 0.7 cent per minute per end applied uniformly to all SOCs' Competitive segments and competitors would appropriately recognize costs and would provide acceptable levels of contribution and is therefore just and reasonable. In rendering its decision, the Commission noted (1) its concerns regarding the inconsistent levels of cost inclusions and the fact that certain costs such as generic software update costs were not identified as being causal at the overall service level; (2) that the costs for Direct Connection service were likely underestimated for most SOCs while those of BC TEL were likely overestimated; (3) the need to take into account the significant differences between (Phase II) current and (Phase III) embedded costs for this service; (4) the need to provide a contribution towards the recovery of fixed and common costs which are not included in Phase II cost studies; and (5) the significance of the fixed and structural investment costs associated with this service which are not reflected in Phase II costs.
|
|
17. Moreover, as discussed in paragraph 11, the Commission notes that competitors generally subscribe to the AT Connection service in conjunction with Direct Connection service. By contrast, the Competitive segments of the SOCs only require the Direct Connection service on a tariffed basis. The Commission, in Decision 97-6, approved individual rates for each SOC for AT Connections based on Phase II costs plus a 25% mark-up. In Decision 97-6, the Commission stated that the rates approved for AT connections will not likely provide sufficient mark-up to fully recover the differences between current and embedded costs for this service.
|
|
18. AT&T Canada LDS argued that the establishment of different rates is inconsistent with a basic requirement for economic efficiency as the different rates will provide an incentive for competing carriers to engage in bypass to avoid the higher Direct Connection charges, and thus result in distortions in the marketplace and in inefficient outcomes.
|
|
19. The Commission notes that Stentor did not address any concerns regarding bypass.
|
|
20. Based on the record of this proceeding, the Commission is not persuaded that the unbundled rates will give rise to distortions in the marketplace and inefficient outcomes.
|
|
21. The Commission concludes that AT&T Canada LDS has not demonstrated that there is substantial doubt as to the correctness of the Commission's determination in Decision 97-6.
|
|
22. In light of the foregoing, the Commission hereby denies AT&T Canada LDS's application.
|
|
Laura M. Talbot-Allan
Secretary General
|
|
This document is available in alternative format upon request.
|
|
|