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Ottawa, 23 June 1998
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Telecom Order CRTC 98-619
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The Commission received applications from Northwestel Inc. (Northwestel), Sogetel inc. (Sogetel) and Maritime Tel & Tel Limited (MT&T) (collectively, "the applicants") under Part VII of the CRTC Telecommunications Rules of Procedure for forbearance from regulation of the companies' services providing dedicated and dial-up access to the Internet (Internet services or IS), pursuant to section 34 of the Telecommunications Act (the Act).
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File Nos.: 8640-N1-01/97; 8640-M1-01/98 and 8640-S4-01/97
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Northwestel
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1. On 16 December 1997, Northwestel requested that the Commission refrain from exercising its powers and duties under sections 24, 25, 29 and 31, and subsections 27(1), 27(5) and 27(6) of the Act in relation to the provision of the company's Sympatico service, future enhancements of Sympatico and the company's planned dedicated IS, targeted at businesses or Internet service providers (ISPs). Northwestel stated that this service would be similar to the NBNet, the dedicated IS offered by The New Brunswick Telephone Company, Limited, from which the Commission forbore in Telecom Order CRTC 97-471, 8 April 1997.
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2. Northwestel provides its Sympatico services pursuant to Item 1602 of the company's General Tariff, and the service was approved in Telecom Order CRTC 97-1168, 25 August 1997.
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3. Northwestel stated that forbearance would allow the company to adjust to national pricing of Sympatico, as well as to have the flexibility to enter into customer specific arrangements.
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4. Northwestel submitted that in its service territory of the Yukon, the Northwest Territories, and northern British Columbia, there are about 8,000 to 10,000 dial-up Internet users, out of a population of about 100,000.
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5. Northwestel stated that, at the time of the application, there were 19 other ISPs providing service in its operating territory, that no provider had a market share greater than 20%, and that Northwestel's share of the IS market was less than 10%. Northwestel submitted that there are no technological or regulatory barriers to entry, and that customers readily can switch from one ISP to another, made easier by the fact that many ISPs waive the configuration or set-up charges for customers wishing to change providers.
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6. Northwestel further stated that the transmission facilities required for IS are available from Northwestel, at tariffed, non-discriminatory rates. The company also noted that access to the Internet backbone can be obtained from two regional ISPs (YKet and NTnet) and from Canadian Satellite Communications Inc. Northwestel added that the Government of the Northwest Territories is installing a satellite-based communication system, which should lower the technological barriers and the cost of providing IS in remote communities.
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Sogetel
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7. On 18 December 1997, Sogetel requested that the Commission refrain from exercising its powers and duties under sections 25, 29 and 31 and subsections 27(1), 27(5) and 27(6) of the Act, in relation to the company's Galilée Internet service. The service is described in Item 5.11 of the company's Tariff, and the tariff for the service was approved in Telecom Order CRTC 98-77, 30 January 1998.
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8. Sogetel stated that seven competitive ISPs offer IS in Sogetel's service territory, and that there are no barriers to entry into the IS market. Sogetel stated that it had no share of the IS market at the time of the application.
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9. Sogetel undertook to maintain separate accounts for the company's Internet activities if the application for forbearance is approved.
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MT&T
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10. On 19 February 1998, MT&T requested that the Commission refrain from exercising its powers and duties under sections 24, 25, 29 and 31 and subsections 27(1), 27(5) and 27(6) of the Act, in relation to the company's Internet services. The company does not now offer IS directly to subscribers.
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11. MT&T submitted that: the IS market in Nova Scotia is competitive; numerous ISPs currently provide service; customers can generally change from one supplier to another without penalty; and customers' software and hardware provide access to all ISPs.
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12. MT&T also stated that ISPs face no regulatory or other barriers to entry, such as licensing or foreign ownership restrictions. Further, MT&T stated that ISPs can obtain their equipment from competitive suppliers, and that transmission facilities are available at tariffed, non-discriminatory rates from MT&T, as well as from interexchange carriers and cable companies. The company also stated that transmission facilities would be available from local competitors in the near future.
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13. MT&T also stated that ISPs compete for business by changing prices, and that customers frequently approach several ISPs before selecting service.
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Intervener Comments
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14. Comments were received from the Canadian Association of Internet Providers (CAIP). CAIP commented that there should be no joint marketing of IS and other telephone company services, and that there should be adequate protection to prevent the telephone companies from cross-subsidizing their IS.
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Conclusions
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15. The Commission finds that the applicants are not dominant in their respective IS markets. At the time of the applications, Northwestel's share in the IS market was less than 10 percent, while MT&T and Sogetel had insignificant shares in their respective IS markets.
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16. Based on the record of this proceeding, the Commission finds that barriers to entry into the applicants' Internet access markets are minimal. This conclusion is based on the absence of regulatory barriers, the availability, from a variety of sources, of the equipment and transmission facilities needed by ISPs, as well as the small scale of operations of many ISPs.
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17. The Commission also finds that the IS markets under consideration are characterized by active price competition and rivalrous behaviour. IS users, for example, often incur no costs when switching from one ISP to another, and users can access many ISPs with their hardware and software.
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18. Moreover, no party argued that IS markets are not competitive. Based on the record, the Commission finds that the IS markets in the territories of the applicants are sufficiently competitive to protect the interests of users.
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19. The Commission is of the view that, in the case of MT&T, the implementation of the split rate base provides adequate safeguards against cross-subsidization.
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20. Accordingly, the Commission finds that it would be appropriate to forbear from MT&T's IS with respect to sections 25, 29 and 31, and subsections 27(1), 27(5) and 27(6) of the Act.
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21. At this time, however, neither Northwestel nor Sogetel have implemented an accounting separation for IS consistent with the split rate base regulatory framework. As set out in Telecom Order CRTC 97-1666, 14 November 1997, the Commission has concerns about the potential for predatory pricing and cross-subsidization of IS where the applicant for forbearance has not implemented an accounting separation for IS from the telephone company's regulated operations.
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22. Given the potential for cross-subsidization of IS with revenues generated in the monopoly sector, the Commission finds that, in the case of Northwestel and Sogetel, forbearance must be conditional upon these companies establishing an accounting separation for IS.
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23. Conditional upon the establishment of such an accounting separation, the Commission finds that it would be appropriate to forbear from the IS provided by Northwestel and Sogetel with respect to sections 25, 29 and 31, and subsections 27(1), 27(5) and 27(6) of the Act.
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24. With respect to all of the applicants, the Commission finds that it would not be appropriate to refrain from exercising all of its powers and duties under section 24 and subsections 27(2), 27(3) and 27(4) of the Act.
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25. The Commission considers it necessary to retain powers with respect to section 24 of the Act in order to ensure that existing conditions regarding confidential information continue to apply and to retain the power to impose conditions on the offering and provision of IS as may be necessary in the future.
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26. On a going-forward basis, upon the coming into effect of the forbearance, the existing conditions concerning customer confidentiality are to be included, where appropriate, in all contracts or other arrangements with customers for the provision of IS.
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27. The Commission is of the view that it is important for it to retain subsections 27(2) and 27(4) in regard to issues related to access to the underlying network components of the services forborne from in this proceeding.
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28. The Commission is further of the view that retaining subsections 27(2) and 27(4) of the Act would provide an additional safeguard against the applicants granting their respective IS any undue preference.
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29. The Commission considers it necessary to retain subsection 27(3) to the extent that it does not refer to compliance with any of the powers and duties forborne from in this Order.
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30. Pursuant to subsection 34(1) of the Act, and, in the case of Northwestel and Sogetel, subject to the implementation of an appropriate accounting separation, the Commission finds as a question of fact, that to refrain from exercising powers and performing duties under sections 25, 29 and 31 and subsections 27(1), 27(5) and 27(6) and under section 24 and subsection 27(3) of the Act to the extent set out in this Order, with respect to IS provided by the applicants, would be consistent with Canadian telecommunications policy objectives.
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31. Pursuant to subsection 34(2) of the Act, the Commission finds as a question of fact that the provision of these services is subject to sufficient competition to protect the interests of users.
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32. Pursuant to subsection 34(3) of the Act, the Commission finds that to refrain from exercising the powers and performing the duties to the extent set out in this Order would not likely impair unduly the establishment or the continuance of a competitive market for these services.
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33. In light of the foregoing, the Commission orders that:
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(a) pursuant to subsection 34(4) of the Act, sections 24 (in part), 25, 29 and 31, as well as subsections 27(1), 27(3) (in part), 27(5) and 27(6) of the Act do not apply to IS provided by MT&T to the extent they are inconsistent with the Commission's determinations herein;
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(b) pursuant to subsection 34(4) of the Act, effective upon approval by the Commission of a filing by each of Northwestel and Sogetel indicating that it has complied with the requirement to separate competitive IS assets, revenues and expenses from its rate base and shortfall determination, sections 24 (in part), 25, 29 and 31, as well as subsections 27(1), 27(3) (in part), 27(5) and 27(6) of the Act do not apply to IS provided by Northwestel and Sogetel to the extent that they are inconsistent with the Commission's determinations herein;
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(c) MT&T is directed to issue tariff pages within 15 days of the date of this Order withdrawing the tariffs for IS; and
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(d) Northwestel and Sogetel are each directed, forthwith upon approval by the Commission of the filing referred to in (b) above, to issue tariff pages withdrawing the tariffs for IS.
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34. The Commission notes that it intends to initiate a proceeding shortly to consider whether it should forbear from regulation of IS provided by any Canadian carrier telephone company that is not already subject to a forbearance decision by the Commission, and if so, on what basis.
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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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