ARCHIVED -  Telecom Order CRTC 98-929

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Telecom Order

Ottawa, 17 September 1998
Telecom Order CRTC 98-929
In the matter of Proposed New Contribution Exemption Regime for Internet Service Providers, Telecom Public Notice CRTC 97-37, 3 November 1997 (PN 97-37).
File No.: 8695-C12-02/97
1.In Telecom Order CRTC 97-1471, 14 October 1997, the Commission expressed the preliminary view that the current contribution exemption regime should, in the case of Internet Service Providers (ISPs), be replaced by a lighter regime in which the Commission would only be involved to the extent that disputes arise between the parties. In PN 97-37, the Commission initiated a proceeding to consider the appropriateness of implementing such a regime.
2.In PN 97-37, the Commission invited comments on the following specific issues: (1) the appropriate evidence to be filed with BC TEL, Bell Canada (Bell), The Island Telephone Company Limited [now Island Telecom Inc.] (Island Tel), Maritime Tel & Tel Limited (MT&T), MTS NetCom Inc. [now MTS Communications Inc.] (MTS), The New Brunswick Telephone Company, Limited [now NBTel Inc.] (NBTel), NewTel Communications Inc. (NewTel) and TELUS Communications Inc. (TCI) (the telephone companies), and with the competitive local exchange carriers (CLECs) operating in those companies' territories to support exemptions within a lighter regime; (2) whether telecommunications service providers who provide Internet access as one of several services should be included in this lighter regime; (3) the potential risks of moving to a lighter regime noting, for example, that effective 1 January 1998 (pursuant to Telecom Order CRTC 97-590, 1 May 1997 (Order 97-590)), line-side data interconnections will be subject to contribution while Internet services will continue to be exempt; (4) any methods currently available to determine whether ISP circuits are, in fact, solely carrying contribution-exempt traffic; (5) the current availability of technical devices that could be used to monitor circuits for random audits, if required; and (6) any other issues which parties may wish to address.
3.As part of PN 97-37, ACC TelEnterprises Ltd. (ACC), AT&T Canada Long Distance Services Company (AT&T Canada LDS), Canadian Association of Internet Providers (CAIP), fONOROLA Inc., Call-Net Enterprises Inc. on behalf of Sprint Canada Inc. (Call-Net) and Stentor Resource Centre Inc. (on behalf of BC TEL, Bell, Island Tel, MT&T, MTS, NBTel, NewTel and TCI) (Stentor) were made parties to this proceeding. The process consisted of comments to be filed by 8 December 1997, and reply comments by 23 December 1997. This latter date was subsequently revised to 30 January 1998.
4.By letter dated 30 January 1998, AOL Canada Services Inc. (AOL Canada) filed a submission which Stentor argued, in a letter dated 13 February 1998, should not form part of the record of this proceeding because, among other things, it was not in the nature of reply comments but rather raised new arguments and positions.
5.By letter dated 24 April 1998, the Commission ruled that only those parts of AOL Canada's letter that were in the nature of reply comments would form part of the record of this proceeding.
6.Stentor submitted that comments from certain ISPs that appeared to be members of CAIP should not form part of the record of this proceeding because they did not conform with the Commission's procedures. Given this, Stentor stated that it did not attempt to specifically address them on the record of this proceeding. However, in view of the concerns expressed, and what it characterized as the apparent lack of understanding of the current contribution exemption regime by these ISPs, Stentor stated that it had undertaken discussions with CAIP to attempt to clarify Stentor's position, and to better understand CAIP's concerns. As a result of these discussions, Stentor stated that, in its reply comments, it had made certain modifications to its proposed contribution exemption regime for ISPs, subject to the establishment of alternative safeguards and informational requirements as described below.
7.The Commission notes that the ISPs referred to by Stentor failed to conform to the Commission's procedures for this proceeding by, among other things, not registering with the Commission, failing to file hard copies of the interventions, and failing to copy all parties on the distribution list. At the same time, the Commission notes that the interventions did not raise new arguments beyond what CAIP had raised in its initial comments, and that the interventions were in the nature of reply comments that were filed prior to the deadline for comments. Given this, the Commission will allow these interventions to form part of the record of this proceeding. However, the Commission stresses that compliance with the process established for proceedings is very important to provide, among other things, all parties with the opportunity to address other parties' arguments. The Commission expects all parties to comply with the process it has established. As an organization representing ISPs, CAIP is requested to inform its members of the importance of these matters.
8.The Commission notes that Order 97-590 did not provide specific definitions with respect to contribution-eligible or contribution-exempt services in the context of the Internet. Stentor submitted the definitions set out in the following paragraphs to assist in addressing the issues in this proceeding. The Commission has reviewed these definitions, and agrees with them.
9.Internet Service Provider (ISP) is a service provider who provides dial access capability to connect customers to the Internet via an Internet gateway or server.
10.Internet Access Line (IAL) refers to an access service provided by a Local Exchange Carrier (LEC) to an ISP which allows calls to be originated from or terminated to the Public Switched Telephone Network (PSTN). IALs typically connect to a "gateway" or server which provides the functionality to connect a caller to the Internet.
11.PC Voice is "real-time" voice communication via the Internet using a personal computer (PC) or other terminal equipment which is equipped with a modem, and the hardware and software required to perform voice compression and conversion to a form which can be transmitted to or from an ISP over IALs. At the IAL, PC Voice communication is effectively indistinguishable from other forms of communication between a modem-equipped PC and an ISP.
12.PSTN Voice refers to "real-time" voice communication via the Internet to or from a telephone set or other equipment where the conversion for carriage on the Internet is performed at the service provider's (i.e., the ISP's) equipment. Unlike PC Voice, such communication can be accommodated using a normal telephone set, without requiring the user to be equipped with a modem or a computer with special hardware or software at the terminal location.
13.Internet or Internet Protocol (IP) refers to the manner of carriage of Internet services between Internet gateways, servers or routers, but not to carriage on access lines to or from the PSTN.
14.IP Data traffic includes all other usage on the Internet.
15.Stentor submitted that in Order 97-590, the Commission's focus for contribution-paying services was on those services that involved the ability to communicate between PSTN locations to provide a service equivalent to contribution-paying interexchange services typically provided using the PSTN. Stentor submitted that based on this assumption, PSTN Voice services clearly fall within the scope of contribution-eligible services. Stentor further submitted that PC Voice, on the other hand, is limited to use between points that are equipped with compatible voice compression capability, i.e., between two PCs equipped with compatible software. Stentor submitted that because PC Voice traffic appears as data on an IAL, it is difficult to separate from other forms of data traffic. Stentor therefore assumed that, under the regime prescribed by Order 97-590, PC Voice traffic would not be subject to contribution charges.
16.Stentor submitted that similarly, interexchange data services provided using the Internet, such as facsimile or messaging (e.g., e-mail) services, are likely to be indistinguishable from other forms of data traffic carried on IALs. Stentor submitted that such services are typically possible using the Internet access services of any ISP. Stentor further submitted that from a practical perspective, it is highly unlikely that line-side data traffic on IALs can be separated into contribution-eligible public switched data services, and contribution-exempt public switched data services.
17.For the purposes of this proceeding, Stentor assumed that only IALs carrying PSTN Voice traffic will be subject to contribution charges. Stentor stated that for the purpose of applying contribution charges, it had also assumed that if an IAL is used to carry any PSTN Voice traffic, then all traffic carried on that IAL will be subject to contribution.
18.Stentor noted that the term ISP circuit may also be interpreted to refer to Internet backbone services, including Canada-United States or overseas circuits. Stentor submitted that the exemption regime for these services is outside the scope of this proceeding.
19.AOL Canada agreed with Stentor that PC Voice should be contribution-exempt, but disagreed that PSTN Voice should be contribution-eligible.
20.The Commission disagrees with AOL Canada's submission that PSTN Voice should be contribution-exempt. The Commission has already ruled twice on this subject in Order 97-590 (re Scope of IX Contribution Paying Services) and Telecom Order CRTC 98-28 dated 23 January 1998 (re ShadowTel Communications (Ontario) Inc.). The Commission remains of the view that PSTN Voice using the Internet as the
transmission facility should be contribution-eligible.
21.The Commission agrees with Stentor's characterization of the type of services that are contribution-eligible and contribution-exempt. Accordingly, the Commission finds that: (i) only IALs carrying PSTN Voice traffic are subject to contribution charges; and (ii) if an IAL is used to carry any local or interexchange PSTN Voice traffic, then all traffic carried on that IAL is subject to contribution. The Commission agrees with Stentor that IP Data should be contribution exempt.
22.The Commission also finds that the exemption regime for Internet backbone services is outside the scope of this proceeding.
23.The Commission also notes that technological innovation will likely lead to a situation where services such as PSTN Voice will increasingly be able to be offered in a manner similar to PC Voice. Given that this will likely lead to a potentially significant reduction in contribution payments, the Commission is of the view that the contribution-exempt status of Internet services may need to be revisited in the future.
24.ACC and Vidéotron Télécom ltée suggested that an affidavit should be provided. AT&T Canada LDS suggested that LECs should maintain evidence based on attestations by ISPs, their own records and on testing and monitoring carried out by them. The Canadian Business Telecommunications Alliance (CBTA) suggested that the details should be worked out between ISPs and the carrier providing them with service. CAIP proposed that no specific obligations should be imposed on stand-alone ISPs. CAIP indicated that off-line discussion and dialogue with Stentor (much of it via e-mail on the Internet) led Stentor, in its reply comments, to remove its suggested blanket requirement to register, where an ISP offers only contribution-exempt services.
25.AT&T Canada LDS submitted that it would not be a great burden for ISPs to provide their LECs with a five-hour per-month access account for the purpose of conducting a random audit of eligibility for a contribution exemption of that ISP's local PSTN access.
26.ACC submitted that the local exchange providers can randomly monitor circuits and attempt to negotiate non-ISP related protocols to test whether the circuits allow non-IP data traffic. ACC stated that in the event such traffic is monitored, the local exchange provider can initiate a dispute with the Commission.
27.In a tabular format, Stentor proposed evidence requirements to address three different situations involving ISPs.
28.Stentor also submitted that, should any reason subsequently arise to question the validity of an exemption granted to an ISP under the lighter regime, one or more of the parties involved will be required, in any event, to apply to the Commission for adjudication, and to rely on the Commission's established procedures for applications or for dispute resolution. Stentor submitted that the need for additional evidence, whether by affidavit or in some other form, could therefore be addressed at that time.
29.The Commission has reviewed Stentor's proposal in light of the interveners' comments and is of the view that it is acceptable with some changes. The major change is that no application to the Commission would be required for Situation 2. The Commission agrees with AT&T Canada LDS' and ACC's submissions with respect to monitoring. The Commission is of the view that one of the conditions of receiving the benefit from the contribution exemption regime, is that ISPs should make available, at no-charge, a five-hour per-month, low-speed access account to its serving LEC to enable the LEC to conduct random audits.
30.The following is the lighter contribution exemption regime for ISPs.
31.Situation 1: if an ISP offers exempt ISP services only and no other service provider offers PSTN Voice or any other contribution-eligible telecommunications services from the same service locations, no registration is required. The LEC is to maintain records of services provided to ISPs for possible audit requirements. The ISP should make available a no-charge, five-hour per-month, low-speed access account to its serving LEC. The exemption is assumed automatically by the LEC unless the ISP advises it offers PSTN Voice or other telecommunications services. The exemption is effective the date of service installation. Disputes are to be referred to the Commission.
32.Situation 2: if an ISP offers PSTN Voice or other telecommunications services in addition to ISP services and no PSTN Voice or other contribution-eligible telecommunications services are offered by the ISP or any other service provider from the same service locations, the ISP is to register with the Commission, but no exemption application for contribution-exempt services is required. The ISP should make available a no-charge, five-hour per-month, low-speed access account to its serving LEC. An affidavit is to be served on serving LEC(s) only. When the LEC is offering the ISP service, a senior officer should swear an affidavit which should be available in case of a dispute. The exemption is effective the date of service installation. Disputes are to be referred to the Commission.
33.Situation 3: if an ISP offers PSTN Voice or other contribution-eligible telecommunications services from the same service locations in addition to ISP services or another service provider offers PSTN Voice or other contribution-eligible telecommunications services from the same service locations, registration and an exemption application is required (for contribution-exempt services) with the Commission and serving LEC(s). The ISP should make available a no-charge, five-hour per-month, low-speed access account to its serving LEC. Appropriate technical evidence is required (carrier verification or technical audit). Commission approval is required - no interim approval is assumed by the LEC. The exemption is effective the date of application or the date of installation, whichever is later, absent special circumstances.
34.ACC stated that it fully supported the Commission's preliminary view which it characterized as a lighter regulatory regime being appropriate for telecommunications service providers who provide Internet access as one of several services would be appropriate.
35.AT&T Canada LDS argued that fairness and equity demands that all ISPs be treated similarly under a lighter regime, and that there is no justification for the Commission to impose a heavier regulatory burden on interexchange carriers (IXCs) and LECs. In response, Stentor conceded that under its proposal, the regulatory requirements for some service providers would continue to be more exacting than for others. However, Stentor submitted that such a situation is neither new nor unjustified.
36.AT&T Canada LDS also submitted that it would be highly unfair to force LECs and IXCs to file these exemption applications, and the sensitive information contained therein, on the public record while allowing their stand-alone ISP competitors to maintain the same information in confidence by not requiring them to file such applications in the first instance. In response, Stentor noted that applicants seeking exemptions from contribution charges can, and frequently do, submit their applications to the Commission in confidence, in whole or in part, so that the issue of placing potentially sensitive competitive information on the public record need not arise.
37.Stentor submitted that the greater risk of contribution avoidance that exists in cases where Internet services are provided in conjunction with other services, particularly services which are subject to contribution, is sufficient to justify the differences in regulatory treatment that are inherent in Stentor's proposed exemption regime for ISPs.
38.CAIP submitted that it is difficult to include telecommunications service providers who provide Internet access in the lighter regime, as they primarily offer contribution-eligible services and a review or audit is required to identify contribution-eligible and contribution-free access lines. CAIP submitted that where an ISP offers contribution-eligible services (PSTN Voice as defined by Stentor), a requirement to register is acceptable.
39.The Commission agrees with Stentor with respect to telecommunications service providers which provide Internet access as well as PSTN Voice from the same location (Situation 3 above). The Commission is of the view that this type of service provider should not be included in a lighter regime, i.e., they still must file a technical audit to satisfy the Commission that its use of the carrier's circuits warrants a contribution exemption. However, for Situations 1 and 2 above, the evidentiary requirements have been significantly reduced.
40.CAIP considered that the risks are negligible. CAIP suggested that the only pertinent risk is that service providers will offer contribution-eligible services without registering and paying contribution, and that the need to advertise such services, together with the ability of carriers to monitor such activity, would mitigate the risk of this occurring.
41.In response, Stentor agreed with CAIP's assessment that the risks involved relate only to the possibility that contribution will be avoided in circumstances where it should be paid. However, Stentor submitted that if a telecommunications service provider is also providing Internet services, neither advertising of its voice services nor monitoring would necessarily indicate whether its Internet access services were used to provide contribution-eligible services.
42.Stentor submitted that any lighter regime must include some provision to ensure that ISPs who are exempted from the requirement to register and to apply for exemptions are made aware of the contribution regime, and the conditions under which contribution would be an issue. Stentor stated that without such information, there is an additional risk that ISPs may inadvertently offer services that may be subject to contribution. Stentor submitted that CAIP and similar organizations could play a significant role by providing information to their members and generally increasing awareness in the Internet community of the contribution regime and its relationship to the provision of Internet services.
43.AT&T Canada LDS noted that many data service applications commonly provided using private networks or the PSTN can now be provided using Internet services.
44.Stentor submitted that it would be extremely difficult to differentiate the nature of data applications which utilize the Internet. Stentor submitted that as such, the Commission should not attempt to regulate based on whether or not an ISP is offering Local Area Network/Wide Area Network (LAN/WAN) applications, private virtual network services, or extra-net services as an adjunct to the Internet services being provided over their Internet backbone - either through a managed router service or software consulting and administration.
45.Stentor also submitted that it would be impossible in any practical sense to distinguish different types of data services using the Internet, in order to require some to pay contribution. Stentor submitted that as the migration of data services from the PSTN to the Internet proceeds, there will likely be increased pressure to reassess the general exemption of Internet services from contribution charges.
46.The Commission is of the view that while there is some risk in lightening the regulatory regime, it is offset by the decrease in regulatory burden to all. The Commission considers that the requirement of the random audit safeguard will also serve to reduce the risk.
47.The Commission agrees with Stentor that the migration of data from the PSTN to the Internet may cause the general exemption for Internet services from contribution charges to be reviewed.
48.The Commission agrees with Stentor's submission that CAIP and similar organizations could accept a significant role in the contribution and contribution exemption process by providing information to their members and generally increasing awareness in the Internet community of the contribution regime and its relationship to the provision of Internet services. Accordingly, the Commission requests CAIP to inform its members of the contents of this Order.
49.Stentor stated that it is unaware of any equipment or technology currently available which could, with certainty, differentiate contribution-eligible traffic from contribution-exempt traffic on an Internet access circuit. Stentor submitted that under certain circumstances, however, there may be some ability to distinguish PSTN Voice from other forms of communication carried on Internet access circuits through the equipment required to handle the traffic. Stentor submitted that unlike other forms of Internet usage, PSTN Voice calls do not require a modem or other data communications device to be active at the originating location of the call. Stentor submitted that instead, the provision of PSTN Voice traffic requires the ISP to provide and use hardware and software, including voice compression software, which can be distinguished from that required for other forms of Internet service.
50.Stentor submitted that as long as separate IALs are used to provide PSTN Voice services, the existence of the specific hardware and software required for this service can be associated with specific IALs at the ISP's location, and provides a reliable indicator of the intended use of the lines to carry contribution-eligible voice traffic. Stentor submitted that conversely, the absence of such hardware and software on specific IALs indicates that PSTN Voice traffic is not carried on the lines. Stentor submitted that a technical audit could verify the existence or absence of such capabilities associated with specific IALs, and therefore could confirm the presence or absence of the capability to carry PSTN Voice traffic subject to contribution.
51.In addition, Stentor noted that IP gateways used for PSTN Voice services typically have some ability to record call-related information, such as called and calling number, time of day, and duration of the call. Stentor submitted that the use of one-time technical audits, particularly where the requirements of the audit are clearly defined, would be effective.
52.CAIP submitted that it is unaware of any efficient and economical technical means of monitoring Internet traffic packets for content and noted Stentor's agreement. CAIP submitted that it appears that, unless traffic is physically segregated on different types of access lines, it is impossible to determine which is contribution-eligible and which is not. CAIP submitted that a computer with a modem and browser software is sufficient to determine whether a given access line leads to an IP connection or something else. CAIP submitted that if the connection does not lead to IP, this should be the basis of determining whether it needs further investigation. CAIP submitted that if the connection leads to the Internet over contribution-exempt local access lines, there is no further purpose in investigating the uses to which a user might put the Internet.
53.Stentor submitted that the use of carrier verification or technical audits remains the only useful means of providing a reasonable level of assurance that Internet access services are not used to provide contribution-eligible services, and should therefore continue to be required as forms of evidence to support applications for exemption.
54.The Commission agrees with Stentor's submission that the use of carrier verification or technical audits, with the possibility of future random audits, appears to be the only currently practical methods for LECs to verify contribution-exempt services where ISPs offer both contribution eligible and contribution-exempt services.
55.Call-Net proposed that the Commission re-examine the entire contribution regime and replace it with a system that requires telecommunications service providers to contribute on the basis of a percentage of revenues.
56.The Commission notes that when this issue was raised in the proceeding initiated by Service to High-Cost Serving Areas, Telecom Public Notice CRTC 97-42 dated 18 December 1997 (PN 97-42), the Commission stated in a letter dated 26 March 1998 that it will determine whether there is a need for a review of the contribution mechanism after the decision with respect to the PN 97-42 proceeding is issued. The Commission remains of this view. Accordingly, Call-Net's request is denied.
Laura M. Talbot-Allan
Secretary General
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