ARCHIVED -  Telecom Order CRTC 98-496

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Telecom Order

Ottawa, 22 May 1998
Telecom Order CRTC 98-496
On 15 December 1997, Bell Canada (Bell) filed Tariff Notice (TN) 6170 proposing a Special Facilities Tariff for Centrex III service for the University of Toronto.
File No.: TN 6170
1. Bell proposed to offer four standardized service packages (Basic Centrex; Desk Top Packaging; Administrator's Package without VoiceMail; Administrator's Package with VoiceMail) at rates that are lower than the General Tariff rates for equivalent service packages.
2. In support of this proposal, Bell cited competitive necessity and submitted an economic study showing that the proposed rates were compensatory.
3. On 19 January 1998 (dated 14 January 1998), the Commission received an intervention from McCarthy Tétrault, Barristers & Solicitors (McCarthy), on behalf of an anonymous client.
4. On 26 January 1998, the Commission received an intervention from MetroNet Communications Group Inc. (MetroNet) dated 14 January 1998, stating that the proposed service represents a customer-specific exchange service, and that the Commission has not yet indicated that it is prepared to permit the ILECs (incumbent local exchange carriers) to engage in customer-specific pricing for exchange services.
5. MetroNet further stated that in Price Cap Regulation and Related Issues, Telecom Decision CRTC 97-9, 1 May 1997 (Decision 97-9), the Commission indicated a willingness to permit geographic de-averaging of rates for uncapped services (of which Centrex is one), but that in TN 6170 Bell proposed customer-specific pricing, the ultimate form of de-averaging, which goes beyond what the Commission had envisioned. MetroNet also expressed concern that while the economic study filed with TN 6170 indicates that the service is provided from a single wire centre, no such restriction is reflected on the proposed tariff pages.
6. MetroNet stated that, given the importance of customer-specific pricing as a regulatory issue, the Commission's silence on the topic could not be viewed as sanctioning of customer-specific pricing. In support, the company noted that customer-specific pricing of interexchange services available from the General Tariff was not permitted until Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994 (Decision 94-19), more than two years after the introduction of facilities-based competition in the toll market.
7. In conclusion, MetroNet submitted that the Commission should deny this and similar applications until such time as there truly is local competition.
8. On 28 January 1998, Bell replied stating that the proposals in TN 6170 met the conditions for Special Facilities Tariffs outlined in Decision 97-9. Bell stated that the most important change in regard to the requirements for Special Facilities Tariffs was that, except where essential facilities are involved (which is not the case here), the imputation test is to be based on Phase II costs, not General Tariff rates as was previously required by Decision 94-19.
9. With respect to the intervention by McCarthy, Bell stated that it would be in the public interest that McCarthy either disclose the identity of its client on the public record or provide such information to the Commission in confidence.
10. On 13 February 1998, the Commission received additional comments from MetroNet and Call-Net Enterprises Inc. (Call-Net).
11. In its reply dated 26 February 1998, Bell stated that the additional comments submitted by MetroNet and Call-Net did not raise any new issues. Further, Bell took the opportunity to restate its position that Centrex was introduced as a competitive alternative to PBX service and that the company has lost all but two universities in its territory to competitors offering PBX solutions. Bell stated that this is evidence that, contrary to the suggestions of MetroNet and Call-Net, customers are willing to migrate to PBX solutions irrespective of the availability of Local Number Portability.
12. In its reply, Bell argued that its proposal meets the Commission's requirements outlined in Decision 97-9. In particular, Bell argued that this Decision permits the company to use Phase II costs, except for essential services, in the costing of a local exchange service.
13. The Commission notes that Decision 97-9 did not address whether customer-specific pricing is appropriate for local exchange services, or for any Utility segment services. The Decision stated that for services such as Centrex services, the telephone companies should have the flexibility to de-average rates on a geographic basis.
14. In the Commission's view, the de-averaging of General Tariff rates would simply give rise to General Tariff rates which are specific to rate bands or some lower degree of geographic area.
15. In Decision 94-19, the Commission allowed for increased pricing flexibility for customer-specific arrangements, with respect to interexchange services, subject to safeguards against unjust discrimination. Two general types of customer-specific tariffs were identified:
i) those providing, via a Special Facilities or Special Assembly Tariff, a service that involves service features or technology that differ from those covered by the General Tariff; and
ii) those providing a bundle of services tailored to a particular customer's needs, primarily involving elements available from the General Tariff, where the purpose is to customize the offering in terms of rate structure or levels (for example, distance sensitive/insensitive, usage sensitive/insensitive, one-time charges, etc.).
16. The tariffs described in i) above are permitted subject to the provision of a study demonstrating that the imputation test is met, the arrangement being generally available to other customers and resale being permitted.
17. The tariffs described in ii) above are permitted subject to the provision of a study demonstrating that the present worth of revenues under the contract equals or exceeds the sum of the present worth of revenues under General Tariff rates for service components available under the General Tariff plus the present worth of costs for those components not covered by General Tariff rates. As well, such customer-specific tariffs are to be made generally available to other customers and resale permitted.
18. The need for the distinction between Type i) and Type ii) customer-specific offerings is based on whether there is a concern regarding unjust discrimination in the market in which the tariff applies. The test for Type ii) customer-specific arrangements ensures the tariff is not unjustly discriminatory given that it requires that General Tariff services employed in the customer-specific offering are costed at tariffed rates such that a customer of the arrangement is implicitly charged the same rates as customers of the General Tariff services.
19. The Commission notes that of the distinguishing characteristics outlined in TN 6170, the requirements for a minimum of 9,000 locals and a five year initial service period are within the General Tariff Centrex offerings, and the claimed cost savings for limiting the features to four standardized service packages are not quantified in the supporting cost study.
20. The Commission notes that had Bell's filing been supported with the information required in support of a Type ii) customer-specific arrangement as determined by the Commission for interexchange services in Decision 94-19, the Commission would have no concerns regarding unjust discrimination with respect to other Centrex customers given that the imputation test for Type ii) arrangements requires that use of the
General Tariff component, i.e. the Centrex component, is costed at Centrex General Tariff rates.
21. The Commission notes that Bell cited the Centrex-like service provided in the Ottawa-Hull exchange as a precedent to the service proposed for the University of Toronto. The Commission disagrees that the Ottawa-Hull Centrex-like service serves as a precedent for the service proposed by Bell in this application. The Commission further notes that the Ottawa-Hull Centrex-like service has a distinguishing qualification, namely, a minimum 75,000 locals within a designated exchange, that sets the service apart from the General Tariff Centrex offering.
22. The Commission is of the view that should Bell be able to distinguish service provided to customers like universities, such that the costs of providing such service can be demonstrated to be less than the company-wide costs, this would justify tariffs for lower rates for such customers.
23. In light of the foregoing, the Commission denies TN 6170.
Laura M. Talbot-Allan
Secretary General
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