ARCHIVED -  Telecom Decision CRTC 99-6

Telecom Decision

Ottawa, 25 May 1999

Telecom Decision CRTC 99-6

TELESAT CANADA - TRANSITIONAL REGULATORY FRAMEWORK AND FORBEARANCE FOR FIXED SATELLITE SERVICES

File No.: 8085-RP0008/98

SUMMARY

1.The Commission has determined that it is appropriate to substantially forbear from regulation of Telesat Canada's (Telesat) RF Channel services provided over Fixed Satellite Service (FSS) facilities as described in further detail in this Decision. The forbearance is effective immediately for RF Channel services to be provided on or after 1 March 2000. A price ceiling will apply in certain circumstances.

BACKGROUND

2.Canada committed through the World Trade Organization General Agreement on Trade in Services (WTO/GATS) to permit competition in the provision of FSS starting 1 March 2000. FSS are the satellite RF Channels used by broadcasters to distribute signals to broadcasting distribution undertakings as well as by Direct to Home (DTH) service providers. FSS are also used to provide telecommunications services for government and business applications and for telephone service to the far North and to remote areas. Canada committed to open FSS to competition except for satellite services used by DTH broadcasters.

3.Telesat applied to the Commission in March 1998 for complete and unconditional forbearance from regulation of RF Channel services provided over FSS facilities effective 1 March 2000. In Telesat Canada - Forbearance from the Regulation of RF Channel Services, Telecom Decision CRTC 98-24, 17 December 1998 (Decision 98-24), the Commission denied Telesat's application for forbearance.

4.In its Decision, the Commission concluded that sufficient evidence had not been provided to demonstrate that competition would protect the interests of satellite users, in particular, broadcasting users with installed earth station equipment, users in the far North who may have limited competitive choice, and DTH providers.

5.In Decision 98-24, the Commission concluded that, while complete forbearance was not warranted, Telesat should have flexibility to respond to the introduction of competition in its markets. The Commission issued Telesat Canada - Transitional Regulatory Framework, Telecom Public Notice CRTC 98-40, 17 December 1998 (PN 98-40), concurrently with Decision 98-24. In PN 98-40, the Commission indicated that a transitional regulatory framework is required to provide Telesat with flexibility to compete where competition develops, and to retain a degree of regulatory oversight since RF Channel users may not have sufficient competitive choice. The Commission considered a price ceiling approach appropriate to provide regulatory flexibility. The Commission noted its use of price regulation in other markets where the incumbent service provider required flexibility to adjust to a competitive market prior to forbearance.

6.The Commission also noted, in PN 98-40, its mandate under section 28 of the Telecommunications Act (the Act) to allocate satellite channels as they may be required to meet the objectives of the Broadcasting Act. The Commission has, in recent years, been called upon to resolve issues for the allocation of channels for DTH service during the current shortage of suitable satellite capacity. Pursuant to the section 34 forbearance provisions of the Act, the Commission cannot forbear from its responsibilities under section 28.

TELESAT'S PROPOSAL

7.In its transitional framework proposal of 10 February 1999, Telesat submitted that market developments, since the Commission's forbearance proceeding, had addressed many of the Commission's concerns. For example:

- Industry Canada issued Policy Framework for the Provision of Fixed Satellite Services, report RP-008, which confirmed that no restrictions would apply to the entry of foreign satellite providers for service in Canada;

- Telesat successfully signed long-term agreements with many of its major customers for service on its planned Anik F1 satellite. Under the Anik F1 contracting procedure, capacity was offered on a first come, first served basis. Telesat noted that all parties were treated in a non-discriminatory manner and had full opportunity to negotiate with competitive U.S. (United States) suppliers. Telesat indicated that it had contracted for 85% of its Anik F1 North American planned capacity; and

- Several customers who signed contracts commissioned or had access to market studies of U.S. satellite prices and capacity. Telesat provided in confidence two studies of U.S. and North American satellite markets.

8.Telesat proposed that the Commission partially forbear from the regulation of RF Channel services effective 1 March 2000 and establish a price ceiling framework. Telesat requested that the Commission make the following determinations:

- forbear from regulation of FSS under sections 25, 29, 31 and subsections 27(1), (3), (5), and (6) of the Act. Subsections 27(2) and 27(4) and section 24 would be retained;

- set a price ceiling at existing Anik E rates for all services until 31 December 2000 and at a level of $170,000 per month per channel for full period, unprotected, pre-emptible RF Channels for a minimum five-year contract period for Anik E service after that date and for Anik F1 contracts from the start of service on Anik F1;

- confirm that Telesat will have full price flexibility for all other Anik E and Anik F1 services, including protected and non-pre-emptible services, services taken for any contract term less than five years, Canada/U.S. cross-border service, Canada-third country international services, and Partial, Bulk Partial and Occasional Use service;

- confirm acceptance of Anik F1 contracts and similarly negotiated contracts subject to the $170,000 ceiling;

- confirm that services offered exclusively in foreign jurisdictions are not subject to CRTC regulation;

- confirm that no price ceiling or any rate regulation will apply to Anik F2;

- retain the Order Priority List for the Anik Es until 31 December 2000;

- confirm continued access priority for restoral of service following interruptions as it currently functions; and

- confirm that a streamlined approach is appropriate for considering future complete forbearance.

9.Among other things, Telesat argued that the fact that most of its major customers had signed agreements for Anik F1 capacity speaks clearly of the acceptability of the prices, terms and conditions negotiated.

10.Telesat noted that major providers of telecommunications services to the far North, providers of signal distribution for broadcasters and DTH providers had signed agreements addressing the Commission's concern that service providers in the far North and broadcasters may not have access to suitable satellite service. Telesat proposed that the Commission retain sufficient discretionary powers to intercede in any exceptional case where market forces or direct customer negotiations fail to adequately protect the interests of users.

11.Telesat requested an early decision from the Commission in view of the 30 May and 31 May 1999 milestones for regulatory approval in the negotiated Anik F1 contracts.

POSITIONS OF PARTIES AND TELESAT'S REPLY

12.The Canadian Broadcasting Corporation (CBC) generally agreed with Telesat's proposed framework. The CBC argued that the guidelines for forbearance which the Commission established in Decision 98-24 should be met and that protection of users, as proposed by Telesat in its transitional framework, must continue until true competition exists in all regions and markets. The CBC found the prices and terms in the negotiated Anik F1 agreements to be competitive with U.S. provider rates.

13.Canadian Satellite Communications Inc. (Cancom) endorsed Telesat's proposed transitional framework but asked for the following clarifications and amendments:

- Cancom requested confirmation that the price ceiling provisions for the minimum five-year contract period would span a transition from the Anik E satellites to Anik F1. In its reply comments, Telesat confirmed its agreement;

- Cancom requested confirmation that the Order Priority List provisions would extend until Anik F1 is in service if that is after 31 December 2000. Again, Telesat confirmed its agreement;

- Cancom requested that the general terms and conditions of Tariff 8001 should apply to all space segment services provided after Tariff 8001 expires until a contract which has terms replacing the tariff terms is signed;

- Cancom requested that the resale and sharing provisions in the current tariff applicable to RF Channel services over FSS facilities should be made specific in the CRTC's approval of the framework. Telesat confirmed that it had no objection; and

- Cancom proposed that evidence supporting complete forbearance be assessed at the time that it is filed by Telesat.

14.The Canadian Satellite Users Association (CSUA) supported Telesat's price ceiling approach and the approval of the Anik F1 contracts. CSUA applauded Telesat for fully responding to the Commission's request for a transitional regime and for Telesat's consultation with the industry in developing its proposal. CSUA proposed that resale provisions should be made specific in the Commission's approval of Telesat's transitional framework as resale would add competitive alternatives until facilities-based competition is established.

15.Northwestel Inc. (Northwestel) generally supported Telesat's proposal. Northwestel noted the importance of satellite service to the North and indicated that the company is pleased with the long-term agreement signed with Telesat for service on Anik F1. Northwestel found Telesat's price ceiling level to be reasonable and to provide sufficient protection for users.

16.Star Choice Television Network Incorporated (Star Choice) commended Telesat for its thoroughness and creativity in its proposal and supported the proposal with the following comments:

- Star Choice is of the view that the proposed framework together with its negotiated contracts for service on Anik F1 adequately protect the interests of DTH providers given the exclusion of DTH satellite service from the WTO/GATS agreement;

- Star Choice proposed that the existing Anik E rates should remain in effect as a ceiling for full period channel services until the earlier of Anik F1 commencement of service or the end of the life of the Anik E satellites. In its reply, Telesat did not concur with Star Choice's proposal but considered that the price ceiling could apply to Anik E contract terms of less than five years until Anik F1 is in service;

- Star Choice requested that the price ceiling and approved agreements should continue to apply if another satellite is substituted for Anik F1. Telesat confirmed that it would honour Anik F1 service agreements if a replacement satellite was used in the same orbital location;

- Star Choice agreed that Telesat's Order Priority List allocation of service can be eliminated, as proposed by Telesat, provided that Anik F1 is in service to replace the service on the Anik Es;

- Star Choice was of the view that any application for complete forbearance should be assessed at the time that it is filed based on the evidence available at that time;

- Star Choice requested that resale and sharing of FSS be specifically approved in the Commission's decision; and Star Choice endorsed Telesat's proposal that negotiated agreements for Anik F1 service proceed without explicit approval of the Commission if the rates for full period channel service are below the price ceiling.

17.The Specialty and Premium Television Association endorsed the position of CSUA.

18.CHUM Television (CHUM) noted that it has researched competitive prices for satellite service and is satisfied that Telesat's proposed rates are competitive. CHUM supported Telesat's proposal.

19.Television Northern Canada (TVNC) noted that it uplinks and distributes programming throughout the North. TVNC supported Telesat's proposed transitional framework and endorsed the position of the CSUA.

20.WIC Premium Television Ltd. supported the position of Cancom.

COMMISSION'S DETERMINATION

21.The Commission notes that the PN 98-40 proceeding was established to consider a transitional regulatory framework for Telesat including a price ceiling. The Commission further notes that no person objected to the expanded scope introduced by Telesat's proposal and that parties, with some suggested amendments, generally supported Telesat's proposal including forbearance.

22.The Commission accepts that parties had adequate opportunity in this proceeding to comment on Telesat's forbearance proposal.

23.The Commission shares the positive view of most parties that the proposed transitional regime is a creative approach that is responsive to the direction given by the Commission in PN 98-40.

Price Ceiling - Applicable Services

24.PN 98-40 contemplated that a price ceiling based on the existing structure of rates for a range of services might be appropriate. Telesat has proposed a price ceiling which would apply to only one satellite channel rate (full period RF Channel service) and for specified conditions (unprotected, pre-emptible service for a minimum five-year lease).

25.The Commission notes that with the introduction of competition, Telesat requires flexibility to compete by offering services and rates that are responsive to the market. By applying the price ceiling to full period RF Channel service, Telesat has made available a basic underlying component of satellite service subject to the price ceiling, and has provided for flexibility in the provision of other services.

26.The Commission notes that resale of the full period channels under the price ceiling will provide a degree of competition in the provision of services such as partial channel, occasional use and Digital Video Compression service. Such resale should provide for access to satellite capacity by users with such service requirements.

27.The Commission considers that the restriction of the price ceiling to only unprotected, pre-emptible service is reasonable since virtually all full period RF Channel customers have chosen this level of service under Telesat's existing tariff.

28.The restriction of the price ceiling to five-year contracts is also in line with the longer contract terms chosen by customers in the recent Anik F1 agreements.

29.The Commission considers a price ceiling applied to only unprotected, pre-emptible, full period RF Channels for a minimum five-year contract to be acceptable. An exception to the minimum five-year term is described in paragraph 51.

Price Ceiling - Price Level

30.The Commission indicated that a price ceiling was required to protect the interests of users who may not have access to adequate competitive choice. In PN 98-40, the Commission indicated that the price ceiling level could be the existing tariffed rates or another rate level justified on market conditions, value of service or other considerations.

31.Telesat proposed a price ceiling set at the existing approved Anik E rates until 31 December 2000 for all RF Channel services. The existing Anik E rates for unprotected, pre-emptible full period channels are $114,177 per month for Ku-band and $141,631 per month for C-band for a one-year term.

32.After 31 December 2000, Telesat proposed a ceiling of $170,000 per month for unprotected, pre-emptible, full period channels for minimum five-year lease terms, for both C-band and Ku-band channels. Telesat submitted that this price ceiling level is based on rates agreed to by customers in their Anik F1 service agreements and is within the range of prices for U.S. providers in satellite market studies.

33.The Commission notes the support of users for the proposed price ceiling levels and their endorsement of Telesat's analysis of the U.S. market prices. Several parties referred to their own investigation of the U.S. market which led to their support of Telesat's proposal. Telesat also argued that its analysis indicated that a price ceiling set below the proposed level would discourage competitive entry.

34.Based on the foregoing, the Commission finds Telesat's proposed price ceiling appropriate.

Order Priority List (OPL) and Allocation of Channels

35.The Commission cannot forbear from section 28 of the Act by which the Commission may make an allocation of satellite channels as necessary to further the implementation of the broadcasting policy set out in the Broadcasting Act. Subsection 27(2) of the Act, for which Telesat did not propose forbearance, would also permit the Commission to rule with respect to unjust discrimination regarding channel allocation.

36.In PN 98-40, the Commission asked Telesat to address how the allocation of channels should be handled in a transitional regime.

37.Telesat proposed that the first come, first served OPL procedure in Telesat's existing Tariff CRTC 8001 continue to operate until 31 December 2000 and noted that sufficient capacity would be available after that date to remove concerns about the need to allocate channels.

38.Most parties supported Telesat's OPL proposal. Star Choice and Cancom asked to have the OPL procedure continue until the later of 31 December 2000 or the in-service date of Anik F1. Telesat agreed to this change.

39.The Commission is of the view that contention among RF Channel users for suitable satellite capacity may remain a concern after 31 December 2000 if the in-service dates of either Anik F1 or Nimiq are delayed. Accordingly, the Commission accepts the elimination of the OPL procedure on the later of 31 December 2000 or the in-service date of both Anik F1 and Nimiq.

40.In its proposal, Telesat described its procedure for restoration of service following a satellite malfunction or other service disruption. The Commission notes Telesat's undertaking to continue arrangements with other satellite providers to back-up each others' customers in the event of a satellite malfunction.

Foreign Services

41.Telesat requested confirmation that services which it may offer exclusively in foreign jurisdictions are not subject to CRTC regulation. The Commission confirms that Telesat's RF Channel services on FSS facilities which are offered and which originate and terminate, entirely outside of Canada, will not be subject to Commission regulation.

Partial Forbearance

42.Telesat requested partial forbearance from the regulation of RF Channel services provided over FSS facilities. Telesat proposed that the Commission forbear from regulation except that it would retain its authority under section 24 and subsections 27(2) and (4) of the Act. Telesat also proposed that Tariff CRTC 8001 should be cancelled effective 1 March 2000 and that the residual powers retained by the Commission should be used to establish the proposed transitional price ceiling framework.

43.As justification for its forbearance proposal, Telesat referred to changes in the market since the Decision 98-24 proceeding. Notably, Telesat referred to Industry Canada's Policy Framework for the Provision of Fixed Satellite Services, report RP-008, which was issued after the close of the record of the Decision 98-24 proceeding (which the Commission referenced in that Decision), the contracts for service on Anik F1 and additional studies of North American satellite markets which were filed in this proceeding. Telesat argued that this additional evidence demonstrates that there will be sufficient competition to protect the interests of users and, therefore, to justify the partial forbearance requested.

44.The Commission notes the support of satellite service users for Telesat's proposed, partial forbearance. In addition, the Commission notes the more extensive market studies provided by Telesat addressing a more complete range of services and prices which vary depending on conditions of service and satellite characteristics.

45.Several interveners indicated that they had conducted their own market studies, or had access to independent studies, and were satisfied with Telesat's conclusions about satellite market competition and rates.

46.Based on the record of this proceeding, the Commission finds that a determination to forbear to the extent indicated below from the regulation of RF Channel services provided over FSS facilities on or after 1 March 2000 would, under subsection 34(1) of the Act, be consistent with the Canadian telecommunications policy objectives, including section 7(c) to enhance the efficiency and competitiveness of Canadian telecommunications, and section 7(f) to foster increased reliance on market forces for the provision of telecommunication services and to ensure that regulation, where required, is efficient and effective.

47.Based on the record of this proceeding, the Commission is of the view that it would be appropriate under subsection 34(2) of the Act to forbear to the extent described below as it finds that the FSS market in Canada will be subject to a level of competition, effective
1 March 2000, sufficient to protect the interests of satellite service users.

48.The Commission also finds under subsection 34(3) of the Act that to forbear for services to be provided on or after 1 March 2000, would not impair unduly the establishment or continuance of a competitive market for FSS.

SCOPE AND TIMING OF FORBEARANCE

49.The Commission notes that subsections 34(1) and (2) of the Act both empower the Commission to forbear in whole or in part, conditionally or unconditionally, from the exercise of any power or the performance of any duty referred to therein. The Commission is of the view that it is appropriate to refrain from exercising certain powers and performing certain duties in relation to RF Channel services on FSS facilities provided by Telesat, and that the following scope of forbearance is appropriate. The approved forbearance is effective from the date of this Decision for services to be provided on or after 1 March 2000.

Section 25 (tariffs)

50.The Commission is of the view that competition will be sufficient to protect users, without the requirement for prior Commission approval of tariffs. Accordingly, the Commission will forbear from exercising its powers and performing its duties under section 25. Effective 1 March 2000, Telesat is to delete its RF Channel tariffs for services provided over FSS facilities.

Section 24 (conditions on services)

51.As proposed by Telesat, the Commission determines that it is in the public interest for the Commission to continue to exercise its powers and perform its duties under section 24 of the Act to impose the following conditions as well as any that may prove necessary in the future. Accordingly, the following are conditions to the offering and
provision of RF Channel services on FSS facilities:

- existing approved rates for RF Channel services on the Anik E satellites shall remain in effect until 31 December 2000;

- the price ceiling for full period, unprotected, pre-emptible RF Channel service over FSS facilities for lease terms of at least five years shall be $170,000 per month per channel after 31 December 2000 for Anik E service and, for Anik F1, from the in-service date for Anik F1 service;

- agreements for the provision of RF Channel services on FSS facilities after 1 March 2000 are to contain provisions permitting the resale and sharing of RF Channel services identical in all material respects to the resale and sharing provisions of Tariff CRTC 8001;

- the Order Priority List provisions of Tariff CRTC 8001 are to operate until the later of 31 December 2000 or the in-service date of both the Anik F1 and Nimiq satellites;

- the framework established in this Decision for service on Anik F1 is to apply to any other satellite substituted for Anik F1 in the same orbital location; and

- the price ceiling is to apply to unprotected, pre-emptible full period RF Channel leases for terms of less than five years if Anik F1 is not in service by 31 December 2000 and until Anik F1 or a replacement satellite is in service.

52.The Commission notes that in this proceeding, parties did not address the provisions in Telesat's tariff for interconnection and the collection of contribution. The Commission will initiate a follow-up process with regard to the extent, if any, that existing interconnection and contribution provisions should be retained as a condition under section 24 of the Act for service agreements.

Section 27 (just and reasonable rates, no unjust discrimination or undue preference)

53.With the exception of subsection 27(6), the Commission will retain its powers pursuant to section 27.

54.The Commission determines that subsection 27(1) should be retained as it permits the Commission to intervene as necessary to ensure that rates are just and reasonable. The Commission notes that subsection 27(1) is also necessary in order to implement the price ceiling for FSS proposed by Telesat.

55.The Commission will retain subsection 27(2), as proposed by Telesat, to prohibit Telesat from granting an undue preference or to unjustly discriminate.

56.The Commission considers it necessary to retain its powers and duties under subsections 27(3) to 27(5) as they refer to compliance with powers and duties not forborne from in this Decision.

57.The Commission will forbear from its powers and duties under subsection 27(6) of the Act such that Commission approval will not be required regarding service provided free or at reduced rates.

Section 29 (inter-carrier agreements and arrangements)

58.On the basis of the record of this proceeding, the Commission considers that there will be no requirement to retain section 29 with the introduction of competition. Accordingly, the Commission will forbear from exercising its powers and performing its duties under this section for RF Channel services provided over FSS facilities to be provided on or after 1 March 2000.

Section 31 (limitations of liability)

59.With the introduction of competition, limitations of liability will be negotiated with customers as terms of service. Accordingly, the Commission considers it appropriate to forbear from exercising its powers and performing its duties pursuant to section 31 of the Act.

Non-applicable Sections of the Act

60.Pursuant to subsection 34(4) of the Act, sections 25, 29 and 31, and subsections 27(3) and 27(6), do not apply, to the extent that those sections are inconsistent with the determinations in this Decision.

Anik F1 Contracts

61.Telesat requested approval of the agreements already signed for Anik F1 service and requested confirmation that future similarly negotiated agreements would not require Commission approval. Telesat described the Anik F1 contracting procedure as a first come, first served approach where all customers were offered capacity on Anik F1 under similar terms.

62.Parties supported Telesat and urged the Commission to approve the negotiated contracts prior to the end of May 1999.

63.With forbearance from sections 25 and 29 of the Act, the rates, terms and conditions in both existing and future Anik F1 service agreements, for service on or after 1 March 2000, will no longer require Commission approval. While such agreements must comply with any conditions imposed by the Commission pursuant to section 24 of the Act, the Commission's approval of them is not required.

64.The Commission notes that the Anik F1 agreements filed with the Commission do not contain all the terms and conditions of service that currently exist in Tariff CRTC 8001. Of particular note, the agreements do not contain the provisions governing interconnection, resale and sharing.

65.The Commission notes the section 24 condition indicated above which requires service agreements to contain resale and sharing provisions identical in all material respects to the existing provisions of Tariff CRTC 8001. Such provisions are to be included in all existing and future agreements for service to be provided on or after 1 March 2000.

Regulation of Anik F2

66.Telesat indicated that Anik F2 is currently in the planning stages for launch in 2002. Telesat requested confirmation that no transitional regime or other regulation would apply to Anik F2. Telesat argued that Anik F2 will not be launched until after Telesat's capacity is greatly expanded with the launch of Anik F1 and Nimiq. Telesat also noted that, by 2002, U.S. satellite operators would have additional capacity to compete in Canada. Telesat argued that imposing regulation on Anik F2 in 2002, when the market will be competitive, would not be justified.

67.The Commission notes that the substantial forbearance granted in this Decision applies to all FSS provided by Telesat including FSS to be provided on Anik F2. It is open to Telesat to request complete forbearance for FSS when evidence is available to support complete forbearance.

Future Proceeding for Complete Forbearance

68.Telesat noted that the Commission had conducted a proceeding on FSS forbearance leading to Decision 98-24. Telesat requested the Commission to confirm that, in order to obtain complete forbearance for FSS, Telesat should only have to file information addressing the shortfalls in Telesat's initial filing as identified in Decision 98-24.

69.Star Choice and Cancom agreed that a future proceeding may not need to cover all issues addressed in Decision 98-24, but indicated that the filing should address the issues relevant to complete forbearance at the time it is filed.

70.The Commission considers that Telesat should address all relevant issues in any future application for complete forbearance for FSS. To the extent that issues have been adequately addressed in a previous proceeding, Telesat is free to make reference to that evidence and the Commission's determinations in the previous proceeding in support of its filing.

Tracking Reports

71.Telesat now provides quarterly and annual reports to the Commission related to its revenues, expenses, satellite utilization and other matters specified in Commission decisions. Effective 1 March 2000, these regular reports by Telesat to the Commission are to be eliminated, with the exception of the following report. Effective 1 March 2000 and until complete forbearance is granted, the Commission requires Telesat to file a semi-annual report of all FSS agreements for one or more RF Channels for service in Canada. The report is to indicate the customer name, the price levels of leases and channel sales, the contract period of leases, and the quantity and type of channels contracted. The report is to be effective 1 January and 1 July of each year and is to be filed within 30 days of those dates.

Secretary General

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