Telecom Decision CRTC 99-8

Ottawa, 6 July 1999

REGULATION UNDER THE TELECOMMUNICATIONS ACT OF CABLE CARRIERS’ ACCESS SERVICES

File No.: 8697-C12-02/98

I SUMMARY

1. The Commission will require incumbent cable carriers to file proposed rates for higher speed access services supported by costing information. These services will enable competitive providers of retail Internet services (IS) to offer higher speed IS using cable infrastructure. The Commission considers that the requirement for costing support should not delay the roll-out of such access services.

II INTRODUCTION

2. In Regulation under the Telecommunications Act of Cable Carriers’ Access Services, Telecom Public Notice CRTC 98-14, 9 July 1998 (PN 98-14), the Commission sought comment on various issues concerning the regulation of incumbent cable carriers’ higher speed access service. This service will enable competitive providers of retail Internet services (Internet Service providers or ISPs) to offer higher speed IS using incumbent cable carriers’ infrastructure.

3. In Regulation under the Telecommunications Act of Certain Telecommunications Services offered by "Broadcast Carriers", Telecom Decision CRTC 98-9, 9 July 1998 (Decision 98-9) the Commission decided that it will approve the rates and terms on which incumbent cable companies provide higher speed access to their telecommunications facilities with respect to competitive providers of retail Internet services. "Higher speed access services" were defined as services which offer transmission at speeds above 64Kbps. "Cable carrier" is used in a telecommunications context to refer to a carrier that is also licensed as a cable distribution undertaking and which uses traditional coaxial infrastructure (perhaps in combination with other serving technologies) to offer a telecommunications service.

4. However, as noted in Decision 98-9, while the cable industry stated it proposes to provide higher speed access services as soon as possible, technical and related work required to implement this service had not yet been completed. The Commission issued PN 98-14 before technical issues relating to the provision of such access were resolved in order to avoid regulatory delays in making access available once technical issues are resolved. A Technical Working Group of the Canadian Association of Internet Providers (CAIP) and the Canadian Cable Television Association (CCTA) is currently addressing these issues.

5. Submissions were received from the Independent Members of CAIP, the CCTA, Fundy Cable Ltd./ltée (Fundy) and Stentor Resource Centre Inc. (Stentor) on behalf of BC TEL, Bell Canada, Island Telecom Inc., Maritime Tel & Tel Limited, MTS Communications Inc., and NBTel Inc.

III RATES FOR HIGHER SPEED ACCESS SERVICES

6. CCTA proposed that rates be "market based" and, as a result, no cost studies would be required. Stentor and CAIP opposed this position and argued that any rates filed should be supported by a cost study. CCTA submitted that there are no incentives for the incumbent cable carriers to price too high or too low. CCTA stated that cable carriers have no incentive to price ISP access at excessive levels because they want to stimulate use of their facilities by ISPs. CCTA submitted that, because there is no incentive to under-recover costs, costing information is not needed to demonstrate that the rates exceed a cost based floor.

7. However, CCTA also stated that it does not object to filing costing studies but it considers them unnecessary in light of the incentives facing cable carriers. CCTA stated that its members would be prepared to file Phase II costing support for high speed access services. However, in its view, such a requirement must reflect (a) a reasonable period of time for cable companies individually or collectively to implement Phase II costing and (b) alternate arrangements (such as use of proxy costing, use of prices approved for larger members, or establishing representative, not company specific, costs or network configurations) for smaller cable companies which do not have the resources necessary to perform Phase II cost studies.

8. CCTA submitted that the provision of third party access should not necessarily await the implementation of Phase II costing. CCTA stated that, if the Commission were to require Phase II costing studies, it expects that tariffed rates for third party access would be established during the period when the costing studies were not yet available.

9. CCTA also submitted that its access facilities are not essential. CCTA noted that in Decision 98-9 the Commission did not find that cable access facilities are essential.

10. CAIP supported the use of the Phase II costing methodology to develop the costs required to justify any proposed access rates. CAIP submitted that it sees no reason to apply a different costing standard to cable carriers, and it considers that regulatory symmetry with the telephone companies’ Asymmetric Digital Subscriber Line (ADSL) services requires Phase II costing.

11. Stentor agreed with CAIP that there is no reason why all parties should not be subject to the same costing rules (although Stentor submitted that forbearance would be the better approach). Stentor also noted that market based pricing and Phase II costing are not incompatible, stating that it is the level of the mark-up over Phase II costs that CAIP is concerned about.

12. Stentor submitted that market based pricing could mean pricing below Phase II costs because of an expectation that customers will not pay more. Stentor noted this form of market based pricing is usually inconsistent with Phase II costing requirements but stated that a carrier can file for approval rates that are below cost where it believes unusual circumstances justify it.

13. The Commission has considered the general issue of the basis on which rates for incumbent cable carriers’ higher speed access services will be determined. It has also considered related issues: (a) whether, if costing support is required, an approved Phase II costing methodology is required; (b) whether, if costing is required, a different approach is appropriate for smaller cable companies, recognizing that these companies have limited resources; and (c) how cable carriers’ costs of implementing the third party connection capability (i.e. "start-up costs") should be recovered.

14. The following findings apply only to higher speed access services offered by incumbent cable carriers to enable the provision of retail IS. In order to provide such third party access, cable carriers must provide to ISPs the Internet Protocol (IP) data transmission capabilities they use to provide their own retail level higher speed IS. Cable carriers must also provide facilities to interconnect with the ISPs’ networks (the point of interconnection). Cable carriers will be required to develop a rate structure that covers both of these functions.

15. Some cable carriers currently charge an additional fee (e.g. $10) to their IS customers who are not subscribers to cable service. This charge effectively unbundles, from the rate for the broadcast distribution (cable) service, a charge for the use of the cable carrier’s distribution facilities. Because cable carriers offer their IS to customers that do not also subscribe to their cable service, the Commission considers that it should be a requirement that higher speed access service should also be available to an ISP’s customers who do not subscribe to the cable carrier’s cable service.

16. While the Commission has in the past given interim approval to rates for use of the cable distribution system without cost support, incumbent cable carriers will be required to provide cost justification for rates currently charged and all future proposed rates for this service.

17. In the Commission’s view, it would not be appropriate to rely solely on the marketplace to ensure that rates charged by incumbent cable carriers for higher speed access service are just and reasonable, as required by subsection 27(1) of the Telecommunications Act (the Act). The Commission therefore considers that incumbent cable carriers’ proposed rates for higher speed access service should be supported by costing information.

18. In order to determine appropriate service costs, cable carriers must identify all network components that are causal to their provision of higher speed access service. In this regard, the Commission notes that cable companies have made significant investments over the last several years rebuilding and improving their plant and equipment. This has included increasing channel capacity, improving the technical capabilities of their distribution systems and implementing digital technology to facilitate delivery of broadcasting services to subscribers and to improve the quality of their services. To further encourage cable companies to make these expenditures and better enable them to compete with new broadcast distribution technologies, in various decisions made under the Broadcasting Act, the Commission created a regulatory framework which permitted cable companies to increase basic cable rates to recover certain of the costs associated with such network enhancements.

19. Advancements in the technical capabilities of the distribution equipment used to improve the quality and increase the quantity of broadcast services have also provided incumbent cable companies with the two-way transmission capability and addressability which are key requirements to allow them to offer IS. However, because the Commission previously determined these enhancements to be causal to the provision of basic cable service, the associated costs are being recovered from subscribers to basic cable service. Therefore, the Commission is of the view that these costs should not be included when developing rates for higher speed access services.

20. The Commission has required incumbent cable carriers which provide retail level IS to file tariffs for the provision of access to the carriage facilities needed to offer these services to competitive providers of retail level IS. Further, in view of the market power of these carriers in the provision of higher speed access services, the Commission determined that it will approve the rates and terms on which they provide such services to competitive providers of retail level IS. However, the Commission agrees with CCTA that the IP data transport function is not in the nature of an essential facility.

Use of Proxy Costing for Smaller Cable Carriers

21. CCTA noted that smaller cable companies would not have the resources to engage in costing. However CCTA noted that the Commission has frequently accepted costs provided by the former Stentor group (or Bell Canada’s costs) as a proxy for use by smaller companies. CAIP noted that Multiple System Operators (MSOs) are the main suppliers of higher speed IS, and that these entities have the staff and expertise to do any costing that might be required.

22. The Commission considers that larger MSOs should develop appropriate service cost studies applicable to their operations. These studies would be based on the prospective incremental costing approach as set out in Inquiry into Telecommunications Carriers’ Costing and Accounting Procedures - Phase II: Information Requirements for New Service Tariff Filings, Telecom Decision CRTC 79-16 (Decision 79-16). The Commission further considers that it would be appropriate to provide smaller cable carriers with the choice of proposing their own rates based on their incremental costs or using one of the alternatives proposed by CCTA.

23. It is the Commission’s preliminary view that, for the purposes of this Decision, "larger" cable carriers are the seven largest MSOs, defined with reference to the number of cable subscribers. The Commission has selected the number of cable subscribers, not the number of higher speed access IS subscribers, as the reference point because all cable subscribers represent the potential market for higher speed IS, even if such customers do not now subscribe to such services. Based on information filed with the Commission under the Broadcasting Act, the Commission considers Rogers Communications Inc. (Rogers), Vidéotron ltée (Vidéotron), Shaw Communications Inc. (Shaw), Cogeco Câble Canada inc. (Cogeco), Moffat Communications Limited (Moffat), Fundy and Bragg Communications Incorporated (Bragg) to be the seven largest MSOs defined with reference to the number of cable subscribers. In order to expedite the development of rates for higher speed access service and because it is the Commission’s view that Rogers, Vidéotron, Shaw and Cogeco would be the largest four MSOs with reference to any measure, the Commission requires these companies to file proposed rates supported by cost information as set out in Part VII of this Decision.

Recovery of Start-up Costs

24. The Commission considers that the costs associated with the point of interconnection and its development are the start up costs associated with the provision of higher speed third party access service.

25. The Commission dealt with start-up costs in the proceedings leading to Competition in the Provision of Public Long Distance Voice Telephone Services and Related Resale and Sharing Issues, Telecom Decision CRTC 92-12, 12 June 1992, (Decision 92-12) and Local Competition, Telecom Decision CRTC 97-8, 1 May 1997, (Decision 97-8) relating to the introduction of competition into the public voice interexchange and local markets, respectively.

26. In Decision 97-8, the Commission treated new entrants i.e. the competitive local exchange carriers (CLECs), and incumbents as peers, and determined that each party would be responsible for recovery of its own start-up costs. On the other hand, in Decision 92-12 the Commission considered that competitors in the interexchange market (including the toll arm of the incumbent telephone company) were customers of the local telephone company. In those circumstances, the recovery of the start-up costs was shared between the entrant and the incumbent toll provider based on the projected market share of the two groups.

27. The Commission considers that the circumstances for the higher speed access services under consideration in this Decision are similar to the circumstances for interexchange competition where a competitor was considered to be a customer of the local telephone company. The Commission considers it is appropriate to regard competitive ISPs as customers of cable carriers’ higher speed access services.

28. Further, it is the Commission’s preliminary view that the start-up costs should be recovered from cable carriers and competitive ISPs based on the projected demand for cable carriers’ higher speed IS and competitors’ higher speed IS provided using cable carriers’ higher speed access service.

IV COMPETITIVELY SENSITIVE COMPETITOR INFORMATION

29. CCTA submitted that cable carriers and ISPs should develop non-disclosure agreements on an as-required basis to address concerns about the confidentiality of competitively sensitive competitor information. CCTA preferred this option, which it describes as flexible, economical and adaptable, to others it identified. CCTA did not favour the Customer Service Group (CSG) option for larger cable companies, considering that it may prove to be unreasonably expensive for these companies’ high-speed businesses at this time, given their nascent state of development.

30. CAIP supported establishing CSGs. It considered that issues relating to the control of access to and information about subscribers in the cable market are analogous to those in the long distance market, where such a model was required. Fundy Cable also supported a requirement for CSGs.

31. Stentor considered that broadcast carriers which implement a CSG will enjoy competitive advantages over those who do not and therefore competition for the business of alternate service providers will incent carriers to implement CSGs or other safeguards, even in the absence of a regulatory requirement. Stentor considered that the Commission should rely on the market to incent carriers to offer appropriate non-disclosure commitments and to implement organizational structures to support these commitments. Stentor agreed with CAIP that most cable carriers which now offer higher speed retail level Internet Services also have the resources to implement CSGs, but considered that, if CSGs are required, it would be reasonable to exempt smaller cable carriers.

32. The Commission considers that the position of incumbent cable carriers that offer both access services and retail IS is analogous to the position of incumbent telephone companies in Decision 92-12. The Commission also notes that, at present, it is predominantly the larger cable carriers which offer retail IS and considers that a different approach to protecting competitor confidential information is appropriate for smaller cable carriers in view of the resources available to such carriers.

33. With respect to Stentor’s submission, the Commission does not consider it appropriate to require a cable carrier’s competitors to weigh and potentially "trade-off" measures to protect their confidential information against the other features of a carrier’s service offering.

34. The Commission therefore considers that larger cable carriers that offer both higher speed retail IS and access services should be required to create a CSG group to handle the access service requests of competitor ISPs. All other incumbent cable carriers offering higher speed access services and retail IS should enter into a standardized non-disclosure agreement with ISPs for the protection of competitively sensitive ISP information.

35. Standardized non-disclosure agreements are preferable to those negotiated on a case by case basis in that more balanced negotiating strength will flow from industry-industry negotiations around a working group table. The specifics of the agreement should be negotiated by ISPs, cable carriers and their representatives. The Commission considers that the list of items proposed by CAIP in its submission for such an agreement and the ILECs’ CSG agreements represent a reasonable starting point for discussions.

36. With respect to the issue of defining the cut-off point between "larger" and "smaller" cable carriers, it is the Commission’s preliminary view that the approach suggested for defining larger cable carriers for rating purposes is also appropriate in this context.

V TARIFFS FOR TERMS OF SERVICE

37. In Telecom Public Notice CRTC 97-40, Review of the Terms of Service and General Regulations of Telephone Companies with respect to Services and Facilities Provided to Competitive Providers of Telecommunications Services, 1 December 1997 (PN 97-40), the Commission is examining whether separate terms of service should be established for ILEC competitors. Current ILEC Terms of Service, which are tariffed, treat these competitors in the same manner as customers that are end-users.

38. CAIP preferred tariffs for the rights and obligations associated with higher speed access services, and stated that the exact terms should be negotiated by a Working Group, once a technical access arrangement is in place.

39. Stentor considered that issues in this proceeding are essentially the same as those being considered in PN 97-40, and that there should be no inconsistency between the Commission’s determinations in that proceeding and this one.

40. Stentor made the same submission in this proceeding as in PN 97-40: where market mechanisms are sufficient to protect the interests of all parties, Terms of Service are not required; all mandatory terms should apply to similar services offered by competitors; Terms of Service applicable to customers who are competitors should not differ from the terms which apply to other customers; most existing terms applying to tariffed services, including limitations on liability should remain in place.

41. Stentor considered negotiated agreements to be the best approach but consistency between the Commission’s determinations in PN 97-40 and this proceeding is paramount in its view. Stentor disagreed with CCTA that PN 97-40 is irrelevant to this proceeding.

42. CAIP supported Stentor’s position with respect to the relationship between this proceeding and PN 97-40 to the extent it results in terms of access that are in a General Tariff; CAIP sees no reason to treat broadcast carriers differently than ILECs.

43. CCTA generally opposed a tariffing approach, stating that the procedures developed in the CAIP/CCTA Technical Working Group should be used as the standard operations procedures for third party access agreements. In CCTA’s view, the issues in PN 97-40 and this proceeding are not interdependent; for example, higher speed access will not be like a traditional telephony service and it is possible that limits on cable carrier liability could have a significant impact on the risks and costs of providing third party access or the time required to implement the service.

44. The Commission generally considers that it is important to take a symmetrical approach with respect to regulating carriers which have market power, unless there are compelling reasons to do otherwise. The Commission notes that, in Decision 98-9, it found that incumbent telephone carriers and incumbent cable carriers have substantial market power in higher speed access services.

45. This would mean that, unless the appropriateness of doing otherwise is demonstrated, the general approach to terms which are tariffed for ILECs and cable carriers should be the same. It is also the Commission’s view that the terms themselves would be the same, unless the appropriateness of doing otherwise is demonstrated. The Commission is of the further view that it is appropriate to tariff certain of the terms on which carriers with market power provide services to their competitors. On the release of its determinations in PN 97-40, the Commission intends to seek comment as to why the approach in that decision should not apply to cable carriers in respect of the provision of higher speed access service.

VI RESALE OF HIGHER SPEED ACCESS SERVICES

46. CAIP wanted mandatory resale of all underlying facilities, network components and services used by cable carriers to provide their own retail IS.

47. CCTA opposed mandatory resale of access services, and submitted that such mandatory resale is not required for competition in the market for high speed access to continue to develop. CCTA submitted that resale may not be workable with the currently proposed approach to implementing access. CCTA considered that the record shows that parties are confused about what resale means in this context. In its view, ISPs want mandatory resale because they want to be able to bill the end-user directly for access. Fundy submitted that resale should not be mandatory, but supported resale if there is enough bandwidth and existing service quality is not compromised.

48. Stentor stated that "resale" may not be the most appropriate description of the use ISPs wish to make of higher speed access services. Stentor stated that what ISPs want is the right to use a broadcast carrier’s tariffed higher speed access service as a component in a bundled, end to end IS, whether or not this arrangement is called "resale". Stentor noted that this right appears to be inherent in the determination that broadcast carriers will provide higher speed access services on a tariffed basis.

49. In Decision 98-9, the Commission stated that:

"Certain parties requested that the Commission require resale of access. With respect to CAIP’s request that its members be permitted to resell a cable carrier’s access service so as to retain a complete relationship with their ISP customers, the Commission considers that there may be benefits from such an arrangement.

The issue of whether the Commission should mandate resale and sharing of carriers’ higher speed access services will be addressed in Telecom PN 98-14."

50. In the Commission’s view, resale of higher speed access services will contribute to a continued competitive market for retail IS. The Commission further notes that restrictions on the resale of access services would not be consistent with the requirement imposed on other Canadian carriers that their tariffed services be generally available for resale. The Commission therefore considers that, consistent with its general approach of allowing resale of tariffed services, a condition of the provision of tariffed third party access is that it be available for resale.

51. With respect to CCTA’s point that dial-up access (primary exchange) is billed separately from Internet Service, the Commission notes that, with respect to other access methods (e.g. ADSL), ISPs have the option of including the access charge in their bills to customers. CCTA considered "resale" to mean that without resale the end customer will pay the cable carrier; where there is resale, the ISP will be billed for the access. The Commission considers that ISPs should be able to provide an end-to-end IS service to their customers. This could be effected by, for example, the end-user appointing the ISP as its agent for the purpose of dealing with the cable carrier.

VII FURTHER PROCESS

Further Process with Respect to Rates for Higher Speed Access Services

52. The Commission directs Rogers, Vidéotron, Shaw and Cogeco to file proposed tariffs setting out rates for higher speed access service and for the use of cable facilities required to provide that service, within 60 days of the date of this Decision.

53. Carriers filing proposed tariffs are directed to provide:

1. proposed rates for higher speed access service and for the use of cable facilities; proposed rates should include the recovery of start-up costs (point of interconnection) based on the principles set out in the Commission’s preliminary view respecting start up costs in this Decision, and
2. a supporting cost study developed using to the extent possible the incremental Phase II costing approach as set out in Decision 79-16.

The costing study should indicate clearly, for each of the network and point of interconnection, which components are included in the costing. Specific justification must also be provided in respect of any component that could be considered to be part of an infrastructure upgrade the cost of which is being recovered, in whole or in part, through the framework put in place by the Commission under the Broadcasting Act.

54. As noted above, it is the Commission’s preliminary view that each of Moffat, Fundy and Bragg would also be a "larger MSO". Accordingly, at its option, each of these companies may either (a) file, within 60 days of the date of this Decision, proposed tariffs as set out in the preceding paragraph or provide justification as to why it wishes to use an alternate approach to the development of rates, serving copies on all other parties, or (b) await the Commission’s final determination of the definition of a "larger" MSO.

55. Each of Rogers, Vidéotron, Shaw, Cogeco, Moffat, Fundy and Bragg may also submit proposed rates reflecting any alternate proposed method for the recovery of start-up costs. Carriers using an alternate approach, such as proxy costs, are requested to describe fully the methodology of the approach used and to explain why that approach has been selected.

56. All interested parties may file comments on the Commission’s preliminary view regarding the recovery of start-up costs within 60 days of the date of this Decision, and may file reply comments with the Commission, in each case serving copies on all other parties, within a further 15 days.

57. On receipt of these filings, the Commission will consider whether to approve, on an interim basis, rates for higher speed access service and for the use of cable facilities.

58. After review of the proposed rates and cost estimates filed, the Commission intends to initiate a proceeding to consider issues relating to rate development for higher speed access services offered by incumbent cable carriers and to approve rates for this service on a final basis.

Further Process - Other Matters

59. As set out above, with respect to the issue of defining the cut-off point between "larger" and "smaller" cable carriers, the Commission is of the preliminary view that the approach set out in respect of rating higher speed access services is also appropriate in this context: that is, the seven largest cable MSOs, defined with reference to the number of cable subscribers, will be considered to be "larger" MSOs.

60. Parties may file comments on this view within 60 days of the date of this Decision, and may file reply comments with the Commission within a further 15 days, in each case serving copies on all other parties at the same time.

61. Moffat, Shaw, Bragg and persons registered pursuant to the process set out in PN 98-14, are made parties to this proceeding.

62. Other persons wishing to participate in this proceeding must notify the Commission of their intention to do so by writing to the Secretary General, CRTC, Ottawa, Ontario, K1A 0N2, fax: (819) 953-0795, by 5 August 1999. Parties are to indicate in the notice their Internet email address, where available. If parties do not have access to the Internet, they are to indicate in their notice whether they wish to receive disk versions of hard copy filings. The Commission will issue, as soon as possible after the registration date, a complete list of parties and their mailing addresses (including Internet email addresses, if available), identifying those parties who wish to receive disk versions.

63. Where a document is to be filed or served by a specific date, the document must be actually received, not merely sent, by that date.

64. In addition to hard copy filings, parties are encouraged to file with the Commission electronic versions of their submissions in accordance with the Commission’s Interim Telecom Guidelines for the Handling of Machine-Readable Files, dated 30 November 1995. The Commission’s Internet email address for electronically filed documents is procedure.telecom@crtc.gc.ca. Electronically filed documents can be accessed at the Commission’s Internet site at 

www.crtc.gc.ca.

Secretary General

This document is available in alternative format upon request.

Date modified:

1999-07-06