ARCHIVED -  Telecom Order CRTC 99-1069

Telecom Order CRTC 99-1069

Ottawa, 17 November 1999

File No.: Tariff Notice 6127

1. In Telecom Order CRTC 98-497 dated 22 May 1998, the Commission gave interim approval to a Bell Canada (Bell) proposal to allow call forward busy (CFB) and Call Forward No Answer (CFNA) to be sent to separate destinations. In that Order, the Commission also directed Bell to provide updated costs for each call forwarding arrangement for sending to the same or different destinations.

2. The Commission also requested additional information from Bell. InfoInterActive Inc. (IIA) and Distributel Communications Limited (Distributel) provided comments.

3. Distributel disagrees with Bell's submission that call forwarding features should be priced to maximize contribution and that the imputation test ensures that such pricing does not impair competition in the relevant markets.

4. According to Distributel, the imputation test does not provide adequate protection to ensure the development and continuation of competitive markets. Distributel argued that Call Forwarding Features are essential services, and these are necessary if a competitor is to provide integrated services such as voice mail, Internet Call Display (ICD), and others. If Bell is permitted to price its features on a contribution maximization basis – instead of a cost plus 25% mark-up basis – then Bell could price its own integrated services such that much, if not all, of the profit from the integrated services is actually derived from the incorporation of the call forwarding features. Bell would satisfy the imputation test, but it would also successfully squeeze the margins of its competitors.

5. Distributel further submitted that margin squeezing by a vertically integrated supplier is a well-known phenomenon, which is expressly identified as an anti-competitive act by section 78 of the Competition Act and contrary to the policy objectives set out in section 7 of the Telecommunications Act.

6. In reply, Bell indicated that simply because a service provider combines elements provided by a local exchange carrier with other service elements does not mean those elements are essential and should be priced as essential. The company stated that in Local competition, Telecom Decision CRTC 97-8, 1 May 1997 (Decision 97-8), the Commission specified those network components that were to be provided by the incumbent local exchange carriers (ILECs) as "essential facilities" and were to be treated in the manner of essential facilities for some period of time. The company also noted that optional features, such as call forwarding arrangements were not identified as essential facilities in Decision 97-8, nor were they required to be treated in the manner of essential facilities. Thus, the company disagreed with Distributel's conclusion that ILEC-provided service elements required for the provisioning of its integrated services should be priced in the manner of essential facilities. The company further noted that its optional line features such as call forwarding do not satisfy the criteria established in Price cap regulation and related issues, Telecom Decision CRTC 97-9, 1 May 1997, for their inclusion in the category of "Competitor Services". Thus, they should not be subject to the pricing constraints applied to those types of services.

7. Bell also stated that there can be no anti-competitive results, such as "margin squeezing", of the company's pricing of its services, if the tariff rates at which those features are available to competitors are imputed in the prices charged for the company's services.

8. IIA submitted that Bell has failed to justify a) the charging of a 100% price differential when the CFB and the CFNA calls are directed to two separate numbers rather than only one number, and b) that business customers should be charged twice the rate of residential customers. According to IIA, the only cost differences that Bell has identified are what Bell referred to as a "minor difference" in the total Sales Management costs associated with single destination versus different destination. While IIA could understand if the price differential was related to technical or provisioning differences between the two call forwarding conditions, it is clear from Bell's responses that there are no technical or provisioning differences between the two call forwarding conditions. IIA submitted that even if there were incremental costs, they appear to be one-time only in nature, hardly justifying an on-going additional charge of $1.50 per month for residence and an additional $3.05 per month for business service.

9. Bell replied that it has fully complied with its regulatory requirements to provide costing details for the call forwarding features. Bell submitted that it has demonstrated that there are incremental causal costs, which include one-time costs associated with system modifications and changes to operations. There are also cost differences between business and residence, of which Sales Management results in the largest difference.

10. Bell also indicated that the mark-up levels provided for both business and residence for these call forwarding arrangements are consistent with other market-based prices for services not meeting the "essential or competitor" criteria.

11. The Commission notes that Bell's position is contrary to its determination in Telecom Order CRTC 98-784, 12 August 1998 (Order 98-784), which denied MTS Communications Inc.'s (MTS) initial application to introduce Internet Call Display service because MTS did not price Call Forward Busy as an essential service. In that Order, the Commission stated:

"The Commission notes that Decision 97-8 defined essential services in the context of local service competition. In the Commission's view, the question of whether a service element is in the nature of an essential service in the context of another market should be examined on a case by case basis. The Commission notes that Decision 97-8 listed three services that it defined as essential for competitive entry into the local exchange market. The Commission further notes that in Decision 97-8, it described as essential services, among other things, those which the competitor cannot economically or technically reproduce. In addition, the Commission notes that in many past rulings it has determined that call forwarding is a service which competitors must rely upon to offer their own services. Accordingly, the Commission has required the telephone companies to cost call forwarding at tariff rates. In light of all this, the Commission considers that CFB is in the nature of an essential service in the provision of ICD, and therefore the CFB tariff rate should be used in the costing of ICD…"

12. Consistent with Order 98-784, the Commission considers that final rates for the call forwarding arrangements which are the subject of Tariff Notice 6127 should be based on costs plus a 25% mark-up.

13. With respect to IIA's concerns regarding the 100% price differential when the CFB and CFNA calls are directed to separate numbers rather than to one number, the Commission finds that the concerns identified by IIA would be dealt with adequately if charges were based on the individual costs of the features plus 25% mark-up.

14. To establish such rates requires that estimates be developed for the respective costs of the CFB and CFNA.

15. In view of the foregoing, it is hereby ordered that:

Bell is to file proposed rates, within 30 days of this Order, for separate destination call forwarding features, specifically for Call Forward Busy, and Call Forward No Answer, that incorporate a 25% mark-up over costs.

Secretary General

This document is available in alternative format upon request and may also be viewed at the following Internet site: www.crtc.gc.ca