ARCHIVED -  Telecom Order CRTC 99-253

Telecom Order

Ottawa, 19 March 1999

Telecom Order CRTC 99-253

On 26 November 1997, Northern Telephone Limited (Northern) filed an application pursuant to Part VII of the CRTC Telecommunications Rules of Procedure, requesting forbearance pursuant to section 34 of the Telecommunications Act (Act), in respect of Northern's future switched and private line interexchange (IX) data services, namely its future X.25, packet data, frame relay, private line and ATM (asynchronous transfer mode) services, referred to by Northern as "IX data services".

File No.: 8640-N3-01/97

1.In particular, Northern requested that it be granted the same regulatory treatment for its future IX data services as is accorded to non-dominant Canadian carriers pursuant to Forbearance - Services Provided by Non-Dominant Canadian Carriers, Telecom Decision CRTC 95-19, 8 September 1995 (Decision 95-19).

2.Northern is the incumbent local exchange carrier (ILEC) which provides local telephone and access services in northeastern Ontario. Northern stated that it is currently not in the IX data market, and that the telecommunications division of the Ontario Northland Transportation Commission (O.N. Tel) is the only supplier in northeastern Ontario of IX data (and IX voice) services. According to Northern, O.N. Tel holds a 100% market share in each of the market segments in which Northern is seeking non-dominance, with the exception of ATM-based services.

3.Northern noted that for many of the services for which it is requesting forbearance, the Commission forbore from regulating the provision of these services by O.N. Tel, even though O.N. Tel had a monopoly in these services. In Telecom Order CRTC 97-688, 26 May 1997 (Order 97-688), the Commission granted forbearance to O.N. Tel's Datapac (an X.25 packet data service), Hyperstream (a frame relay service) and Pospac services, as well as O.N. Tel's future X.25 and frame relay services. Similarly, the Commission forbore from the regulation of the Stentor Resource Centre Inc. (Stentor) members companies' frame relay and packet data services in Telecom Order CRTC 96-130, 19 February 1996 (Order 96-130) and from Northwestel Inc.'s (Northwestel) frame relay and packet data services in Telecom Order CRTC 97-572, 29 April 1997 (Order 97-572).

4.Northern noted that in addition to the O.N. Tel services forborne in Order 97-688, it is seeking non-dominant status for IX private line and ATM-based services. Northern submitted it will be a new entrant in the IX private line market and that O.N. Tel holds 100% of that market. In the case of ATM services, Northern stated that both it and O.N. Tel will be new entrants in that market.

5.Northern submitted that if forbearance were not granted, it would be in the unusual position of being regulated more heavily in the provision of these services than the incumbent monopolist, O.N. Tel.

6.Northern proposed a number of regulatory safeguards to address regulatory issues emanating from the fact that it is a local exchange carrier (LEC), including:

(1) All the costs and revenues associated with Northern's future IX data services will be kept separate, and will not be included in Northern's regulated rate base. Northern submitted that this approach is consistent with the regulatory treatment accorded to the forborne terminal equipment businesses of the independent telephone companies in Regulatory Framework for the Independent Telephone Companies in Quebec and Ontario (Except Ontario Northland Transportation Commission, Québec-Téléphone and Télébec ltée), Telecom Decision CRTC 96-6, 7 August 1996 (Decision 96-6);

(2) Northern will acquire all local access services that will be used in the provision of its IX data services at tariffed rates;

(3) Northern will make available to competitors any and all tariffed access services that are used by Northern in the provision of its own IX data services; and

(4) Northern will abide by the terms and conditions imposed by the Commission on non-dominant carriers in Decision 95-19 regarding access to its network and the resale and sharing of its IX data facilities or services in order that such entities are able to provide their own services to end-user customers.

7.On 19 December 1997, Northern filed an amendment to its application requesting that the Commission order the deletion of clause 12 of the traffic agreement, dated 1 May 1995, governing the exchange of traffic between Northern and O.N. Tel. The clause reads: "Neither party shall enter into competition with the other, except as may be agreed upon in writing".

8.In comments filed on 3 December 1997, O.N. Tel argued that issues associated with the introduction of interexchange competition (including IX data) in the territory served by O.N. Tel properly fall within the scope of the proceeding initiated by Regulatory Framework - Ontario Northland Transportation Commission, Telecom Public Notice CRTC 97-7, 19 February 1997 (PN 97-7), and that Northern's application should be considered as part of that proceeding.

9.In reply comments, dated 8 January 1998, Northern argued that IX data services were outside the scope of PN 97-7. First, Northern noted that in PN 97-7 the Commission explicitly stated that it would consider whether the regulatory framework established for Québec-Téléphone in Regulatory Framework for Québec-Téléphone and Télébec ltée, Telecom Decision CRTC 96-5, 7 August 1996 (Decision 96-5) should be applied to O.N. Tel. Northern submitted that Decision 96-5 dealt primarily with IX voice services. Second, the Commission had previously established the regulatory regime for IX data services in O.N. Tel's territory, when in Order 97-688 it granted O.N. Tel forbearance for many of the services for which Northern is requesting non-dominant status.

10.In a letter dated 21 July 1998, Commission staff stated that before responding to Northern's application, parties may find it useful to have the benefit of the Commission's decision relating to the PN 97-7 proceeding. Accordingly, parties were invited to file comments regarding Northern's application within 30 days of the release of the Decision on the PN 97-7 proceeding. That Decision, Regulatory Framework - Ontario Northland Transportation Commission, Telecom Decision CRTC 98-14 (Decision 98-14), was released by the Commission on 1 September 1998.

11.Pursuant to the process established by the Commission staff letter, O.N. Tel filed comments on Northern's application on 1 October 1998. No other party commented on the application. O.N. Tel requested that the Commission deny Northern's application for the following reasons.

12.O.N. Tel submitted that Northern's application should be denied because it does not contain detailed competitive analysis of the relevant market that is required by the Commission to determine whether there is, or will be, sufficient competition to warrant forbearance pursuant to section 34 of the Act. O.N. Tel noted that in Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994 (Decision 94-19), the Commission established the necessary criteria for assessing the competitiveness of markets, and that in Regulatory Regime for the Provision of International Telecommunications Services, Telecom Decision CRTC 98-17, 1 October 1998 (Decision 98-17), the Commission reiterated the importance of conducting detailed market analysis when considering forbearance, and denied Teleglobe Canada Inc.'s request for forbearance on the basis that sufficient evidence was not provided to perform the analysis contained in Decision 94-19.

13.O.N. Tel argued that Northern's application was procedurally incorrect and premature because the policy considerations regarding the financial impact of IX data competition on serving high cost areas and O.N. Tel's ability to provide toll services in uneconomic areas has not been examined. O.N. Tel submitted that in order to conduct a separate examination of the implications of the introduction of IX data competition upon O.N. Tel's ability to provide toll services in uneconomic areas, the entire record of PN 97-7 would need to be reopened. O.N. Tel also noted that pursuant to Decision 98-14, the final terms applicable to competitive IX markets will not be established until after the Commission's decision relating to the proceeding initiated by Service to High Cost Serving Areas, Telecom Public Notice CRTC 97-42, 18 December 1997 has been rendered.

14.O.N. Tel also submitted that Northern's application should be denied because it does not recognize the unique circumstances of the non-vertically integrated operating environment Northern shares with O.N. Tel.

15.O.N. Tel also argued that forbearance is not warranted in light of the Commission's findings in Decision 95-19 because Northern is not in the same circumstances as the new entrants contemplated in that Decision. In this regard, O.N. Tel submitted that Decision 95-19: (1) considered forbearance in the context of equal access competition already taking place; (2) excluded from consideration carriers that provide basic local exchange services; and (3) considered the section 34 provisions in the context of non-incumbent carriers entering the market, and not upon two non-vertically integrated carriers sharing a territory.

16.O.N. Tel argued that Northern's request to remove the "non-compete" provision from the traffic agreement between Northern and O.N. Tel should not be considered until after all the terms and conditions for IX competition have been established. In this regard, O.N. Tel noted that according to Decision 98-14, a competitive regime will not be implemented in its territory before 1 July 2000.

17.In reply comments dated 13 October 1998, Northern submitted that its application was filed in proper form and that it was perfectly reasonable for it to conclude that IX data services were outside the scope of the PN 97-7 proceeding. In this regard, Northern noted that:

(1) The Commission itself concluded that IX voice (and not IX data) competition was the principal concern of the PN 97-7 proceeding when it expressed the preliminary view that the regulatory framework established for Québec-Téléphone and Télébec ltée (Télébec) in Decision 96-5 should also apply to O.N. Tel as of 1 January 1998. Northern noted that there is no mention in Decision 96-5 of rules or conditions of entry in the IX data markets of Québec-Téléphone and Télébec; presumably because IX data competition had already commenced in the operating territories of these companies, as well as in the territories of other independent telephone companies.

(2) There was nothing in the evidence or submissions by O.N. Tel in the PN 97-7 proceeding to suggest that the issue of IX data competition was directly under consideration. According to Northern, the onus was on O.N. Tel to demonstrate why the regulatory regime applicable to Québec-Téléphone should not apply to O.N. Tel.

(3) The Commission forbore from a number of O.N. Tel's IX data services in Order 97-688, which was issued during the PN 97-7 proceeding. Thus, the regulatory regime for these services was already known prior to the date upon which proposals were filed in the PN 97-7 proceeding.

18.Northern stated that O.N. Tel's assertion that it made no attempt to address the analytical framework applicable to forbearance is simply untrue. Northern noted that in its November 1997 application, it applied the Commission's competitiveness criteria contained in Decision 94-19, and stated a number of reasons why it will not be dominant in the market for IX data services, including:

(1) Northern is not in the IX data and IX private line markets in northeastern Ontario;

(2) O.N. Tel has 100% of those markets; and

(3) the Commission forbore from regulating O.N. Tel's IX data services.

19.Northern submitted that the Decision 94-19 competitive framework does not require that every characteristic of the market be addressed because that framework was developed to assess the degree of market power of dominant (often incumbent monopoly) firms. Northern argued that it is simply a new entrant into markets in which O.N. Tel enjoys a monopoly position, and the issue of assessing Northern's dominance in these markets simply does not arise.

20.Northern submitted that in light of the above, the only remaining regulatory question is whether it is appropriate to prevent other firms from entering markets in which the incumbent firm (O.N. Tel) has a monopoly position and has been forborne from regulation since May 1997.

21.Northern argued that O.N. Tel is misguided in its assertion that forbearance is not warranted because Northern is a LEC and that it failed to address the unique features of the northeastern Ontario market. Northern noted that its circumstances are simply not analogous to that of ILECs such as the Stentor member companies, because as a new entrant into the IX frame relay and packet market in northeastern Ontario, it would be in a similar position as the new entrants that received regulatory forbearance pursuant to Decision 95-19.

22.Regarding its status as an ILEC, Northern reiterated its position that it will abide by the regulatory conditions contained in Decision 96-6 with respect to cost allocations and service access issues. Northern will not include the revenues and costs associated with these services in its regulated rate base. It will also make available to competitors any and all tariffed access services that are used by Northern in the provision of its own IX data services.

23.Finally, Northern reiterated its position that it will abide by all the terms and conditions imposed by the Commission on non-dominant carriers in Decision 95-19, such as the conditions regarding access to its network and the resale and sharing of its services.

CONCLUSIONS

24.The Commission notes that Northern applied for forbearance from regulation for five classes of its future services (X.25, packet data, frame relay, switched private line and ATM), and that the Commission has already forborne from the provision by O.N. Tel of three of these classes of services (X.25, packet data, frame relay).

25.Dealing, first, with the services where the Commission has already forborne from regulation for O.N. Tel, the Commission considers that Northern's application sufficiently addressed the competitiveness framework developed in Decision 94-19 by showing that as a new entrant, it would not be dominant in the provision of these services in northeastern Ontario. The Commission also notes that O.N. Tel did not argue that Northern would possess any market power in the provision of these services, or that its entry into these markets would not be in the interests of users of interexchange X.25, packet data and frame relay services.

26.Second, regarding O.N. Tel's arguments that Northern's application should be denied on procedural grounds, because a framework to allow for competition in IX data services has not yet been established in O.N. Tel's territory, the Commission notes that the principal focus of Decision 98-14 was on establishing a regulatory framework for IX voice competition. It did not prohibit competition in the IX data services market. The Commission considers that, by granting forbearance from regulation for the provision of the Datapac, Hyperstream, Pospac, future X.25, frame relay and packet data services by O.N. Tel, the Commission had already established a regime of forbearance for some of the IX data services for which Northern is seeking forbearance. As noted in Order 97-688, the rates of these six types of services applicable in O.N. Tel's territory are based on competitive markets that prevail elsewhere. The interests of users will be even more protected by allowing a new entrant, Northern, to compete in such services.

27.Third, the Commission does not consider O.N. Tel's argument that the application should be denied because Northern is in different circumstances than the new entrants contemplated in Decision 95-19 to be particularly relevant. The Commission notes that while Northern is an ILEC, it would be a new entrant into the interexchange X.25, packet data and frame relay markets. The Commission also notes that Northern's application is being considered under subsection 34(2) of the Act, where the test is whether there is or will be sufficient competition to protect the interest of users, and not whether the applicant is an ILEC or has market power in other markets. Further, the Commission notes that, as an ILEC, Northern is subject to numerous regulatory safeguards with respect to cost allocations, access to its network and underlying facilities, and the resale and sharing of its services.

28.The Commission is of the view that as a new entrant, Northern would not be dominant in the interexchange X.25, packet data and frame relay markets in northeastern Ontario, and that its entry into these markets would be pro-competitive. Thus, the Commission considers that it would be appropriate to forebear from the regulation of the provision of Northern's future X.25, packet data and frame relay services, pursuant to subsection 34(2) of the Act. The Commission also notes that it forbore from the provision of these services by O.N. Tel, as well as from Northwestel Inc. (Northwestel) and the Stentor member companies. In the context of having already granted forbearance for these services to O.N. Tel, the Commission considers that it would not be premature to grant similar forbearance to Northern. The Commission also considers that it would be appropriate to forbear on the same terms and conditions that were granted O.N. Tel, Northwestel and the Stentor member companies in the provision of their frame relay and packet data services.

29.The Commission notes that it has not forborne from the provision of private line services by O.N. Tel and that in the case of ATM-based services, it has not granted forbearance to any incumbent carrier. In Telecom Order CRTC 98-753, 30 July 1998, the Commission approved tariffs for O.N. Tel for the provision of high-speed ATM-based digital service.

30.The Commission is of the view that, in the case of IX private line and ATM-based services, Northern should file additional information on the nature of the services in question, the extent to which the unique relationship between O.N. Tel and Northern affects the provision of these services, and the extent to which there is or will be sufficient competition to protect the interests of users (e.g., degree of substitutability with other data services, barriers to entry). The Commission also considers that other parties should have the opportunity to comment on the information to be provided by Northern, and that Northern should have the opportunity to reply to such comments.

31.The Commission notes that Northern is requesting forbearance, to the same extent as non-dominant carriers in Decision 95-19, on the basis that it is a new entrant into the IX data market. However, the Commission is of the view that it is relevant to consider upon what terms forbearance has already been granted to competitors for X.25, packet data and frame relay services.

32.The Commission notes that with respect to the provision of frame relay and packet data services by the dominant carriers, O.N. Tel, Northwestel and the Stentor member companies, the Commission forbore (in Orders 96-130, 97-688 and 97-572, respectively) from exercising its powers under sections 24 (in part), 25, 29, and 31, as well as subsections 27(1), 27(5) and 27(6) of the Act.

33.In Order 97-688, for O.N. Tel, the Commission partially forbore from section 24, retaining it only for existing conditions governing treatment of customer confidential information and by-pass restrictions (and required these conditions to be incorporated into contracts and other arrangements with customers on a going-forward basis) and for the ability to impose conditions in the future. Since that time, in Decision 98-17, the Commission eliminated the rules prohibiting the routing of Canada-Canada calls (e.g., Halifax to Vancouver) or Canada-overseas calls through the United States. Consequently, the Commission considers that it is no longer necessary to impose the condition governing by-pass on Northern. In all other respects, the Commission considers that it would be appropriate to forbear from regulating Northern's current and future X.25, packet data and frame relay services on the same basis as it has for the provision of these services by O.N. Tel.

34.The Commission also considers that the traffic agreement between O.N. Tel and Northern should be amended to remove the "non-compete" provision of clause 12 of the agreement. The Commission considers that unless otherwise specified (such as in Decision 98-14 regarding toll competition), O.N. Tel and Northern should be permitted to compete. The Commission notes that both O.N. Tel and Northern have not strictly adhered to this clause, because they already have started to compete in a number of areas (e.g., in the provision of Internet services).

35.The Commission notes that in the orders that granted forbearance with respect to the provision of frame relay and packet data services by O.N. Tel, Northwestel and the Stentor member companies, the Commission required that for future services of this nature, these carriers must file a block diagram showing all types of plant resources to be employed and indicating whether such resources are discrete or shared, together with a description of the general types of applications which may be handled by the service in order to demonstrate that the service meets the conditions of forbearance. The Commission considers it appropriate to impose this requirement on Northern, on a going-forward basis, to be applied to any such future services.

36.The Commission notes that Northern stated that all costs and revenues associated with Northern's future IX data services will be kept separate, consistent with the regulatory treatment accorded to the forborne terminal equipment businesses of the independent telephone companies in Decision 96-6. The Commission notes that the forbearance granted in Decision 96-6 was conditional upon the establishment of a Phase III accounting separation for terminal equipment, in order to address concerns about possible cross-subsidy and predatory pricing. Accordingly, the Commission directs Northern to submit costing procedures to demonstrate that costs associated with the forborne services are separately identified on a Phase III basis. Northern should file an updated copy of its accounting separations for the related revenues, investment and expense. In cases where costs are not recorded in separate accounts, costs such as postage, business office activities, collection activities and customer records are to be allocated through an approved Phase III methodology. The Commission notes that Northern is currently in the process of developing its own Phase III Manual, having adopted an activity-based costing approach. The Commission directs Northern to ensure that the required Phase III procedures for any costs that cannot be derived under existing Ontario Telephone Association costing procedures are included in that submission.

37.With respect to the services for which forbearance is granted in this Order, consistent with the forbearance granted O.N. Tel, Northwestel and the Stentor member companies, the Commission will retain section 24 (in part) only for existing conditions governing treatment of confidential customer information and for the ability to impose conditions in the future. Also, the Commission will continue to exercise powers and perform duties under subsections 27(2), 27(3) and 27(4) of the Act in relation to unjust discrimination and undue preference with regard to issues related to access to the network and the resale and sharing of these forborne services.

38.In light of the foregoing, the Commission orders that:

(a) Upon approval by the Commission of a filing by Northern of costing procedures to demonstrate that the costs associated with the services noted below are separately identified on a Phase III basis, pursuant to subsection 34(4) of the Act, sections 24 (in part), 25, 29, and 31, as well as subsections 27(1), (5) and (6) of the Act will not apply to Northern's current and future X.25, packet data and frame relay services to the extent that they are inconsistent with the Commission's determinations herein.

(b) On a going-forward basis, upon offering any such future services, Northern must file a block diagram with the Commission showing all types of plant resources to be employed and indicating whether such resources are discrete or shared, together with a description of the general types of applications which may be handled by the service in order to demonstrate that the service meets the conditions of forbearance.

(c) Northern and O.N. Tel amend the traffic agreement, dated 1 May 1995, governing the exchange of traffic between Northern and O.N. Tel, by deleting clause 12, which reads: "Neither party shall enter into competition with the other, except as may be agreed upon in writing".

(d) In the case of IX private line and ATM-based services, Northern is directed to file additional information, within 30 days of the date of this Order, on the nature of the services in question, the extent to which the unique relationship between O.N. Tel and Northern affects the provision of these services and on the extent to which there is or will be sufficient competition to protect the interests of users. Interested parties may file comments, within 45 days of the date of this Order, serving copies to Northern, and Northern may file reply comments within a further 10 days, serving copies on all interested parties.

Secretary General

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