ARCHIVED -  Telecom Order CRTC 99-756

Telecom Order

Ottawa, 3 August 1999

Telecom Order CRTC 99-756

Applications by Québec-Téléphone and Bell Canada with respect to settlement and interconnection issues between the two companies.

File Nos.: 8682-B2-01/98 and 8340-B2-0087/01

1.On 13 July 1998, Québec-Téléphone filed an application pursuant to Part VII of the CRTC Telecommunications Rules of Procedure requesting that the Commission extend the terms and conditions of the existing settlement agreement between Québec-Téléphone and Bell Canada (Bell) on a final basis until the end of 1998.

2.On 10 September 1998, Bell filed an application pursuant to part VII of the CRTC Telecommunications Rules of Procedure requesting that the Commission suspend the existing settlement agreement, effective 1 January 1998, and order the parties to settle traffic on the basis of their respective Carrier Access Tariffs (CATs) retroactively to 1 January 1998.

3.In February of 1997, Bell, with a view to renegotiating their settlement agreements, informed all of the toll carrying Independent Telephone Companies (Québec-Téléphone, Télébec ltée, O.N. Tel and Northwestel Inc.) of its intention to terminate the existing interconnection agreements.

4.On 12 September 1997, while parties were in the midst of negotiations, the Commission initiated a proceeding entitled Re: 1998 Interim Contribution Regime for Québec-Téléphone and Télébec ltée. In that proceeding, the Commission examined whether it should require Bell to continue to settle revenues under the terms of its existing agreements, which Bell had purported to terminate, effective 31 May 1997, until the end of 1998.

5.On 18 December 1997, the Commission determined that the need to maintain the current settlement agreements throughout 1998 was not justified and that, in the interest of competitive equity, a new settlement agreement should be put in place as soon as possible. The Commission however made both agreements final for the entire year 1997 and rendered the arrangement interim effective 1 January 1998 pending completion of the negotiations.

6.The Commission by letter dated 20 November 1998 (20 November Letter) initiated a process dealing with both applications concurrently.

7.In its 20 November Letter the Commission expressed the view that Québec-Téléphone's application to render the current arrangement final until the end of 1998 was inappropriate.

8.The Commission also expressed the preliminary view that Bell's application requesting that each company settle on the basis of CAT alone, effective 1 January 1998, was inappropriate.

9.The 20 November Letter invited both companies to develop an alternate settlement proposal for the years 1998 and 1999 (the interim period). The Commission expressed the preliminary view that the alternate proposals should provide for the gradual reduction of subsidies that exceeded each company's Carrier Access Tariff rates.

10.In response to the request for alternate proposals, Québec-Téléphone proposed that the existing settlement agreement be continued for the interim period.

11.Québec-Téléphone argued that the current agreement is an appropriate interim regime since the subsidy mechanism embodied in the agreement takes declining toll prices and incumbent market shares into consideration. Québec-Téléphone noted that the net payments made by Bell have reduced significantly over the last few years.

12.The alternate proposal developed by Bell would replace the current agreement and would be based on CAT rates. Bell however suggested that a transport subsidy be maintained for 1998 and then be reduced by 50% for 1999. The transport subsidy would compensate a company for the cost of carrying traffic to and from the point of interconnection.

13.The Commission's 20 November Letter requested both companies to propose alternate settlement arrangements. Bell in its response, changed its proposal somewhat. Québec-Téléphone did not change its position. The Commission expected greater flexibility in response to its request for alternate proposals.

14.The Commission is of the view that the existing settlement agreement between the two companies, both in its form and purpose, no longer reflects the realities of the competitive telecommunications environment common to both companies' operating territories.

15.The Commission notes that other interexchange carriers settle with Québec-Téléphone on the basis of the CAT. Interexchange carriers accordingly pay contribution, switching and aggregation and equal access start-up charges. Through contribution, interexchange carriers subsidize Québec-Téléphone's Local/Access shortfall but nothing more. The Commission notes that, through the existing agreement, Bell is paying additional subsidies, which no other competing interexchange carrier is required to pay.

16.The Commission continues to be of the view that it is inappropriate to maintain the current settlement agreements throughout 1998 (and 1999) and, in the interest of competitive equity, a new settlement agreement should be put in place as soon as possible.

17.In light of the above the Commission denies Québec-Téléphone's request to grant final approval to the terms of the existing agreement for all of 1998 and 1999.

18.The Commission also continues to be of the view that any new settlement agreement should provide for the phase down of the subsidies inherent to the existing agreement.

19.The Commission, therefore, does not consider it appropriate that the settlement for the years 1998 and 1999 be solely based on the companies' respective CATs, as Bell initially proposed in its 10 September 1998 application.

20.The Commission notes that Bell's alternate proposal moves away from the form of agreement currently in place and includes a phase down of subsidies.

21.The Commission further notes that Bell and Télébec ltée (Télébec), two affiliates, have agreed upon a new but different CAT-based settlement agreement, which also phases down the current subsidy over a period of two years.

22.The Commission observes that the agreement provides for Bell to make a temporary transitional payment which would compensate for the removal of subsidy inherent in the existing settlement agreement. The transitional payment will amount to 66 2/3% of the 1998 financial impact and 40% of the 1999 financial impact.

23.The Commission is of the view that the Télébec model provides for a more gradual phase down of the subsidy inherent to the existing agreement. The Commission considers this model provides for an appropriate transitional arrangement for 1998 and 1999.

24.The Commission is accordingly of the view that for the period 1998 and 1999 set out by the Commission's 20 November Letter, Bell and Québec-Téléphone should settle on the basis established by the Bell/Télébec interconnection agreement approved in Telecom Order CRTC 99-686 dated 22 July 1999 (Order 99-686).

25.In light of the above, the Commission directs Bell and Québec-Téléphone to settle for the period 1998 and 1999, forthwith and on a final basis, according to the same terms approved by the Commission for Bell and Télébec in Order 99-686.

26.The Companies are also directed to file an interconnection agreement reflecting the above settlement method within 60 days of this Order.

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.

Minority Opinion of Commissioner Stuart Langford

I disagree with the decision of the majority in this matter, a decision that imposes "the Télébec model" on the parties to these applications. Such a solution is admittedly attractive. At first blush it appears to be founded upon one of the fundamental maxims of Equity: "Equity delighteth in equality." A closer examination of the facts underlying these applications, however, demonstrates that this first impression is deceiving. Though in no way flawed in and of itself, the Télébec model in this instance is an inappropriate solution. It fails to reflect fully the competitive realities of Québec-Téléphone's marketplace and it takes insufficient account of the conduct of the parties during the failed negotiations that made these applications necessary in the first place.

At the heart of these applications are anachronistic interconnection agreements that for more than 20 years have put Bell Canada (Bell) in the unenviable position of subsidizing Québec-Téléphone (QT). In February, 1997, Bell notified QT and other carriers in a similar situation that it intended to terminate the existing interconnection agreements between them and to negotiate new ones based on a per minute settlement or carrier access tariff (CAT) mechanism. The old agreements (dating back to 1977 in QT's case) were premised on a sharing of toll revenues based on each type of toll service and mileage. Bell's stated agenda at the time it notified QT of its intention to negotiate a new agreement, was to change to a CAT mechanism effective May 31, 1997.

Negotiations were not productive. The May 31st deadline came and went. On September 12, 1997, the Commission initiated proceedings to examine the situation with an eye to facilitating the negotiation process. This examination concluded in a December 18, 1997 declaration by the Commission that some middle ground had to be found between Bell and QT's preferred positions on interconnection. Bell sought a conversion to CAT, the new industry standard in the modern competitive market, but QT adamantly maintained that the 1977 agreement should continue.

The Commission's view that neither position was equitable is amply summed up in this quotation from its directive of December 18, 1997: "In the Commission's view, in the interests of competitive equity, the new settlement agreements should be put in place as soon as possible. The Commission hereby directs the parties to negotiate new settlement agreements."

Despite the Commission's clear directive to negotiate a new agreement, the parties to these applications were unable to do so.

In initiating a process to deal with the applications at issue in this matter, the Commission by letter dated November 20, 1998 once again invited both Bell and QT to re-examine their positions and to file alternate settlement proposals for the years 1998 and 1999. What the Commission asked the parties to do was to suggest proposals designed to reduce the existing subsidy situation and thereby ease QT's transition from the subsidized status quo to a CAT mechanism.

QT's response was to ignore the Commission's invitation and restate its position that the status quo established in the non-competitive atmosphere of 1977 be maintained. Bell's response was to note that other competitors were required to negotiate interconnection agreements on a commercial basis and that to do otherwise was to burden Bell's shareholders with the inequitable duty of guaranteeing the financial performance and rate of return of a competitor. Bell again proposed that the 1977 agreement be replaced with one based on a CAT mechanism but, in acknowledgment of the Commission's call for a transitional proposal, agreed to continue the transport subsidy element of the old 1977 agreement. According to Bell, this compromise would put an added $4.2 million into QT's coffers in 1998 and $1.8 million in 1999.

QT, apparently, found Bell's alternate proposal insufficiently generous. According to Bell's submissions, QT also rejected the very Telebec model that the majority decision now seeks to impose on it and Bell. From the outset QT has doggedly clung to one position, deaf to all exhortations from Bell and the Commission and willfully indifferent to the realities of the new competitive market place. Despite the considerable amount of paper generated by the "negotiations" this process seeks to conclude, it is apparent that QT has not, in fact, negotiated at all. It has dug in its heels and refused to budge from a position that is no longer tenable. Those who adopt such an obstructive approach to negotiations - a "my way or no way" attitude - must be prepared to live with the consequences.

The Commission's majority decision in this matter rewards QT's recalcitrance by foisting upon Bell the burden of a highly generous level of subsidies for the years 1998-99. In my view, this sends the wrong message to regulated industries. It risks inviting negotiations in bad faith and abuse of process. What it says is: "If you play by the rules, as Bell albeit reluctantly has done, you are penalized. If you obdurately refuse to follow the referee's directives, you are rewarded." This is precisely the attitude towards its role and processes that the Commission should not be encouraging.

I dissent from the decision of the majority. Were it up to me, I would finalize this matter by directing Bell and QT to settle forthwith and on a final basis according to the terms of what might be called "Bell's alternate proposal" - CAT plus transport subsidies for 1998 and CAT plus 50% of transport subsidies for 1999. To do otherwise is to render irrelevant the Commission's clear directives and its efforts as a facilitator throughout this process.