ARCHIVED -  Telecom Order CRTC 99-1135

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Telecom Order CRTC 99-1135


Ottawa, 9 December 1999


Tariff filing guidelines for customer-specific applications


File No.: 8622-S1-04/98




In this order, the Commission denies Stentor's proposed options related to filings for the approval of tariffs for customer-specific applications (CSAs). The Commission considers that 1) the lack of binding terms and conditions in the tariff would render the imputation test meaningless; 2) there is a significant potential for undue preference and unjust discrimination; and 3) the proposal could restrict the requirement that the service be available for resale.


1. On 10 September 1998, an application was received from Stentor Resource Centre Inc. (Stentor), on behalf of BC TEL, Bell Canada, Island Telecom Inc., Maritime Tel & Tel Limited, MTS Communications Inc., NBTel Inc., NewTel Communications Inc. and TELUS Communications Inc. (the companies). The application requested that the Commission issue a statement or guidelines, pursuant to section 58 of the Telecommunications Act (the Act), as to the acceptability of certain options related to filings for the approval of tariffs for customer-specific applications (CSAs).


2. Comments dated 15 January 1999 were received from AT&T Canada Long Distance Services Company [now AT&T Canada Corp.] (AT&T Canada), MetroNet Communications Group Inc. (MetroNet), and Vidéotron Télécom ltée (collectively, the interveners). Stentor filed reply comments on 29 January 1999.


3. Stentor submitted that since Review of regulatory framework, Telecom Decision CRTC 94-19, dated 16 September 1994 (Decision 94-19), there has been an increase in contract pricing. Stentor noted that the companies have responded to large customer tenders by filing CSA tariffs that do not restrict the general availability of the service but make prices dependent upon various explicit future conditions (such as traffic volumes and service locations), based upon the specific characteristics of the bid. Stentor stated that this ensures that a customer in dissimilar circumstances is not in a position to demand the same terms.


4. Stentor submitted that this process has proven to be unworkable in certain procurement situations, typically for very large customers requiring, as a condition of tender, that any bids submitted contain firm prices or be unconditional in nature in order to qualify for acceptance. Stentor submitted that this could effectively disqualify the companies from procurement processes that require unconditional or firm prices for non-forborne services. As an example, Stentor stated that the the largest customer with the largest telecommunications requirements in the country, rendered the companies' winning bids non-compliant within the government tendering process because the tariffs did not contain firm or unconditional prices.


5. Stentor proposed two possible solutions that could be utilized, in appropriate circumstances, for services for which tariffs remain.


Option 1: Provide the service and the price to customers who meet certain qualifying conditions based on historical behaviour and circumstances; or


Option 2: File a tariff application, which rather than specifying customer commitments or conditions, specifies the reasonable expectations or assumptions (e.g., as to the traffic volumes, patterns and customer locations) upon which the rates and the tariff have been developed.


6. Stentor noted that the prices set out in the CSA tariff could also only be available to customers who requested them within a specified number of days of filing the tariff.


7. The interveners were of the view that Stentor's proposal should be denied because it amounted to a request for significantly reduced regulatory oversight in markets in which the companies remain dominant.


8. The interveners submitted that the imputation test would be rendered meaningless because it would be premised on an analysis of revenues based on uncertain characteristics such as historical or assumed patterns and would permit the companies to engage in anti-competitive pricing.


9. AT&T Canada submitted that the purpose of requiring fixed or unconditional prices is to have the supplier assume the risk of any fluctuations in the cost of the service rather than the customer. This requires that the supplier reflect factors affecting its costs, such as the traffic volumes and patterns of the customer, and establish a price that minimizes the risk that the revenues it will receive may not cover its costs.


10. The interveners submitted further that Stentor's proposal to make the tariff available for a limited time period would eliminate resale as a means of constraining the ability of Stentor to engage in discriminatory behaviour. MetroNet submitted that resellers would generally not be able to demonstrate that they met Stentor's qualifying conditions within a short time period. MetroNet submitted that "historical circumstances" or "reasonable expectations" are subjective conditions established by Stentor, and therefore, it is likely that the application of these conditions would not be fairly applied by Stentor.


11. AT&T Canada submitted that the imposition of any time limits would also be inconsistent with the purpose of the CSA safeguard that requires services be available for resale and could create an insurmountable barrier to resellers seeking to gain access to CSAs.


12. MetroNet submitted that Stentor's proposal is a thinly veiled attempt to achieve forbearance on services that would not otherwise meet the forbearance test noted in Decision 94-19 and as set out in section 34 of the Act.


13. MetroNet submitted that virtually all dramatic increases in the trend toward tendering and contract pricing have occurred in competitive services – the vast majority of which have been forborne. MetroNet noted that Stentor has not provided any evidence that markets that continue to be regulated have experienced any increase in tendering and contract pricing.


14. MetroNet maintained that if the Stentor members consider reduced regulatory oversight to be appropriate, they should be required to submit an application which includes justification for each deregulated service.


15. Stentor submitted that its proposal satisfies regulatory requirements that ensure the rates are just and reasonable and prevent unjust discrimination and undue preference. Stentor further submitted that the companies' intent is not to provide large customers with fixed prices that would be non-compensatory as alleged by the interveners.


16. Stentor noted that AT&T Canada acknowledged that larger customers sometimes require price proposals to be unconditional. Stentor submitted that, without the requested relief, the companies' competitors will continue to have an incentive to encourage customers to require unconditional bids, as a form of gamesmanship made possible only through the present regulatory practice. The companies submitted that this cannot have been the intended consequence, since customer requirements for unconditional or firm prices may not have been foreseen when the current CSA practice developed.


17. Stentor submitted that the proposed tariff filing options would be used only in those cases where it is necessary in order to comply with customer bids. Stentor submitted that the Commission will be in a position to question and assess the use of this option on a case-by-case basis.


18. Stentor submitted that the tariffed rates would generally be available to all parties, including resellers, who meet the qualifying conditions and for whom the assumptions or expectations are reasonably applicable. The customer characteristics that justify the proposed rate would be visible to all interested parties and the Commission would have all the necessary information to determine, on a complaint by another party, whether that party is in different circumstances from the customer to whom the rate is being provided. As a result, Stentor submitted that there would be no potential for unjust discrimination.


19. Stentor submitted that time-limited offers may be unnecessary in markets where prices are generally in decline. Stentor noted that, once market prices approach cost, time-limited offers may be more appropriate in order to address the possibility of cost increases and allow future prices to reflect such cost changes. The companies noted that in the specific case of an ex parte filing, the time period would not commence prior to the filing being made publicly available, therefore, a time period would not interfere with reseller activity.


20. In Decision 94-19, the Commission stated that, under current market conditions, customer-specific tariffs for interexchange services present a greater risk that unjust price discrimination will arise.


21. The Commission considered that it would be appropriate to provide increased pricing flexibility for customer-specific arrangements subject to the telephone companies providing evidence that a) the imputation test is met; b) there is insufficient demand to offer the service through the general tariff; c) the service package and the associated rates, terms and conditions provided under the customer-specific arrangement are generally available to other customers; and d) resale is permitted.


22. The Commission considers that its determinations with respect to interexchange services in Decision 94-19 are relevant in the context of CSAs for other regulated services.


23. The Commission considers that the use of historical information or expectations as a basis for qualifying conditions could result in disputes over, or delays in, the provision of the arrangement to particular customers, given the judgement involved in determining whether they are in similar circumstances.


24. In Review of regulatory framework - Targeted pricing, anti-competitive pricing and imputation test for telephone company toll filings, Telecom Decision CRTC 94-13 dated 13 July 1994, the Commission stated that the application of the appropriate imputation test will ensure that rates are not anti-competitive. Absent binding terms and conditions, the Commission considers that the imputation test would be effectively rendered meaningless.


25. With respect to Stentor's assertion that it would only use the options in order to comply with unconditional pricing requirements, the Commission is concerned that the companies could use the proposed options to provide attractive rates to large customers who would possibly not meet expectations and who would be unwilling to pay the penalty of higher rates if they do not. As a result, the Commission considers that there is a significant potential for undue preference and unjust discrimination, contrary to section 27(2) of the Act, given that these customers could receive the benefit of favourable rates without achieving the expectations.


26. As well, the Commission agrees with the interveners that placing a time restriction on the availability of the tariffs would be contrary to the requirement that the service be generally available to other customers.


27. The Commission also agrees with the interveners that Stentor has not provided sufficient evidence in its application that the level of competition for regulated services offered under contract pricing is such that the companies are impeded in the tendering of contract bids and require a change in the regulatory process.


28. The Commission notes further that Telecom Order CRTC 99-913 dated 23 September 1999, significantly expanded the geographic scope of forbearance for high capacity and digital data interexchange private line services by eliminating rate regulation on virtually all major routes and considers that the companies already enjoy significant flexibility when responding to tenders.


29. In light of the foregoing, Stentor's application is denied.


Secretary General


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