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Order CRTC 2000-208
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Ottawa, 20 March 2000
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Commission denies MetroNet Communications Group's request to modify the imputation test
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Reference: 8622-M15-05/99
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The Commission denies AT&T Canada's (formerly MetroNet Communications Group Inc.'s) application, which sought changes to the pricing test applied to the local services provided by the telephone companies to prevent anti-competitive pricing. Under AT&T Canada's proposal, new rates for local services in urban areas would have to exceed a price floor established using the same pricing rules that currently apply to local service rates in rural areas. The Commission concludes that AT&T Canada's application seeks to review and vary Telecom Decision CRTC 97-8, but it has not seen sufficient evidence to amend that decision.
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AT&T Canada's application
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1.
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On 6 May 1999, MetroNet Communications Group Inc. (now AT&T Canada Inc.) requested that the Commission modify the local service imputation test to require that prices for unbundled loops be imputed to local services in all bands to address the issue of anti-competitive pricing by the incumbent local exchange carriers (ILECs). In Local Competition, Telecom Decision CRTC 97-8, dated 1 May 1997, the ILECs were only required to impute unbundled loop prices to local services in bands where loops are essential.
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2.
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The company filed its request as a Part VII application according to the CRTC Telecommunications Rules of Procedure.
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3.
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AT&T Canada submitted that the imputation of loop prices is required in all bands to:
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a) achieve competitive equity and avoid unjust discrimination vis-à-vis competitive local exchange carriers (CLECs);
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b) address incentives for the ILECs to abuse the imputation test process; and
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c) ensure that amounts included in the imputation test price floor for loops are in all cases consistent with the costs used to establish unbundled loop prices.
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New facts and circumstances show a change in the imputation test is necessary
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4.
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AT&T Canada argued that Stentor Resource Centre Inc. – Forbearance from regulation of interexchange private line services, Telecom Decision CRTC 97-20, dated 18 December 1997 modified the imputation test for bundling tariffed and forborne services established in Decision 97-8. Specifically, the Commission determined that where forborne services are bundled with tariffed interexchange private line (IXPL) services, the tariffed rates are to be used to cost tariffed, but non-essential, IXPL services.
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5.
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The company submitted that the imputation test, established in Decision 97-8, is not sufficient to avoid anti-competitive pricing by the ILECs. As an example, it mentioned the prices proposed by Bell for Enhanced Exchange-Wide Dial (EEWD) service in Tariff Notice 6312.
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6.
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AT&T Canada considered that the Commission could not have confidence in service-specific or exchange-specific costs that vary significantly from the band average for all exchange services. The company stated that the Commission had not examined:
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a) the appropriateness of current ILEC Phase II costing methods and data sources for estimating the non-loop costs of retail exchange services, and
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b) the validity of current loop samples for purposes of calculating retail service specific loop costs by band or by exchange.
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7.
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AT&T Canada stated that it had encountered barriers in provisioning its own loops which were not anticipated by the Commission in Decision 97-8, including difficulties in gaining access to buildings, trenching and rights-of-way on reasonable and non-discriminatory terms. AT&T Canada noted that this would force it to rely in the near- to medium-term on ILEC unbundled loops, even in most areas of bands A and B.
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8.
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Bell Canada, Island Telecom Inc., Maritime Tel & Tel Limited, MTS Communications Inc., NBTel Inc., and NewTel Communications Inc. (collectively, Bell et al.), and BC TEL and TELUS Communications Inc. (collectively, TELUS) opposed AT&T Canada's request. Call-Net Enterprises Inc., GT Group Telecom Services Corp. and Vidéotron Télécom (1998) ltée filed comments in support of AT&T Canada's application.
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ILEC's reasons to reject AT&T Canada's application to review and vary
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9.
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Bell et al. and TELUS submitted that the Commission was aware that it would take some time for CLECs to build their own networks in non-essential bands when it required ILECs to unbundle local loops in non-essential bands for a five-year period in Decision 97-8.
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10.
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Bell et al. and TELUS argued that if AT&T Canada's request was granted, the floor prices for local services that use non-essential unbundled local loops would be set at artificially high levels to the detriment of end-users. TELUS further noted that if loop prices must be imputed to local services in non-essential bands, the incentives for CLECs to construct their own local loops will be severely reduced.
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11.
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Bell et al. and TELUS stated that recent public statements made by AT&T Canada, regarding the extent of its facilities-based network, contradict AT&T Canada's allegation in its application regarding its reliance on ILEC unbundled local loop facilities. They submitted that AT&T Canada has been very successful at supplying local loops.
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12.
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TELUS submitted that the local access market is developing exactly as the Commission intended when it established the imputation test in Decision 97-8. TELUS argued that AT&T Canada's application relies on the premise that not all loops in bands A and B cost the same amount to supply, because of the averaging of costs over a range of loop characteristics within a band.
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13.
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Bell et al. and TELUS submitted that AT&T Canada's application should be characterized as a request to review and vary Decision 97-8, pursuant to section 62 of the Telecommunications Act, regarding the local service imputation test in non-essential bands. The companies argued that AT&T Canada had not demonstrated substantial doubt as to the correctness of Decision 97-8. Further, Bell et al. and TELUS argued that the application should be dismissed on the basis that it was filed more than six months after the decision it seeks to vary.
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14.
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Bell et al. also argued that granting AT&T Canada's application would limit the pricing flexibility provided the ILECs under the price cap regime.
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AT&T Canada's reply
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15.
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AT&T Canada stated that the new facts and circumstances cited in its initial application had arisen since Decision 97-8 was released and argued that its request should be treated as a new application.
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16.
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AT&T Canada submitted that the requested relief is necessary to ensure the continued development of facilities-based competition. The company noted that expectations of sufficient market share in the long run do not make a CLEC's investment in loop facilities a realistic or economic alternative, now or in the foreseeable future, given the CLEC's responsibility to its shareholders.
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The company stated that the majority of its switched access lines are not on its own facilities, and that its local entry strategy relies heavily on the use of unbundled local loops.
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18.
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AT&T Canada noted that loop facilities from non-ILEC sources tend to be concentrated in the urban areas where AT&T Canada already finds facilities-based entry to be economically feasible. It stated that it is in the other areas of bands A and B, where entry is currently unfeasible for any CLEC, that alternatives to ILEC unbundled loops do not generally exist.
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19.
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AT&T Canada submitted that if the Commission considers its request to be an application to review and vary Decision 97-8, the facts or circumstances set out above demonstrate that there is substantial doubt as to the correctness of Decision 97-8 in dealing with the imputation test.
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20.
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AT&T Canada submitted that the six-month period to submit such an application should be waived because both Guidelines for review and vary applications, Public Notice CRTC 98-6, 20 March 1998 and Decision 97-20 were issued more than six months after Decision 97-8 was released. AT&T Canada submitted that the experience that it gained and the extent of the potential for the ILECs to abuse the imputation test became apparent only after the six-month period had passed.
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Commission determinations
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21.
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The Commission considers that AT&T Canada has raised no new facts or circumstances that would call into question the continuing correctness of Decision 97-8, and that it essentially seeks to challenge the original correctness of that decision. The Commission thus considers that AT&T Canada's application is a request to review and vary Decision 97-8. Accordingly, in reaching its decision, the Commission has considered whether AT&T Canada has demonstrated substantial doubt as to the correctness of Decision 97-8.
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Obtaining access to buildings, trenches, and rights-of-way on reasonable and non-discriminatory terms
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22.
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In Decision 97-8, the Commission anticipated that competitors could find it difficult to provision all the facilities necessary to meet their own loop requirements in the early stages of competition. For that reason, the ILECs were instructed to make loops available in non-essential bands on an unbundled basis at mandated rates for a five-year period.
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23.
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Further, despite the issues surrounding access to buildings, trenching and rights-of-way, AT&T Canada and other CLECs are supplying some loops using their own facilities in bands where loops are not essential.
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24.
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Finally, granting AT&T Canada the relief it requested in its application would not address the CLECs' difficulties in providing local service to certain customers using their own facilities. In fact, all parties commenting on this issue in this proceeding agreed that access issues would be resolved through other means, including negotiation and Commission involvement.
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25.
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Accordingly, the Commission does not consider that this argument warrants a change to the local service imputation test.
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Modifications made to the local service imputation test in Decision 97-20
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26.
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In Decision 97-20, the Commission determined that, where forborne services are bundled with tariffed IXPL services, the Phase II costs of the forborne service elements are to be filed as part of the imputation test, and tariffed rates are to be used to cost the tariffed IXPL service element. These requirements were deemed necessary to ensure that there was no undue preference with respect to the charging for tariffed service elements.
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27.
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Decision 97-20 made no determination that tariffed IXPL services were essential, it simply set an imputation test when forborne services are bundled with tariffed IXPL services.
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28.
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Therefore, the Commission concludes that Decision 97-20 did not modify the local service imputation test established in Decision 97-8 as alleged by AT&T Canada.
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AT&T Canada believes current imputation test is inadequate
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29.
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The Commission also examined AT&T Canada's submission that the current imputation test is inadequate to prevent anti-competitive pricing and its claim that the rates for EEWD service proposed in Bell Tariff Notice 6419, which were granted interim approval in Telecom Order CRTC 99-1168 dated 20 December 1999, are anti-competitive.
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30.
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The Commission considers that it is reasonable to expect that lower than average loop costs would result from providing a very large number of lines to a single customer, concentrated in a limited number of service locations within one exchange as is the case for EEWD service.
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31.
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The rates for ILEC unbundled loops are based on an averaging of costs over a range of loop characteristics within a band. Likewise, competitors will incur different costs to supply their own loops within different areas of a band. While AT&T Canada stated that it is not seeking to restructure any band, the Commission considers that this approach would be the most direct method to address AT&T Canada's situation. A more refined banding structure will reduce the extent to which varying loop costs within the current bands "distort" the average loop cost.
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32.
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The Commission notes that it has recently issued Restructured bands, revised local loop rates and related issues, Public Notice CRTC 2000-27, dated 18 February 2000 to examine certain ILECs' proposals to restructure their bands.
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33.
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The Commission remains of the view that the imputation test required by Decision 97-8 for local services rate reductions in bands where loops are non-essential ensures the ILECs' pricing initiatives are not anti-competitive.
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34.
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The Commission is satisfied that it has not approved rates that do not pass the imputation test.
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Conclusion
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35.
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AT&T Canada has failed to demonstrate that there is substantial doubt as to the correctness of Decision 97-8. Further, the Commission notes that the company filed its application more than one year after PN 98-6 was issued and over two years after Decision 97-8 was released, which is well outside the six-month guideline for filing applications to review and vary Commission decisions.
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36.
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Accordingly, AT&T Canada's application seeking that the Commission require the ILECs to impute the unbundled loop rates in non-essential bands is denied.
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Secretary General
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This document is available in alternate format upon request and may also be viewed at the following Internet site: http://www.crtc.gc.ca.
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