Search

ARCHIVED - Order CRTC 2000-398

This page has been archived on the Web

Information identified as archived on the Web is for reference, research or recordkeeping purposes. Archived Decisions, Notices and Orders (DNOs) remain in effect except to the extent they are amended or reversed by the Commission, a court, or the government. The text of archived information has not been altered or updated after the date of archiving. Changes to DNOs are published as “dashes” to the original DNO number. Web pages that are archived on the Web are not subject to the Government of Canada Web Standards. As per the Communications Policy of the Government of Canada, you can request alternate formats by contacting us.

Archived

This page has been archived on the Web.

 

Order CRTC 2000-398
  Ottawa, 12 May 2000
  ShockWare application for relief from TELUS denied

 Reference: 8622-S23-01/98
  The Commission denies an application for relief by ShockWare Inc. with regard to the provision of Internet service by TELUS Communications Inc.
  The Commission finds no evidence of recent non-compliance with the applicable rules.
  Another Commission decision issued today will require changes to the telephone companies' terms of service that will discourage anti-competitive behaviour.

1.

On 24 March 1998, ShockWare filed an application under Part VII of the CRTC Telecommunications Rules of Procedure against TELUS Communications Inc. (TCI).

2.

ShockWare alleged that TCI unjustly discriminates against ShockWare and other Internet service providers (ISPs), and provides an undue preference towards its own Planet Internet service (Planet), contrary to subsection 27(2) of the Telecommunications Act, by:
 
  • inappropriately joint marketing Planet and wireline telecommunications services;
 
  • inappropriately bundling Planet and call answering;
 
  • refusing to supply dark fibre facilities to ShockWare;
 
  • not assessing long distance charges associated with the provision of Internet service by TCI's Planet; and
 
  • generally providing poor quality service to ShockWare and other independent ISPs.

3.

In the application, ShockWare requested:
 

 

  • a Commission order requiring TCI to provide the same type of interexchange service at identical rates to independent ISPs as it does to Planet, or, alternatively, an order requiring TCI to discontinue supplying foreign exchange service to Planet; and
 

 

  • a Commission inquiry into how TCI provides Internet services across Alberta, and a Commission investigation into discrimination by telephone companies against ISPs across Canada.

4.

ShockWare made the following additional requests during the proceeding:
 
  • a Commission ruling specific to TCI's refusal to supply dark fibre to ShockWare which ShockWare required to provide fibre based services to the college in Medicine Hat (in a letter dated 20 April 1998); and
 
  • a Commission order pursuant to subsection 35(2) of the Act, directing TCI not to participate in the retail Internet service market, but only to provide backbone services to ISPs (in a letter dated 13 July 1998).
  Commission findings
  Bundling rules

5.

Following examination of the submissions by ShockWare and TCI in this proceeding, the Commission has concluded that TCI did not comply with the bundling rules.

6.

The Commission finds that TCI inappropriately continued to offer a $1 discount on Call Answer service to its Planet customers after the Commission-approved promotional pricing for the service had expired. Continuation of the discount was contrary to the Commission's bundling rules, as outlined in Joint marketing and bundling, Telecom Decision CRTC 98-4, dated 24 March 1998, as well as a number of prior Commission decisions.

7.

The Commission considers that TCI did not inappropriately joint market its Planet service, since there were no rules prohibiting the joint marketing of Planet and other telecommunications services.
  Supply of dark fibre facilities

8.

The Commission has determined that TCI acted inappropriately in refusing to supply dark fibre to ShockWare. ShockWare alleged that TCI refused to supply to ShockWare a dark fibre connection to the Medicine Hat College and later provided a fibre driven Internet connection to the College itself. In response, TCI submitted that its refusal was consistent with statements it made to the Commission in the proceeding leading to Tariff filings related to the installation of optical fibres, Telecom Decision CRTC 97-7, dated 23 April 1997, that it was not providing dark fibre and wished to exit that business.

9.

In Applications for review and variance of Telecom Decision CRTC 97-7 and follow-up matters relating to the requirement for the Atlantic companies to file general tariffs for optical fibre, Telecom Decision CRTC 98-10, dated 16 July 1998, the Commission found that since the date of Decision 97-7, TCI had provided a large fibre-based network to a customer. In Decision 97-7 the Commission found that providing dark fibre selectively pursuant to Special Facilities Tariffs raised concerns about undue preference. In light of the above, the Commission finds that TCI's statements to the Commission in the proceeding leading to Decision 97-7 do not justify its refusal to supply dark fibre to ShockWare.

10.

However, when ShockWare filed its Part VII application against TCI in March of 1998, a proceeding was underway which led to the approval of general tariffs for the provisioning of optical fibres in Optical fibre service, Telecom Decision CRTC 98-11, dated 16 July 1998. Thus, fibre facilities are now available from TCI at rates and terms and conditions specified in TCI's general tariff. Accordingly, the Commission considers that no further action is required at this time to ensure that ShockWare and others can obtain fibre facilities.
  No undue preference in assessing long distance costs

11.

The Commission finds that ShockWare has not provided evidence to justify its assertion that TCI grants Planet an undue preference by not charging the long distance costs incurred in the provision of Internet services throughout Alberta.

12.

The Commission notes that Planet can more readily absorb long distance costs because Planet benefits from economies of scale and scope, since TCI provides Internet service throughout Alberta and can route different types of traffic over the same facilities. The Commission also notes that TCI locates modem pools in exchanges with extended flat rate calling, to minimise long distance charges incurred when provisioning Internet services.

13.

The Commission considers that ShockWare could lease facilities such as high speed data and digital services on high volume routes, and foreign exchange service on low volume routes at tariff rates from TCI or from other suppliers, to optimize its traffic flows and minimize toll charges.
  TCI provided acceptable service to ShockWare

14.

With respect to the incidents of poor quality service alleged by ShockWare, the Commission finds that the service orders placed on the record by TCI indicate that the company responded within reasonable time frames to service interruptions experienced by ShockWare. The Commission has not seen evidence to support the view that TCI unjustly discriminated against ShockWare by providing poor quality service.
  Order to prevent TCI from offering retail Internet services inappropriate

15.

ShockWare requested that the Commission use its powers under section 35(2) of the Act to order TCI not to offer retail Internet services, either directly, or indirectly, through affiliates. The Commission notes that subsection 35(2) stems, among other reasons, from the concern that regulated entities could locate certain activities, especially high-risk competitive activities, within the regulated entity because of the opportunity to subsidize them from monopoly revenues or otherwise give them special treatment as against competitors.

16.

Subsection 35(2) empowers the Commission to require that specified activities be carried on outside the regulated entity in order to ensure that subscribers to monopoly services do not provide cross-subsidies to competitive services, and to protect competitors from unjust discrimination and undue preference. Further, the power to order a Canadian carrier to discontinue service pursuant to subsection 35(2) amounts to structural separation and is a significant power. The Commission has never used that power.

17.

In several key decisions wherein the Commission developed the regulatory framework for competitive telecommunications markets, the Commission required neither structural separation of the telephone companies' utility and competitive operations, nor divestiture of telephone companies' competitive operations. Instead, the Commission has developed alternatives to structural separation. To illustrate, in Review of regulatory framework, Telecom Decision CRTC 94-19, dated 16 September 1994 the Commission determined that accounting separations, together with costing safeguards, such as an imputation test, would be sufficient to prevent anti-competitive cross subsidies from utility to competitive services.

18.

This regulatory framework was implemented, among many other decisions, in Implementation of regulatory framework - splitting of the rate base and related issues, Telecom Decision CRTC 95-21, dated 31 October 1995, 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 and Local competition, Telecom Decision CRTC 97-8, dated 1 May 1997.

19.

Consistent with this regulatory framework, the telephone companies have been permitted to supply competitive services either directly or indirectly through affiliates. ShockWare's request would go beyond structural separation, and would require divestiture of TCI's retail Internet service operations. In the Commission's view, such a remedy would be out of proportion to the breaches of the rules that have occurred. Moreover, since there is no evidence that TCI does not now comply with its tariffs and the applicable rules, the Commission considers that use of its powers under subsection 35(2) would be inappropriate.
  Inquiry inappropriate

20.

ShockWare requested an inquiry into discrimination by telephone companies against ISPs. The Commission considers such an inquiry would not be appropriate at this time. The Commission has reviewed the conduct of telephone companies on a case by case basis and has not found discriminatory behaviour and in the current circumstances TCI has rectified its conduct and there is no indication that TCI's actions are now contrary to the Commission's rules. Therefore, an inquiry is unnecessary.

21.

ShockWare also asked for an inquiry into TCI's Planet costs, finances and pricing. The Commission notes that it has forborne from regulating TCI's Planet service, based on findings that the Internet service market is competitive. As no persuasive evidence has been presented to demonstrate that this market has not remained competitive, an investigation into TCI's Planet finances and pricing would not be appropriate.

22.

In addition, the Commission considers that such an inquiry would be entirely unnecessary given the existing regulatory framework which includes the split rate base and price cap regulation. This regulatory framework requires TCI to report separately revenues, costs and expenses for utility and competitive segment services. Revenues, costs and expenses of competitive services such as Internet services are assigned to the Competitive segment of the split rate base, and thus Internet services cannot be cross-subsidized by revenues or earnings from Utility segment services. Further, with price cap regulation, rates for utility segment services do not depend on TCI's financial results.
  Amendments to the terms of service will discourage anti-competitive conduct

23.

The Commission notes that in Order CRTC 2000-397, dated 12 May 2000, the Commission made changes to the telephone companies' terms of service, which will no longer limit the liability of the telephone companies subject to the order in cases of anti-competitive conduct. The Commission expects that, in view of the possible exposure to additional liability, the telephone companies will treat their competitors fairly within the framework for competition developed by the Commission.
  Conclusion

24.

In view of the foregoing, the Commission denies ShockWare's application for relief.
  Secretary General
 
This document is available in alternate format upon request and may also be examined at the following Internet site: http://www.crtc.gc.ca

 

Date modified: