Search

ARCHIVED - Order CRTC 2000-425

This page has been archived on the Web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This page has been archived on the Web.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 2000-425

Ottawa, 19 May 2000
Bundling framework developed for customer-specific arrangements
Reference: 8638-C12-16/98
This order establishes the rules for customer-specific agreements (CSAs) that bundle tariffed telecommunications services with non-tariffed and/or non-telecommunications services. The new rules create criteria for bundling tariffed and forborne services consistent with the competitive marketplace.

1.

In Joint marketing and bundling, Telecom Decision CRTC 98-4, dated 24 March 1998, the Commission stated it is appropriate to further examine the bundling regime established in Review of regulatory framework, Telecom Decision CRTC 94-19, dated 16 September 1994. The Commission wanted to determine whether the rules for bundling tariffed services with forborne services, with those services of affiliated and non-affiliated companies and non-telecommunications services, should be extended to CSAs. The Commission sought comments on the extent to which such CSAs are appropriate by the major incumbent telephone companies and if so, whether the imputation test should be the same as prescribed in Decision 94-19 for customer-specific bundled services.
Commission considered two types of tariffs

2.

In Decision 94-19, the Commission considered that greater flexibility in pricing and packaging of services by means of customer-specific tariffs would be appropriate. Accordingly, the Commission considered two general types of customer-specific tariffs:
a) those providing service, via a special facilities or special assembly tariff (SFT), that involves service features or technologies that differ from those covered by the general tariff (Type 1 CSA); and
b) those providing a bundle of services tailored to a particular customer's needs, primarily involving elements available from the general tariff, where the purpose is to customize the offering in terms of rate structure or levels (Type 2 CSA).

3.

In Decision 94-19, the Commission continued to permit Type 1 CSAs, and implemented the following competitive safeguards:
a) the provision of a study demonstrating that the imputation test is met;
b) the telephone company demonstrating in its tariff application that there is not sufficient demand to offer the service through the general tariff;
c) in order that there be no unjust discrimination or undue preference, the service package and the associated rates, terms and conditions provided under the customer-specific arrangement being generally available to other customers; and
d) resale is permitted.

4.

Also, in Decision 94-19, the Commission permitted Type 2 CSAs, subject to the following competitive safeguards (which contain more stringent imputation of costs):
a) the provision of a study demonstrating that the present worth of revenues under the customer-specific contract equals or exceeds the sum of:
i) the present worth of revenues under general tariff rates for those service components available under the general tariff over the duration of the customer-specific contract; and
ii) the present worth of causal costs for those components not covered by the general tariff rates;
b) the telephone company demonstrating in its tariff application that there is not sufficient demand to offer any customer-specific elements of the service through the general tariff;
c) in order that there be no unjust discrimination or undue preference, the service package and the associated rates, terms and conditions provided under the customer-specific arrangement being generally available to other customers; and
d) resale being permitted.
Parties disagree over extending current bundling regime

5.

Comments and/or reply comments were received from AT&T Canada Long Distance Services Company (now AT&T Canada Telecom Services Company), Call-Net Enterprises Inc., MetroNet Communications Group Inc., Microcell Telecommunications Inc., Mobility Canada, Rogers Cantel Inc. and Stentor Resource Centre Inc. 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. (major incumbent telephone companies).

6.

The major incumbent telephone companies and Mobility Canada proposed that the Commission extend the current bundling regime established for general tariffs to CSAs that include bundles of tariffed and other services (i.e., forborne services, services of affiliated and non-affiliated companies and non-telecommunications services offered in-house by the telephone company). The other parties, however, submitted that it would currently be inappropriate to allow the major incumbent telephone companies greater flexibility in the bundling of services under CSAs.

7.

The major incumbent telephone companies and Mobility Canada submitted that the Commission's bundling-related decisions, which culminated in Decision 98-4, have established a general regime which encompasses numerous types of bundles involving tariffed services, and that this framework should be extended to cover all CSAs. In particular, the major incumbent telephone companies and Mobility Canada submitted that since the regulatory, legal and economic differences between CSAs and other tariffs are not significant, the Commission should adopt the general imputation test, as outlined in paragraph 64 of Decision 98-4, rather than the Type 2 costing test used for CSA bundles in Decision 94-19.

8.

The major incumbent telephone companies submitted that the requirement that CSAs must be available for resale, combined with the imputation test, limits the potential for anti-competitive cross-subsidies and unjust discrimination since competitors and resellers would have access to such CSAs at the same associated rates, terms and conditions.

9.

AT&T Canada, Call-Net, Cantel, MetroNet and Microcell submitted that, until key restrictions on competitive entry into local telecommunications markets are removed, it would be inappropriate to permit the major incumbent telephone companies greater flexibility in the types of services they may bundle in a CSA. According to AT&T Canada, the prospects for local competition in the near term are limited because the arrangements for local competition, which they expected to be in place by 1 January 1998, have been delayed.

10.

MetroNet argued that local facilities-based competition is only in its early stages. It submitted that the necessary conditions for competition, such as widespread implementation of local number portability, finalization of local loop rates, determination of the location of the demarcation point in multiple-unit dwellings and the completion of Commission-led co-location negotiations, are still months away. According to MetroNet, all of these issues must be resolved before it is appropriate to allow the major incumbent telephone companies greater flexibility in bundling CSAs that involve tariffed and other services. Otherwise, MetroNet submitted that the major incumbent telephone companies will be able to entrench their dominant positions in the local market before local market competition has been established.

11.

Cantel and MetroNet submitted that, until bundling of local exchange services can be economically and technically duplicated through facilities-based competition, allowing the major incumbent telephone companies greater flexibility in CSA bundling will enable them to charge lower rates for primary exchange service to their large customers than to competing carriers. However, Cantel noted that this issue would be less of a concern once unbundled local loop tariffs become widely available.
AT&T Canada advocates implementing new costing safeguards

12.

AT&T Canada submitted that should the Commission permit greater flexibility in CSA bundling, it is imperative that appropriate costing safeguards be implemented. In particular, AT&T Canada submitted that the more stringent Type 2 test contained in Decision 94-19 (and not the imputation test outlined in Decision 98-4) should be applied when the bundled CSA includes any component that is also available under a general tariff service. This approach was also supported by Call-Net.

13.

AT&T Canada submitted that the Type 2 test set out in Decision 94-19 is necessary for two reasons:
a) as a safeguard against unjust discrimination (which could arise if a CSA customer is implicitly charged different rates than those charged for competitors); and
b) to ensure that the major incumbent telephone companies do not have the opportunity to circumvent the Commission's authority with respect to the provision of general tariff services under terms and conditions that are just and reasonable.

14.

AT&T Canada also submitted that the effectiveness of implementing the Type 2 costing safeguard is dependent upon the establishment of clear guidelines for determining when the Type 1 or Type 2 test should be applied to a particular CSA proposal by the major incumbent telephone companies. According to AT&T Canada, this requirement would ensure that the major incumbent telephone companies are not accorded broad discretion to obtain approval of CSAs through the application of the less stringent imputation test used for Type 1 CSAs.

15.

In order to facilitate the enforcement of its proposed rules regarding CSAs, AT&T Canada requested that the major incumbent telephone companies be directed to provide the following information with respect to CSA proposals in future tariff notices:
a) explicit identification and justification as to whether a CSA is Type 1 or Type 2 according to the Commission's definition in Decision 94-19;
b) further, in the case of a Type 1 CSA, the telephone companies should be required to justify why such features could not be made part of the general tariff;
c) in cases where a CSA is identified as Type 2, the proper costing test must be performed, as specified in Decision 94-19; and
d) the telephone companies should be required to specify, in each CSA tariff notice, more flexible terms and conditions necessary for other customers, including resellers, to qualify for the service and which recognized that substantially similar circumstances would, in all probability, not require exact adherence to the eligibility conditions proposed in the tariff filing.

16.

Microcell submitted that the only way for a telephone company to quantify the causal costs of components provided by affiliated and non-affiliated companies would be to impute the acquisition cost to the telephone company of such components. However, Microcell argued that in the absence of stringent requirements for arm's-length dealings, as well as a requirement that affiliates of the major incumbent telephone companies make such components available for resale at the same acquisition cost as they are provided to the telephone company, there can be no assurance that such acquisition costs represent fair market value.

17.

In response, the major incumbent telephone companies submitted that many of the arguments raised by the competitors are merely restatements of arguments which they placed on the record in the proceeding leading up to Decision 98-4. Major incumbent telephone companies also submitted that the general bundling regime established in the bundling-related decisions (as outlined in Decision 98-4) is entirely applicable to CSAs at this time, and that this regime satisfactorily addresses competitors' concerns and the protection of customers' interests. Accordingly, the major incumbent telephone companies argued that CSA bundles should not be treated any differently than bundles involving general tariff components.

18.

The major incumbent telephone companies submitted that the requirement that CSA bundles must be available to competitors and resellers for resale constitutes an effective competitive safeguard to ensure against anti-competitive behaviour by the major incumbent telephone companies. Moreover, the major incumbent telephone companies argued that the competitors did not present any evidence to demonstrate they will not be able to use resale to offer bundled services to compete against bundled CSAs offered by the major incumbent telephone companies. Further, the major incumbent telephone companies noted that all proposed bundled CSAs, including those which contain local exchange services, must receive Commission approval before they may be provided to any customer. Accordingly, the major incumbent telephone companies submitted that the Commission would be in a position to evaluate such CSAs regarding the degree to which it is possible for competitors to duplicate the bundle.

19.

The major incumbent telephone companies disagreed with AT&T Canada's proposal to apply the Type 2 test for CSAs involving bundles of services as set out in Decision 94-19. the major incumbent telephone companies submitted that AT&T Canada did not present any convincing evidence to demonstrate that there is a need for a separate regulatory regime for bundled CSAs which differs from the regime for bundles under general tariffs. Further, the major incumbent telephone companies submitted that the Type 2 test proposed by AT&T Canada would result in several inconsistencies between the economic test for bundled CSAs and the economic test for bundles under the general tariff. For example, the Commission determined in Local competition, Telecom Decision CRTC 97-8, dated 1 May 1997, that certain tariffed local services should be included in the imputation test for a bundled service at their Phase II incremental cost. However, AT&T Canada's position would in effect require that these same services be imputed at tariffed rates when they are part of a CSA bundle.
Barriers to local competition resolved

20.

The Commission notes that many of the issues raised by interveners such as AT&T Canada, Call-Net, MetroNet, and Microcell were also raised in an application filed by Microcell on behalf of numerous applicants (including AT&T Canada, Call-Net and MetroNet), pursuant to section 62 of the Telecommunications Act to review and vary Decision 98-4. Among other things, the applicants requested that the major incumbent telephone companies not be permitted to bundle local tariffed services with competitive services, until such time that the barriers to local competitive entry have been substantially removed. In denying that application, Application to review and vary telecom decision CRTC 98-4: Joint marketing and bundling, Telecom Decision CRTC 98-20, dated
6 November 1998, stated, among other things, that the barriers to entry into the local telephony market have been resolved and the CRTC Industry Steering Committee (CISC) process to implement local competition is functioning as intended. The Commission notes that competitive local service providers have entered into numerous markets across the country since the release of Decision 98-20. Moreover, the Commission stated in Decision 98-20 (paragraph 59) that the complete elimination, or even partial elimination, of barriers to entry in the local market is not a precondition for the major incumbent telephone companies to bundle services.

21.

The Commission notes in this regard, that, as indicated in Decision 98-20, numerous competitive safeguards for bundling services have been established to allow for the bundling of a variety of tariffed and other services. Decision 94-19 established the conditions and the imputation test for bundling monopoly service elements with competitive service elements and for the bundling of CSAs. Decision 97-8 expanded the scope of Decision 94-19 to permit the bundling of local services with forborne services. Decision 98-4 extended these conditions to the bundling of tariffed services with services of an affiliated or non-affiliated company, and non-telecommunications services offered in-house by the major incumbent telephone companies.

22.

The Commission considers that permitting CSA bundles to include tariffed services with forborne services and services of affiliated and non-affiliated companies and non-telecommunications services would be consistent with the Commission's regulatory framework for bundling.

23.

Further, in light of issues raised by the interveners, the Commission considers it appropriate to extend the competitive safeguards developed for Type 2 CSAs in Decision 94-19 to CSA bundles which include non-tariffed services. The Commission considers that the more stringent imputation of costs contained in this test is necessary to ensure greater protection against unjust discrimination and undue preference given the nature of CSAs (i.e., customized bundles typically purchased by large customers through long-term service contracts) and their potential impact on the evolution of telecommunications competition.

24.

Consistent with Decisions 94-19 and 98-4, the Commission directs that any tariff proposed by a major incumbent telephone company for a CSA involving tariffed services bundled with forborne services and services of affiliated and non-affiliated companies and non-telecommunications services offered in-house is subject to the following:
a) provision of a study demonstrating that the present worth of revenues under the customer-specific contract equals or exceeds the sum of:
i) the present worth of revenues under general tariff rates for those service components available under the general tariff over the duration of the customer-specific contract;
ii) the present worth of causal costs for those components not covered by the general tariff rates; and
iii) the acquisition costs of any service elements in the bundle acquired from an affiliated or non-affiliated company;
b) the telephone company demonstrating in its tariff application that there is not sufficient demand to offer any customer-specific elements of the service through the general tariff;
c) in order that there be no unjust discrimination or undue preference, the service package and the associated rates, terms and conditions provided under the customer-specific arrangement being generally available to other customers; and
d) resale being permitted.

25.

The Commission also considers that in order to facilitate the enforcement of the rules regarding CSA bundles, it is important that Type 1 and
Type 2 CSAs be readily distinguishable. In this regard, the Commission directs that, in addition to the other conditions currently outlined in this order, the major incumbent telephone companies explicitly identify and justify in their future tariff notices whether a proposed CSA is Type 1 or Type 2.
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: