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ARCHIVED - Order CRTC 2000-553

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Order CRTC 2000-553

Ottawa, 16 June 2000
Forbearance granted for telcos' wide area network services
Reference: 8640-S1-05/98
In this order the Commission forbears from regulation of Wide Area Network (WAN) services provided by Canada's largest regulated telephone companies.
WAN services connect the local area networks at diverse locations of medium- and large-sized businesses, governments and associations.
The Commission will retain sufficient powers to ensure that the companies' competitors can obtain - at non-discriminatory rates, terms and conditions - access and transport facilities they require to compete in the provision of WAN services.

1.

Stentor Resource Centre Inc., on behalf of BC TEL (now TELUS Communications (B.C.) Inc.), Bell Canada, Island Telecom Inc., Maritime Tel and Tel Limited (MTT), MTS Communications Inc., NBTel Inc., NewTel Communications Inc., TELUS Communications Inc. and TELUS Communications (Edmonton) Inc., applied on 23 December 1998 for forbearance from Sections 24, 25, 27, 29 and 31 of the Telecommunications Act regarding current and future wide area networking (WAN) services.

2.

At present, MTT, MTS, NBTel and NewTel provide WAN services subject to tariff. The other applicants offer WAN services on an unregulated basis through affiliated companies.

3.

Following Stentor's application, the Commission issued Forbearance: Wide area networking services, Telecom Public Notice CRTC 99-8, dated 12 March 1999, to establish procedures to consider the application.

4.

AT&T Canada Corp., Call-Net Enterprises Inc. and MetroNet Communications Group Inc. intervened and addressed interrogatories to the applicants, but only AT&T Canada commented on the application.
Service definition

5.

WAN services are purchased mainly by medium- and large-sized businesses, governments and associations. WAN customers typically possess large internal information processing infrastructures, based on Ethernet, token ring or asynchronous transfer mode (ATM) protocols, usually at several locations. WAN services link the customer's local area networks (LANs) at the various locations. Often WAN services are used as replacements for older dedicated interexchange and intra-exchange private lines, such as Megaplan, and traditional frame relay services, such as Hyperstream.

6.

WAN services consist of interfaces to customer-provided equipment at the customer's various locations, along with the ability to exchange information among locations. WAN services include the following elements:
  • any of the service provider's network hardware and software which may be located on the customer's premises in order to provide Ethernet, token ring or ATM protocols at the interface to the customer's network;
  • access transport (i.e. transport of packets and/or cells between the interface at the customer's premises and the service provider's network); and
  • transport and routing or switching of packets or cells within the service provider's network for the purposes of transmitting data among the access points of a single customer.
The applicants submitted that the WAN market is competitive

 

7. The applicants submitted that the WAN market is sufficiently competitive to protect the interests of users, and thus warrant forbearance pursuant to Section 34 of theAct. The applicants submitted that:

a) there are numerous alternate suppliers of WAN services and of access to WANs;

b) numerous competitive WAN suppliers own and operate optical fibre based networks;

c) resale of private line services and access services provided by the applicants and other facilities-based carriers enables any provider of WAN services to extend these services to locations which are not physically served by their own facilities;

d) entry is not excessively difficult;

e) customers are knowledgeable and can readily switch to other service providers;

f) there are no technological barriers to switching suppliers since the standard WAN protocols are available on all types of equipment; and

g) there is vigorous price competition and rivalrous behaviour among suppliers.

8.

Further, the applicants submitted that competitive safeguards such as the price cap regime and the split rate base provide sufficient protection against anti-competitive cross-subsidies to competitive services, and ensure that the market remains competitive. The applicants argued that, since barriers to entry are low, they have no market power, and thus anti-competitive below-cost pricing is not a workable strategy. They contend the companies would lose market share if they attempted to increase prices to recover losses from below-cost pricing.

9.

Regarding the access component of WAN services, the applicants submitted that WAN access can be provided using stand-alone local and access services offered by the applicants and their competitors. The applicants also noted that in Telecom Order CRTC 96-130, dated 19 February 1996, the Commission forbore from regulating both Datapac services and Datapac access arrangements, since those arrangements could be configured from existing tariffed services outside the Datapac tariff.
AT&T Canada opposed forbearance

10.

AT&T Canada argued that the market share estimates filed by the applicants cannot be relied upon for determining the state of competition in the supply of WAN related services because, among other things, they are based on estimates provided by the applicants. It stated that while many companies may offer WAN services at the retail level, there are only a limited number of companies providing the access transport element of WAN.

11.

AT&T Canada noted that since alternative access providers serve primarily the core areas of large cities, the applicants are dominant in the provision of access because few competitive carriers provide access over a broad geographic basis. It also submitted that competitive access providers face a number of barriers to entry, such as access to rights-of-way and inside wire.

12.

AT&T Canada claimed that since WAN services are a substitute for private lines, the relevant geographic market for consideration of forbearance should be route specific, as in Stentor Resource Centre Inc. - Forbearance from regulation of interexchange private line services, Telecom Decision CRTC 97-20, dated 18 December 1997.

13.

Finally, AT&T Canada submitted that if the Commission finds it appropriate to forbear from regulating WAN services, it should retain Sections 24 and 27(2) of the Act to ensure that resale continues on a non-discriminatory basis in order that competitive service providers are not constrained in extending the geographic coverage of their WAN service offerings.

 

The Commission's forbearance criteria

 

14.

The criteria for forbearance were developed in Review of regulatory framework, Telecom Decision CRTC 94-19, dated 16 September 1994. Prior to making a determination of forbearance, the Commission assesses whether the applicant has power in the market for which forbearance is sought. In assessing whether the applicant possesses market power, the Commission considers a number of factors:
a) market shares of the dominant and competing firms;
b) demand conditions;
c) supply conditions;
d) likelihood of entry into the market;
e) barriers to entry; and
f) evidence of rivalrous behaviour.

15.

Generally markets are more competitive according to the number of knowledgeable customers, the more readily substitutes are available, the easier or less costly it is for customers to switch suppliers, the lower the barriers to entry, and the more rivalry there is between suppliers in trying to gain customers. While a large market share is a necessary condition for market power, a high market share may not indicate market power if there is easy entry into the market, rivalry among suppliers, and if consumers are knowledgeable and have the ability to switch suppliers.

 

WAN service is not route-specific

 

16.

The Commission considers that the market for WAN services is national or regional in scope (rather than route-specific as in the case of private line services). Although in certain situations WAN services may be an alternative to private lines services, WAN services are considerably different from private line services. Unlike private lines, WAN services are neither priced nor offered on a route-specific basis. There are also technological differences in that private line services involve dedicated lines on specific routes for the physical transport of voice and data traffic between sites, whereas WAN services involve networking amongst interconnected sites on lines that are not dedicated.

 

The WAN market is competitive

 

17.

The Commission considers that the WAN services market is competitive. There are numerous competitive suppliers, low barriers to entry, aggressive pricing and knowledgeable customers that are easily able to switch WAN service providers. Further, competitive WAN service providers may obtain the essential access and transport services from alternate facilities-based access service providers, or from the applicants at tariff rates and non-discriminatory terms where there is no alternate source of supply.

18.

Since the WAN market is competitive, and entry is relatively easy, the Commission considers that the applicants have no incentives to engage in anti-competitive below-cost pricing, because they would lose market share if they tried to raise prices and fail to recoup losses. In addition, the regulatory regime prescribed in Implementation of regulatory framework - Splitting of the rate base and related issues, Telecom Decision CRTC 95-21, dated 31 October 1995 and in Price cap regulation and related issues, Telecom Decision CRTC 97-9, dated 1 May 1997, further limits the ability of the applicants to cross-subsidize competitive services from utility revenues.

19.

In light of the degree of competition in the WAN market, the Commission considers it appropriate to forbear, pursuant to Section 34(2) of the Act, from Sections 24 (in part), 25, 29 and 31, and Subsections 27(1), 27(5) and 27(6) of the Act in relation to the provision of current and future WAN services by the applicants.

20.

The services forborne from in this order do not include ATM-based carrier interconnection services, or ATM services which provide public switched telephone network interconnection or call control capabilities equivalent to interconnection with the public switched network.

21.

Regarding the access component of WAN services, the Commission considers that WAN access is a value-added enhanced service (either ATM, Ethernet or token ring protocol) available to WAN customers, and is a part of WAN service. The Commission notes that the underlying access services are available from the applicants at tariffed rates and from competitors.

 

The Commission will retain specific powers

 

22.

The Commission will retain its powers under Section 24 of the Act to ensure that the existing conditions regarding disclosure of confidential customer information to third parties continue to apply, and to impose conditions as may be needed in the future.

23.

Further, in view of the pervasive position of the applicants in markets for access and transport, the Commission also will retain its powers under Subsections 27(2), 27(3) and 27(4) of the Actin order to ensure that the applicants do not unjustly discriminate against other service providers or customers, or confer an undue or unreasonable preference with respect to the provision of WAN services.
24. The applicants' tariffs from which the Commission forbears from regulation pursuant to this order are:
MTT: Tariff items 4200, 4210 and 4025;
MTS: Tariff items 5985, 5990, 6000 and 6010;
NBTel: Tariff items 3800, 3850 and 3950;
NewTel: Tariff Number 13003: Section A, page 97D; Section B, CBEA numbers 4830, 4885 and 4991 on page 7D; and CBEA numbers 5195, 5200, 5204, 5205, 5206, 5207, 5246, 5266 and 5360, on page 8.

25.

The applicants are directed to issue forthwith revised tariff pages.
Secretary General
This decision is available in alternative format upon request, and may also be examined at the following Internet site: http://www.crtc.gc.ca
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