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ARCHIVED - Order CRTC 2000-631

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Order CRTC 2000-631

Ottawa, 7 July 2000

Northern Telephone Limited and O.N. Tel: forbearance from IXPL and ATM services

Reference: 8640-N3-01/97
Northern and O.N.Tel have been granted forbearance from interexchange private line (IXPL) services, but the Commission will continue to regulate the provision of asynchronous transfer mode (ATM) services.

1.

In Telecom Order CRTC 99-253, dated 19 March 1999, the Commission granted Northern Telephone Limited forbearance from regulation of the provision of certain interexchange data services, upon approval by the Commission of a Northern filing which demonstrates that the costs associated with these services are separately identified on a Phase III basis.

2.

Order 99-253 did not grant Northern's request for forbearance from the regulation of the provision of IXPL and ATM services. The Commission directed Northern to file additional information on:
a) the nature of these services;
b) the extent to which the unique relationship between O.N. Tel and Northern affects the provision of these services; and
c) the extent there is or will be sufficient competition to protect the interests of users.

3.

On 19 April 1999, Northern filed the requested information with the Commission. Comments on Northern's application were filed by O.N. Tel on 5 May 1999. Northern filed reply comments on 17 May 1999. O.N. Tel filed additional comments on 8 June 1999, and Northern submitted reply comments on 17 June 1999.

Northern argues forbearance predicated on non-dominance

4.

Northern argued that forbearance would be appropriate since it is a new entrant in the market for IXPL and ATM-based services in northeastern Ontario, and therefore is not dominant in the provision of these services.

5.

Regarding the relevant geographic market for IXPL services, Northern noted that Stentor Resource Centre Inc. - Forbearance from regulation of interexchange private line services, Telecom Decision CRTC 97-20, dated 18 December 1997, considered the relevant market to be on a route-by-route basis and granted forbearance for specific routes where there was sufficient competition. Northern submitted that it did not object to such an approach being applied to IXPL markets in its operating territory.

6.

Northern stated that, consistent with the current regulatory regime, neither its IXPL or ATM services will be used for the carriage of interconnected interexchange joint-use voice traffic.

7.

Regarding its relationship with O.N Tel, Northern submitted that this relationship is essentially similar to that of other incumbent local exchange carriers (ILECs) with alternate providers of long distance services.

8.

Northern submitted that its arrangements with O.N. Tel are governed by the terms and conditions of Northern's Carrier Access Tariff. Northern provides O.N. Tel with interconnection to its local switched telephone network for the purposes of originating and terminating long distance traffic that is carried over O.N. Tel's network, and collects contribution payments from O.N.Tel to offset the shortfall in its local/access broad service categories.

9.

Northern submitted that it currently bills long distance voice services on behalf of O.N. Tel. However, O.N. Tel provides IXPL and ATM services directly to its end-user customers and performs all of the billing and collection functions associated with these services. Northern submitted that its only involvement with respect to the provision of these services by O.N. Tel is the provision of various switched and dedicated local access arrangements to O.N. Tel (through Northern's General Tariff).

O.N. Tel predicts substantial loss of market share

10.

O.N. Tel submitted that an important consideration detrimentally affecting its position in the interexchange market is the recent change in its longstanding relationship with Bell Canada. O.N. Tel stated that as the incumbent interexchange carrier, it has essentially provided the extension of interexchange services offered by Bell Canada into its territory. However, now that Northern also provides interexchange data services in O.N. Tel's territory, O.N. Tel is no longer the sole recipient of Bell Canada's interexchange traffic into its territory.

11.

Moreover, O.N. Tel submitted in a letter dated 16 November 1998, that Bell Canada stated that once Northern was in a position to handle data traffic, Bell Canada would direct traffic within its control to Northern, which on 24 March 1999 became 99 percent owned by Bell Canada. Further, O.N. Tel stated that Bell Canada will also phase out O.N. Tel's use of Bell Canada's trademarks by 1 April 1999 for competitive network services and by 1 July 2000 for message toll services. In light of these circumstances, O.N. Tel submitted that Northern should be treated no differently than Bell Canada in terms of market power with respect to the provision of IXPL and ATM services.

O.N Tel also seeks IXPL and ATM forbearance

12.

O.N. Tel stated that, due to unique circumstances in the IXPL and ATM markets in northeastern Ontario, both companies should be granted forbearance. It noted that O.N. Tel has virtually no market power in the provision of these services.

IXPL services

The parties' positions

13.

O.N. Tel submitted that although it is the incumbent IXPL service provider in northeastern Ontario, it expects a rapid and substantial loss in market share, since a large portion of the IXPL traffic it carries interconnects with Bell Canada. Accordingly, O.N Tel expects Northern to become the dominant player in the IXPL market in northeastern Ontario as Bell Canada re-routes more IXPL traffic to Northern.

14.

O.N. Tel stated that there are a number of barriers to entry into the IXPL (and ATM) markets in its territory, including:
a) neither O.N. Tel nor Northern have resale and sharing tariffs; and
b) Northern controls essential bottleneck facilities as a result of its position as the ILEC.

15.

O.N. Tel submitted that until Northern has approved tariffs in place for local interconnection, network unbundling and co-location, Northern will be in a position to delay access to the underlying facilities required by O.N. Tel, and thus delay the provision of IXPL (and ATM) services by O.N. Tel.

16.

In this regard, O.N. Tel submitted that on a number of occasions, it experienced difficulties in obtaining appropriate and timely access to Northern's facilities.

17.

In light of the above, O.N. Tel submitted that it would be premature to forbear from the provision of IXPL services by Northern.

18.

While Northern did not deny O.N. Tel's allegation that the interconnection agreement between Northern and Bell Canada would result in a migration of private line traffic from O.N. Tel to Northern, it did question the assumption that the migration would be of a large magnitude. Northern's capacity to do so is limited because it currently offers IXPL only on a five mile route between New Liskeard and Haileybury.

19.

Northern submitted that O.N. Tel's allegation that Northern has attempted to delay the delivery of bottleneck facilities to O.N. Tel are without substance and should be dismissed. Northern stated that any network service elements required by O.N. Tel are available, and will continue to be available, to O.N. Tel and other competitors, through Northern's General Tariff. Moreover, Northern submitted that if O.N. Tel was truly having difficulties obtaining timely access to Northern's facilities, it should have brought the matter to the attention of Northern or the Commission.

20.

Northern also submitted that it should not be treated as a dominant carrier in the IXPL market simply because its parent, Bell Canada, is dominant in IXPL markets. Northern submitted that there are certain safeguards in place which prevent Northern and Bell Canada from using their affiliation to gain market advantage. Northern is subject to these safeguards including intercorporate transactions rules. Bell Canada is subject to the price cap rules, among others, which are designed to create disincentives engaging in transfer pricing arrangements that disadvantage the returns earned by its capped services. Moreover, both Bell Canada and Northern are subject to section 27 of the Telecommunications Act, which serves as a general safeguard against preferential conduct.

21.

Finally, Northern submitted that it would be inappropriate to forbear from the provision of services by O.N. Tel in this proceeding, and stated that O.N. Tel should file its own application for forbearance.

The Commission's conclusion regarding IXPL services

22.

Decision 97-20 concluded that the IXPL market, for the purposes of determining the degree of competition and granting forbearance, is route specific, rather than national or regional. The Commission considers that is still appropriate and should be applied to IXPL services in Northern's and O.N. Tel's operating territories.

23.

In light of the evidence, the Commission considers that Northern is not dominant in the provision of IXPL services and that there is or will be sufficient competition to forbear from the provision of IXPL services by Northern pursuant to section 34(2) of the Act. Forbearance is also consistent with Canadian telecommunications policy objectives pursuant to section 34(1) of the Act to increase reliance on market forces, and enhance efficiency and competition.

24.

Decision 97-20 determined that forbearance would be granted on specific IXPL routes where one or more competitors are offering the equivalent of DS-3 bandwidth or greater. Specific procedures for determining routes that would qualify for forbearance were established in Telecom Order CRTC 99-434, dated 12 May 1999.

25.

The Commission considers that Northern should be added to the process created by Order 99-434 with respect to forbearance for IXPL services. Consistent with the procedures established in Order 99-434, the Commission directs Northern, O.N. Tel and other competitors (including broadcast distribution undertakings (BDUs) operating in Northern's territory) to file within 90 days, and subsequently on a semi-annual basis, a report identifying their routes that meet the criteria established in Order 99-434.

26.

In light of the fact that Northern is a local exchange carrier, and consistent with Order 99-253, forbearance for IXPL services by Northern is conditional upon approval by the Commission of a costing procedures filing by Northern. It should demonstrate that the costs associated with its IXPL services are separately identified on a Phase III basis.

27.

The Commission is of the view that it would be appropriate to forbear from regulating the provision of IXPL services by O.N. Tel on the same terms and conditions as Northern.

28.

The Commission considers that in light of the fact that Northern is the ILEC (with control over bottleneck facilities), a subsidiary of Bell Canada, and the beneficiary of Bell Canada's policy to re-route interexchange data traffic from O.N. Tel, it would be inappropriate to forbear from Northern's IXPL services without also forbearing from O.N. Tel's IXPL services. As submitted by O.N. Tel, since a large portion of its IXPL traffic interconnects with Bell Canada's facilities, it expects a substantial loss in its share of the IXPL market as a result of Bell Canada's policy to re-direct traffic to Northern. Therefore, the Commission considers that O.N. Tel is in no position to act anti-competitively in the IXPL market, and considers that it should also be included in the process established by Order 99-434 on a going-forward basis.

29.

Further, the Commission notes that if forbearance from regulating the provision of IXPL services is only granted to Northern on certain routes, it would be unreasonable to regulate O.N.Tel on those same routes.

30.

In light of the unique circumstances in the operating territories of these companies, the Commission considers that on any given route where two suppliers are providing DS-3 or greater bandwidth IXPL services, both companies should be forborne. This approach is consistent with section 34(1) and section 34(2) of the Act.

31.

Further, the Commission considers that since O.N. Tel has a split rate base accounting regime in place, pursuant to Regulatory framework - Ontario Northland Transportation Commission, Telecom Decision CRTC 98-14, dated 1 September 1998, there is no need to require O.N. Tel to file costing procedures to demonstrate that the costs associated with its IXPL services are separately identified on a Phase III basis.

32.

The Commission hereby forbears from regulating the provision of IXPL services by Northern and O.N. Tel, pursuant to section 34 of the Act, from sections 24 (in part), 25, 29, 31, and subsections 27(1), 27(5) and 27(6) of the Act.

33.

Consistent with previous Commission forbearance decisions, the Commission will retain its powers under section 24 of the Act with respect to conditions protecting confidential customer information and for the ability to impose conditions in the future.

ATM services

The parties' positions

34.

O.N. Tel stated that many of its concerns with respect to forbearance from regulating the provision of IXPL services by Northern also apply to Northern's ATM services.

35.

O.N. Tel submitted that there is no difference regarding incumbency of ATM-based services, because its entry into this market pre-dated Northern by merely a few months. Further, O.N. Tel submitted that, based on information contained in Northern's 1998 Annual Report, Northern appears to have invested significantly more than O.N. Tel in the provision of ATM services. O.N. Tel noted that Northern has ATM switches in Hearst, Kapuskasing, Smooth Rock Falls, Iroquois Falls, Timmins, Kirkland Lake, New Liskeard, and Haileybury. Thus, O.N. Tel submitted that Northern could hardly be considered the less dominant ATM service provider in northeastern Ontario.

36.

O.N. Tel submitted that granting forbearance for ATM services by Northern would be premature (particularly since Northern controls bottleneck facilities) and could adversely affect O.N. Tel's ability to compete in this market.

The Commission's conclusion regarding ATM services

37.

In the case of ATM services, the Commission notes that the tariff for which Northern requested forbearance is in effect a General Tariff for digital network access (DNA) service for connection speeds up to 44 Mbps from the customer's premises to Northern's central office, and not an ATM tariff per se. The Commission considers that DNA services constitute an important bottleneck access service, particularly since Northern is the ILEC. The Commission considers that Northern has not provided sufficient evidence to indicate that the availability of access services in its operating territory are sufficiently competitive to warrant forbearance.

38.

Therefore, the Commission considers that Northern has not demonstrated that there is sufficient competition in the provision of its ATM services to warrant forbearance pursuant to section 34(2) of the Act, or that forbearance would be appropriate pursuant to section 34(1) of the Act. The Commission denies Northern's request for forbearance from the regulation of its ATM services.
Secretary General
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