ARCHIVED - Order CRTC 2000-789

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Order CRTC 2000-789

Ottawa, 21 August 2000

Terms and rates approved for large cable carriers' higher speed access service

Reference: Cogeco Cable Canada inc. Tariff Notices 3 and 3A; Rogers Communications Inc., Tariff Notice 9; Shaw Communications Inc. Tariff Notice 3; and Vidéotron ltée Tariff Notices 6 and 6A and related agreements

The Commission approves terms and rates for the provision of higher speed access services to Internet service providers by Cogeco, Rogers, Shaw and Vidéotron, collectively referred to in this order as the "cable carriers".

Higher speed access service is expected to foster increased competition by permitting other Internet service providers to use the cable carriers' facilities to provide higher speed retail Internet services.

Key determinations in this order

The Commission approves, with changes:

a) the cable carriers' proposed terms of service and related agreements on an interim basis; and

b) per end-user access rates and volume usage rate restrictions on a final basis.

The industry should address various unresolved technical, operational and business issues relating to the implementation of access service within the CRTC Interconnection Steering Committee (CISC) framework.

The Commission also:

a) initiates a proceeding to consider its preliminary view respecting winback guidelines, and the applicability to the cable carriers of certain terms in respect of customers that are also competitors; and

b) intends to initiate a follow-up proceeding to consider outstanding rating issues, including point of interconnection (POI) and service charges, as described in this order.

The appendix to this order contains the Commission's directions to the cable carriers with respect to the specific wording of their proposed tariff notices (TN) and service agreements. The Commission intends to dispose on a final basis of the carriers' terms and conditions of service when it disposes of the matters identified in part a) of the preceding paragraph.

Procedural issues

With respect to procedural requests made by the Canadian Cable Television Association (CCTA) and the independent members of the Canadian Association of Internet Providers (CAIP), the Commission agrees with the CCTA, and has not considered the additional submissions of 19 May 2000 filed by Mr. François Ménard, given that the process established for this proceeding did not contemplate the filing of such submissions. However, the Commission denies the CCTA's other procedural request and CAIP's request, and has considered CAIP's submissions with respect to start-up costs as well as the CCTA's submissions concerning service restrictions and conditions of service. The Commission considers that the modified process established for this proceeding clearly contemplated these submissions. Moreover, the Commission is satisfied that inclusion of these submissions on the record of this proceeding would not be unfair to either the CCTA or CAIP, and that these parties had a full opportunity to make meaningful representations on the other party's submissions with respect to these issues.

Terms and conditions of service

Regulation under the Telecommunications Act of cable carriers' access services, Telecom Decision CRTC 99-8, dated 6 July 1999 directed Cogeco, Rogers, Shaw and Vidéotron to file proposed tariffs with rates for higher speed access service supported by costing studies based on the Commission's incremental Phase II costing approach. Except for its proposed rates, each cable carrier filed substantially similar tariff proposals and, other than Cogeco, service agreements.

In the carriers' proposed tariffs the Internet service provider (ISP) is the carrier's customer and the ISP's retail Internet service customer is an "end-user."

Commission's approach

In reaching its determinations on the cable carriers' proposed terms and conditions of service, the Commission has been guided by the following principles:

a) consistent with Decision 99-8, the terms and conditions on which the carriers' access service is offered should be the same as those applicable to the incumbent local exchange carriers (ILECs), unless the appropriateness of doing otherwise is demonstrated, and

b) the terms on which access is provided to ISPs and on which the carrier uses its facilities to provide its own higher speed retail Internet service must not result in a preference or discrimination that is contrary to section 27(2) of the Telecommunications Act (the Act).

Application of terms and conditions

CAIP submitted that competitive equity requires that the carriers' retail Internet service be subject to the same restrictions that the carriers propose for ISPs. The CCTA stated that the volume usage and other operational restrictions that apply to the access service are identical to those that apply to the carriers' retail Internet services.

10.

The Commission considers that it would be appropriate for the carriers to include specific wording in their tariffs that any term or restriction applied to an ISP's use of the access service must not be less favourable than the basis on which the carrier uses its facilities to offer retail Internet service.

11.

If an issue arises as whether a carrier uses its facilities to provide its own retail Internet service on a basis that is more favourable than that on which an ISP may use the carrier's access service, the onus would be on the carrier to establish that its actions are not contrary to section 27(2) of the Act.

Purpose for which the access service can be used

12.

The Commission disagrees with CAIP's submissions and confirms that Telecom Decision CRTC 98-9, Regulation under the Telecommunications Act of certain telecommunications services offered by "broadcast carriers," dated 9 July 1998, and Decision 99-8 require a cable carrier to make higher speed access service available only to permit companies other than the cable carrier to offer higher speed retail Internet service. For this purpose, higher speed retail Internet service does not include Internet protocol (IP)-based voice telephony service, multi-casting, virtual private networks or local area networks.

Industry should address issues in CISC context

13.

Representatives of cable carriers and competitive ISPs are working together, notably in a CAIP/CCTA technical working group, to develop and implement the access service that is the subject of the Commission's determinations in this order.

14.

The Commission considers that access implementation would be facilitated if the industry addresses various technical, operational and business issues relating to the service's commercial implementation within the CISC framework.

Requirements relating to Data Over Cable Service Interface Specification (DOCSIS)

15.

DOCSIS is a specification defining interface requirements for cable modems involved in high-speed data distribution over cable networks.

16.

The carriers' planned access service is currently the subject of a trial being conducted according to DOCSIS specifications. The CAIP/CCTA technical working group that developed this trial determined this approach is suited to the provision of access to multiple ISPs in major urban locations.

17.

In this proceeding, the cable carriers propose terms whereby they would approve specific DOCSIS cable modem models for use with the access service. CAIP objected to this proposed approach. The Commission agrees with the CCTA that a carrier should not be required to permit the use of modems that endanger the integrity and security of its network. In this connection, the Commission notes that certain carriers propose a tariff item prohibiting the attachment of equipment causing network harm. However, the Commission considers that the carriers' proposal to approve specific DOCSIS cable modem models in respect of ISP end-users effectively represents an additional certification procedure and is overly broad. Instead, each carrier's tariff should provide that an ISP is to use cable modems that are compatible with the carrier's network.

18.

Each carrier's proposed tariff also describes the access service as being provided using the carrier's DOCSIS compliant network. However, not all carriers' systems are currently DOCSIS compliant and it is uncertain when they will be.

19.

Because it is not certain when carriers' systems will be DOCSIS compliant, the Commission considers it appropriate that their access tariffs should not foreclose the possibility of such other workable, potentially transitional, non-DOCSIS solutions to the provision of access in major urban locations as ISPs may choose to pursue with the carriers.

20.

In light of the above, the Commission considers that cable carriers should remove references to their networks as being "DOCSIS compliant" from their proposed tariffs.

Residential and business end-users

21.

CAIP argued that the use of the carriers' access service to provide retail Internet services should not be limited to the provision of retail Internet service to residential end-users. The CCTA argued that the carriers' networks are configured for the residential market and that the carriers are not dominant providers of higher speed Internet service to business. The CCTA expressed concern with the traffic loads that business customers would impose on the carriers' networks.

22.

The CCTA also noted that Vidéotron and Cogeco propose to permit ISPs to use their access service to offer retail Internet service to business end-users, subject to the technical parameters on which the service is based. These technical parameters are designed with a residential market in mind. Rogers and Shaw effectively propose to restrict the use of their access service to the provision of retail Internet service to residential end-users. Neither Rogers nor Shaw propose a definition of "residential" for this purpose.

23.

The Commission agrees with the CCTA that the cable facilities under consideration in this proceeding are designed primarily to serve the residential market, and are not concentrated in high density commercial locations. The Commission also notes that Vidéotron and Cogeco (which do not have the residential use restriction) and Shaw (which does have such a restriction) propose to address concerns about excessive usage of their facilities, whether by residential or business end-users, through volume usage caps or rate restrictions.

24.

The Commission considers that the approach proposed by Vidéotron and Cogeco most appropriately reflects the rationale underlying its determination in Decision 98-8 to tariff the carriers' planned access service. Therefore, the Commission considers that access service should be available for the provision of retail Internet service to end-users, whether residential or business, subject to the imposition of a reasonable volume usage rate restriction that may be applied at the carrier's option.

Carriers' retail Internet service and volume usage caps and rate restrictions

25.

Cogeco's proposed tariff includes a volume usage cap and Shaw and Vidéotron's tariffs propose both volume usage caps and a rate for usage above specified levels. Cable plant is shared between various services using that plant and carriers indicated that usage thresholds help to ensure fair and appropriate usage of shared capacity.

26.

The Commission considers that to the extent a cable carrier chooses to include volume usage rate restrictions in its tariff, the carrier should apply these same volume usage rates to its own retail Internet service offering. It is the Commission's preliminary view that it would be contrary to section 27(2) of the Act if a cable carrier's access tariff includes volume usage rate restrictions that differ from the basis on which the carrier offers its own Internet service.

Terms for carriers' customers that compete with the carrier

27.

In Decision 99-8 the Commission stated that, on the release of its decision in the proceeding to consider terms of service for competitors that are customers of ILECs, it intended to seek comment on why the approach in that decision should not apply to cable carriers in respect of their access service. The Commission's decision on terms of service for competitors that are ILEC customers is contained in Order CRTC 2000-397, Altering terms of service for competitors that are customers, dated 12 May 2000, and, in particular, in paragraphs 9 (liability), 12 (termination of service), 16 (obligation to report service outages affecting competitors) and paragraphs 32 to 34 (the Commission's direction).

28.

The Commission approves for the cable carriers on an interim basis, pending final disposition of these matters in the follow-up proceeding, the terms contained in paragraph 32 of Order 2000-397 with respect to: 1) termination of service for past due amounts, and 2) liability is not limited in the event of anti-competitive conduct. However, because cable plant differs technically from telephone plant, the Commission does not consider it appropriate to approve on an interim basis the obligation to report service outages before receiving comments on this matter in the follow-up proceeding.

Slamming

29.

In this order, "slamming" refers to the addition or transfer of an end-user between an ISP or cable carrier without that end-user's consent. CAIP generally supported the carriers' provision with respect to slamming, but submitted that the proposed $300 slamming charge is too high. Shaw replied that it proposed a rate of $300 as this rate applies to customer transfers between local exchange carriers. CAIP also queried the meaning of the phrase "successfully disputes" in Vidéotron's tariff.

30.

The Commission considers that carriers and ISPs should develop procedures within the CISC context to address the handling of slamming disputes. The Commission has reviewed Vidéotron's proposed procedures with respect to slamming and considers that cable carriers should use them on an interim basis until the procedures are developed within the CISC context to handle slamming disputes, having reference to Schedule 6 of Vidéotron's proposed interconnection agreement.

31.

The issue of cost-justification for the $300 proposed slamming charge will be considered in the follow-up process to be established regarding rates. Pending approval on a final basis, the Commission approves a rate of $60 with respect to slamming on an interim basis.

Winback

32.

CAIP submitted that a term should be added to expressly prohibit a carrier's representative from engaging in winback activity in connection with a visit by the carrier to the premises of an ISP's end-user.

33.

The Commission has put in place winback guidelines to facilitate competitive entry into the cable broadcasting distribution market. It is the Commission's preliminary view that it would be appropriate to apply these winback guidelines to the carriers' access service. Specifically, this would mean that a carrier could not engage in any winback activity on a customer-specific basis within 90 days of receiving notification that an end-user is changing its retail ISP. Absent such a safeguard, the Commission is of the preliminary view that winback activity on a customer-specific basis would be contrary to s. 27(2) of the Act.

34.

The Commission disagrees with CAIP's further suggestion that the carrier be required to give the ISP advance notice of a carrier's visit to the end-user's premises and the option of sending an ISP customer representative to accompany the carrier's representative.

Carriers' limitation of liability

35.

All carriers, in their proposed tariffs, and Rogers, Shaw and Vidéotron, in their proposed service agreements, include provisions that, among other things, would limit their liability and oblige the ISPs to waive their rights and to indemnify the carriers in various situations. The CCTA submitted that these provisions track similar provisions to be found in the ILECs' Terms of Service.

36.

CAIP referred to the Commission's statement in Decision 99-8 that the carriers' terms should be the same as the ILECs' unless the appropriateness of doing otherwise is demonstrated, and submitted that the carriers' limitation of liability provisions with respect to service problems should be amended accordingly.

37.

The Commission notes that certain proposed provisions purport to give the carriers greater protection than is the case for the ILECs. In the appendix to this order, the Commission sets out changes that the carriers are directed to make so that their terms of service and service agreements conform to the provisions applicable to the ILECs.

38.

The Commission also notes that, unlike the other carriers, Shaw chose not to follow the ILECs' model with respect to limitation of liability and proposed significantly more restrictive terms than those proposed by the other carriers. Consistent with the approach taken by the other carriers, the Commission directs Shaw to use the ILECs' model, as modified by this order. Further, with regard to the content, Shaw is directed to use the terms of service of either Rogers, Shaw or Vidéotron with respect to limitation of liability proposed by one of the other carriers, as modified by this order.

Changes in point of interconnection (POI) location

39.

CAIP noted that the cable carriers reserve the right to change the POI location at their discretion and at any time, subject to providing advance notice to ISPs. The Commission agrees with CAIP that a minimum of six months advance notice of network changes would be appropriate, and notes this is the notice period required in Telecom Letter Decision CRTC 94-11, Notification of network changes, terminal-to-network interface disclosure requirements and procedures for the negotiation and filing of service arrangements,dated 4 November 1994. CAIP also suggested that the carrier and ISP should each provide the other party with advance notice of network changes that affect the other party.

40.

The Commission considers that the carriers' tariffs should provide that the ISP and the carrier will give each other advance notice in writing of POI and network changes that affect the other party six months before the proposed changes or when the carrier or ISP makes the decision to proceed with the change, whichever is earlier (that is, a minimum of six months notice).

Methods of connecting at POI

41.

All carriers except Rogers propose to limit the way in which the ISP may connect at a POI. The Commission considers Rogers's approach is preferable to that of the other carriers because it provides customers and carriers with greater flexibility in negotiating an interconnection arrangement which meets the needs of both parties.

Availability of end-user inside wire

42.

Rogers and Shaw each propose a term indicating that it cannot guarantee the availability of the access service in respect of an end-user who cancels the carrier's basic cable service because, in this situation, the carrier may not have access to that end-user's inside wire. Cogeco also proposes a term addressing the issue of access service availability in relation to the carrier's right to access premises as needed to provide the service.

43.

The Commission considers Cogeco's proposed term is more appropriate because it addresses the possibility that the carrier may not have the right to access the property, the in-building wire, if any, or the inside wire needed to provide the service.

End-users who do not subscribe to the carrier's cable service

44.

Subject to cable carriers having access to the premises and the requisite wiring, persons who do not subscribe to the carrier's basic cable service can subscribe to the Internet service provided by a competitive ISP using that carrier's access service. The Commission notes that, given the carriers' definition of the POI, ISPs will not be required to pay an additional amount to a cable carrier if the ISP's end-user does not subscribe to the carrier's basic cable service.

Carrier disconnection of an ISP's service

45.

CAIP argued that carriers should be able to suspend or terminate an ISP's service for specified misuse by the ISP's customer only where the ISP knowingly permitted the end-user to engage in improper conduct. The Commission notes that the attribution of intention to the ISP is not present in the ILECs' tariffs, and is not persuaded that it should be included in the cable carriers' tariffs.

46.

Cogeco, Rogers and Shaw propose to suspend or terminate an ISP's service, for example, if the access service is used to provide non-retail Internet service or if the ISP's end-user attaches a server. These carriers also propose that an ISP's service could be terminated for activities contrary to other proposed specific tariff requirements that stipulate the ISP and its end-users cannot use the service in a way that is contrary to law or regulation, or so as to prevent fair and proportionate use by others or to interfere with its use by others.

47.

The Commission interprets the phrase "fair and proportionate use" in this context with reference to the purpose for which the service is intended and the terms on which it is offered. In these circumstances, for example, the Commission would be of the preliminary view that the attachment by an end-user of a server at its premises would not be "fair and proportionate use" of the access service. The Commission would also, for example, be of the preliminary view that the provision of a LAN service or voice service using the access service would be inconsistent with that part of the proposed tariff that stipulates that the service cannot be used in a way that is contrary to regulation.

Carrier disconnection of an ISP's end-user

48.

Cogeco, Rogers and Shaw propose terms pursuant to which they may disconnect the service of the ISP's end-user in certain situations. Generally, the proposed term addresses activities that would constitute unauthorized use of the service by the end-user or disproportionate usage and other activities for which the carrier may suspend service to an ISP.

49.

Having regard to the terms on which a carrier may terminate or suspend the provision of service to an ISP, the Commission considers that the carriers' proposed tariffs impose an appropriate discipline on an ISP to ensure that its end-users use the service in conformity with the conditions of the tariff. The Commission agrees with this approach and also considers that the cable carriers should have the right to suspend or terminate service to an ISP's end-user service in certain defined circumstances. The Commission therefore considers that the carriers should have the right to suspend or terminate the service of an ISP's end-user who makes disproportionate use of the service or who uses the service contrary to law or regulation.

50.

However, the Commission considers that certain reasons proposed by carriers for suspension or termination of service to an ISP's end-user should not be approved and notes that generally these specific reasons fall within the grounds for termination or suspension approved above.

51.

The Commission further considers that a cable carrier should have the right to suspend or terminate an ISP's end-user's service without notice where such service suspension or termination is required to maintain network integrity. The Commission anticipates such situations would be exceptional. However, in a situation of clear urgency, the tariff should permit the carrier to suspend or terminate the Internet service of the ISP's end-user if the integrity of the carrier's network is threatened. Pursuant to this term, a carrier could suspend or terminate the end-user's Internet service only, and not any broadcasting or other service to which that end-user may subscribe.

Minimum contract period

52.

Vidéotron proposes a minimum two-year contract period and the other carriers propose a minimum period of one year. CAIP argued the minimum contract period should be six months, and considered that the minimum contract period should apply only in respect of the POI charge and not in respect of individual end-user related charges. CCTA replied that the ILECs' asymetrical digital subcriber line (ADSL) access tariffs contain a minimum one-year contract period.

53.

The Commission considers that a one-year minimum contract period is appropriate and considers that all carriers should amend their proposed tariffs to state that the one-year minimum service period applies to the charges associated with the POI only, and not to end-user charges.

Amount of deposit

54.

Each cable carrier proposes to require a deposit, varying in amount between carriers from $1,000 to $5,000, in respect of each POI at which an ISP wishes to connect.

55.

Based on the record of this proceeding, the Commission is not persuaded that the risk associated with dealing with ISPs varies between carriers. It considers that each carrier should specify a deposit in the amount of $1,000.

Vidéotron: monthly usage estimates

56.

Vidéotron proposes a financial penalty if an ISP's estimate of the number of its end-users differs from its actual number of end-users by more than ten percent. Vidéotron submits that this provision is necessary to protect it with respect to provisioning risks. CAIP disagreed, arguing that some ISP estimates will be higher and some lower than actual results and that the resulting total should be very close to the combined estimates. The Commission is not persuaded that a financial penalty is appropriate.

Cogeco's service agreement

57.

Cogeco did not file a proposed service agreement for approval notwithstanding that its proposed tariff expressly makes use of its access service conditional on an ISP executing such an agreement.

58.

The Commission considers that Cogeco should use the service agreement filed in this proceeding by either Rogers, Shaw or Vidéotron as modified by this order, unless and until Cogeco files its own agreement and the Commission has approved such an agreement. Within 15 days of the date of this order, Cogeco is to advise the Commission which agreement it will use, serving a copy of its notification on all parties that commented in this proceeding.

Content of agreements

59.

Rogers stated that its draft schedule to its service agreement would identify typical clauses, issues and types of acceptable connecting facilities that will be addressed in the course of the final negotiated determination. Depending on the final form of connection, not all clauses will necessarily be applicable. Vidéotron did not file the text of Schedules 2 and 3 to its interconnection agreement.

60.

To the extent their service agreements refer to clauses that apply only in certain circumstances, the Commission directs Rogers, Shaw and Vidéotron to revise their agreements to clearly state the circumstances in which a given clause will apply. Further,within 30 days of the date of this order, Vidéotron is directed to file Schedules 2 and 3 to its interconnection agreement or advise the Commission as to when it anticipates it will file them. Vidéotron is to serve a copy of its proposed Schedules or notification on all parties that commented in this proceeding.

61.

The Commission agrees with CAIP's submission that Vidéotron should remove its reference to coaxial cable plant and use "via cable plant of Vidéotron".

62.

The Commission agrees with CAIP's submission that tariff items relating to service availability should be expressed in a positive fashion.

63.

The Commission considers that CAIP should raise the issue of potential delays in the completion of POI interconnection in the context of CISC.

64.

CAIP disagrees with Vidéotron's proposal to require the ISP to pay for an engineering study that Vidéotron would provide to the ISP on receipt of an application for service and the required deposit. Vidéotron is the only carrier to propose such a term. The Commission considers that the approach taken by the other carriers in their service agreements (whereby the ISP agrees in advance to the level of charge before further work is undertaken) is more appropriate and that Vidéotron's proposed tariff should be amended to reflect that approach.

65.

The Commission agrees with CAIP that, consistent with the Commission's determination in Decision 99-8, the tariffs of Cogeco, Rogers and Shaw should expressly permit resale of the access service.

66.

The Commission agrees with CAIP that each carrier should include and maintain a current list of existing POIs in its tariff.

67.

The Commission notes that other comments were submitted with respect to the terms and conditions in the carriers' proposed tariffs and service agreements. The Commission has considered these comments but is not persuaded that the proposed terms or conditions should be amended.

Costing and rating issues

68.

The Commission has considered the parties' arguments with respect to the appropriateness of establishing rates on the basis of a benchmark or entrant viability. The Commission remains of the view, consistent with its direction to the cable carriers in Decision 99-8, that rates for the cable carriers' access service should be based on the appropriate incremental Phase II costs of the service plus an appropriate mark-up.

69.

In this section, the Commission addresses:

a) end-user rates,

b) volume usage rate restrictions, and

c) POI rates and service charges

End-user rates

70.

The carriers propose end-user rates that the ISP would pay to the carriers in respect of the ISP's end-users.

71.

The Commission considers it appropriate to adopt for each carrier a flat monthly per end-user rate. The Commission's determinations with respect to this rate reflect the following adjustments to the carriers' proposed access service costs:

a) cost reductions ranging from 19 percent to 25 percent to remove income tax costs payable on the proposed mark-up (see below under "Economic evaluation systems models");

b) cost reductions due to the use of a 10-year study period and additional productivity off-sets (see below under "Length of study periods and productivity off-sets");

c) cost reductions to most capital costs, reflecting reduced levels of node segmentation, monitoring, bi-directional and IP layer capital and shorter plant lives (see below under "Costing approach and cost inclusions" and "Economic plant lives"); and

d) cost reductions due to the use of a 13 percent cost of equity (see below under "Cost of equity").

72.

In addition, for Rogers, the Commission's determinations also reflect a 50 percent reduction in bad debt expenses; and a 50 percent reduction to trouble reporting and repair costs in line with the cost levels filed by the other carriers for this activity.

73.

Based on the record of the proceeding and its assessment of the costs caused by the access service, the Commission approves the following monthly per end-user access rates on a final basis:

. Cogeco	$21.50
. Rogers	$21
. Shaw	$21.25
. Vidéotron	$19

74.

Rogers' approved rate reflects the conversion of its proposed capacity charge for downstream transmission speed, available on a per-megabits per-second basis, to a flat rate. This is consistent with the other carriers' proposed rate structure.

Mark-up on end-user rates

75.

Each carrier proposed the use of a mark-up above Phase II costs. The Commission notes a mark-up is generally used to recognize the use of fixed and common resources, such as overhead support costs, which do not vary with the offering of a particular service and which are excluded from the Phase II cost study. The carriers submitted that the mark-up must contribute to the recovery of fixed and common costs (FCC), and should recover variable common costs (VCC) which in this case, the carriers have excluded from the services' Phase II costs.

76.

For purposes of establishing the approved end-user rate, the Commission considers the carriers' proposed mark-ups (which were filed under claims of confidentiality for competitive reasons) to be appropriate and has used them in establishing the approved end-user rate. The mark-ups are also considered to provide an appropriate contribution to FCC and to recover VCC.

Economic evaluation system models

77.

The economic evaluation system (EES) model is used to assess the present worth of annualized costs associated with a service, in this case the access service.

78.

As part of its annualized costs, each carrier included an amount on account of the additional income taxes that it submitted would be incurred on the difference between the actual revenues and Phase II costs resulting from offering the access service. In this regard, the carriers submitted that, if they are not permitted to recover these income taxes, costs or the target level of mark-up will be underestimated for the access service. The cable carriers also submitted that they differ from the telephone companies whose cost-based rates and incremental income taxes are based on a revenue requirement assumption.

79.

The Commission notes that under the current price cap regime applicable to the major telephone companies, interconnection services are classified in the competitor services basket. Unlike local basic services, services in this basket are not capped based on a revenue requirement-like constraint.

80.

Historically the Commission has used the mark-up to determine certain cost-based rates of the telephone companies. More specifically, the cost-based rate is estimated by applying a percentage mark-up to the service's Phase II costs. The mark-up is defined on a before-tax basis and does not include adjustments for income taxes.

81.

In addition to FCC and VCC, the Commission notes that the mark-up for the access service will also contribute to the recovery of other cost elements, such as the evaluation and product development costs prior to access service introduction.

82.

Accordingly, the Commission does not find it appropriate to include the proposed income tax on the difference between revenues and Phase II costs as a Phase II cost.

Length of study periods and productivity off-sets

83.

Two of the cable carriers propose seven-year study periods and two propose five-year study periods. Shaw argued that it is very difficult to forecast further than seven years in such a quickly evolving industry. CAIP noted that several financial analyst studies submitted by the cable carriers in this proceeding use study periods longer than seven years. Reflecting its view of the access service's life expectancy, the Commission has adopted a study period of 10 years for each carrier's access service.

84.

Unit cost reductions can generally be expected if a longer study period is chosen for a service with large introduction costs and strong demand growth over time. The Commission notes that information filed in this proceeding showed that overall access costs could decrease by up to 13 percent with the use of a 10-year study period.

85.

Most of the cable carriers propose to keep unit capital costs constant, thereby implicitly assuming that inflation and productivity will offset each other for these costs. The Commission considers that price decreases to the capital resources required to provide access service, or increases in the capacity of plant replacements, can be expected to occur over time. The Commission further considers that operational efficiencies beyond those forecast by the carriers will be realized over the study period.

86.

In the circumstances, the Commission has applied over the study period an additional 15 percent productivity off-set to each carrier's overall access service costs to recognize additional cost efficiencies.

Costing approach and cost inclusions

87.

The cable carriers' proposed end-user access rates are based on a blended costing approach that recovers two cost components:

a) an all-carrier cost to recover the costs incurred to provision retail Internet services generally, such as network infrastructure changes; and

b) a per end-user cost, such as billing and provisioning development.

88.

The carriers' cost studies assume that the all-carrier cost component is causal to both cable carriers and ISPs, and that the per end-user cost is causal only to the access service provided to ISPs.

89.

In Decision 99-8 the Commission found that there are start-up costs associated with the carriers' introduction of access service. In this proceeding, CAIP supported this finding and CCTA disagreed. The Commission notes CCTA's submission that any costs that might warrant regulatory treatment as start-up costs are simply one component of the costs causal to the introduction of access service and should be recovered in the same way as other causal costs.

90.

The Commission remains of the view that there are start-up costs associated with the carriers' introduction of access service. However, to the extent that the all-carrier shared network facility and equipment costs (including any start-up costs) reflect only costs causal to the access service, the Commission considers that the cable carriers' proposal to blend the all-carrier and per end-user cost components is appropriate.

91.

Parties also made submissions respecting the costing of cable carrier capital resources that are, and may be, used for various service applications. In several interrogatory responses, the carriers also addressed the issue of whether node segmentation, bi-directionality, IP layer, improved network monitoring and maintenance systems, or new billing and collection systems could be used for services other than the access service.

92.

CAIP argued that carriers benefit from investments that also support the provision of access service as they introduce interactive or transactional services. CAIP further argued that cable carrier services such as impulse pay-per-view television and other services now at the trial stage are dependent on bi-directionality. CAIP therefore submitted that these costs should not be attributed in their entirety to the access service.

93.

The CCTA argued that it would not be consistent with Phase II methodology and, in particular, the concept of causality to attribute current service costs to future or speculative services, and that the Commission has never sought to attribute or allocate costs across services or time. The CCTA also submitted that the Commission took this position in the context of local competition with regard to costs associated with the introduction of local number portability (LNP) and, in particular, with respect to its decision not to allocate local number portability costs to location portability.

94.

With respect to the CCTA's argument regarding local number portability, the Commission considers the circumstances of Order CRTC 2000-143, Local competition start-up and LNP costs established,dated 23 February 2000, differ from those in this case. The Commission stated in that order that it was uncertain ILECs would have incurred costs to implement location portability in the absence of mandated service provider portability or what the magnitude of such costs would be, and that any attempt to recover LNP costs through location portability usage charges would probably be unsuccessful.

95.

In contrast, the Commission considers that certain of the costs incurred by cable carriers in relation to, for example, node segmentation and bi-directionality were also incurred to permit them to offer other services including retail Internet service and impulse pay-per-view television.

96.

In the circumstances, the Commission is not persuaded that the entirety of the capital costs the carriers propose to include in their access cost studies are causal only to that service. For the purpose of calculating end-user rates, the Commission approves the attribution to the access service of half of the proposed node segmentation and monitoring access service capital costs and three-quarters of the proposed bi-directionality and IP layer capital costs. The one-half factor for node segmentation and monitoring capital costs recognizes the use of these investments for concurrent service introduction such as the carriers' digital and interactive services. These capital investments will also lead to general network improvements and efficiencies. With respect to the IP layer capital and bi-directionality capital, the Commission considers that the three-quarters factor recognizes that such investments will have other uses, albeit with lower bandwidth requirements, with respect to the companies' various service offerings.

97.

With respect to the cable carriers' proposal to include a cost element to recognize the use of a downstream six megahertz channel, the Commission considers this proposal to be appropriate because a channel's use to provide one service precludes its use to provide another service.

98.

The carriers propose to cost this element using a rate approved under the Broadcasting Act of $0.152 per basic cable subscriber per month. Access rates for exempt programming undertakings, Public Notice CRTC 1997-35, dated 2 April 1997, established a per-subscriber monthly rate for access by exempt programming undertakings to cable undertakings' channel capacity. For the purpose of this order, the Commission considers it is appropriate to use this rate as a proxy for the incremental cost of the capacity of a cable carrier channel.

Economic plant lives

99.

The Commission notes several differences in both the economic and accounting plant life estimates filed by the four cable carriers. Additionally, in many cases, the proposed economic life estimates were considerably shorter than the corresponding accounting life estimates. The Commission is not persuaded that the economic lives proposed for certain plant items are appropriate.

100.

Equipment and plant lives can have a significant effect on the resulting unit costs and, therefore, on the carrier's rates. For example, if the life estimate of a plant item is extended from five to seven years, its cost annuity, assuming a cost of capital of 10 percent, will be reduced by 22 percent. In the circumstances, the Commission has reduced the carriers' proposed capital costs by 10 percent.

Cost of equity

101.

The cable carriers used an after-tax cost of equity value in their cost studies of between 17 percent and 18 percent. The Commission notes that the telephone companies' currently approved risk-adjusted cost of equity is 11 percent.

102.

The Commission is not persuaded that the carriers' proposed cost of equity is appropriate. Given the continued consolidation of the cable industry, with the anticipated attendant benefit of lower cost access to financial markets, the Commission expects the cable carriers' cost of capital to be closer to the telephone companies' cost of capital than to 17 percent and 18 percent. For purposes of determining access service costs, the Commission has adopted a cost of equity of 13 percent. Accordingly, the Commission has reduced each carrier's total Phase II costs by four percent, consistent with cost sensitivity information provided by the carriers.

Volume usage rate restrictions

103.

Shaw and Vidéotron propose to apply monthly volume usage rate restrictions to end-users. For example, Shaw proposed an $0.80 charge per 100 megabytes per end-user whose monthly downstream traffic exceeds five Gb and a $2 per 100 megabytes charge for end-users with monthly upstream traffic exceeding two Gb. The carriers generally submitted that their cable network is a shared network where the quality of service available to one end-user is a function of other end-users' usage. Accordingly, they propose traffic thresholds to ensure fair and proportionate use of the service by all end-users. Shaw and Vidéotron indicated they would apply the same usage restrictions and charges to their Internet service end-users as they propose to apply in respect of ISPs' end-users.

104.

The Commission approves on a final basis the volume usage rate restrictions proposed by Shaw and Vidéotron. To the extent that these carriers do not apply these volume usage rate restrictions and associated volume thresholds to end-users of their own Internet services, the Commission is of the preliminary view that such action would be contrary to s. 27(2) of the Act.

105.

Rogers and Cogeco have not proposed volume usage rate restrictions. However, the Commission considers it would be appropriate for each of these carriers to adopt, at its option, volume usage rate restrictions and associate volume usage thresholds similar to those proposed by Shaw and Vidéotron. In this event, to the extent Rogers or Cogeco do not apply the same restrictions to end-users of its carrier's own Internet service, the Commission is also of the preliminary view that such action would be contrary to s. 27(2) of the Act.

106.

Cogeco's proposed tariffs contain volume usage restrictions but not volume usage rate restrictions. The Commission considers the use of a rate structure with volume rate restrictions to be appropriate as a means of disciplining end-use usage of a cable carrier's shared capacity. Therefore, Cogeco's proposed volume usage restrictions are not approved.

POI rates and service charges

107.

The cable carriers' propose different rating approaches and rates with respect to interconnection arrangements between the carrier and ISPs. For example, Vidéotron proposes rates relating to its proposed approach, and Shaw did not propose interconnection rates, submitting that many of the costs associated with ISP interconnection at a POI cannot be detailed until an actual application is received for a specific hub-site. Rogers also did not propose specific POI rates as such.

108.

Significant discrepancies also exist among the cable carriers with respect to their proposed service charges. CAIP also submitted that cost studies supporting the various service and installation charges should include the type and quantity of labour and materials by installation activity, hourly labour rates and benefits, and various loadings.

109.

In light of the foregoing, the Commission intends to initiate a process to consider the appropriate POI rates and service charges, following which it will dispose of these matters having regard to its determination in this order regarding methods of interconnecting to the POI.

Direction

110.

By 20 September 2000, the cable carriers are directed to issue amended tariff pages and to file revised service agreements reflecting the Commission's determinations in this order.

Procedure with respect to issues on which comment is sought

111.

Parties, including cable carriers, may file comments with the Commission on the issues below by 20 September 2000, and may file reply comments with the Commission by 5 October 2000, in each case serving copies on all other parties at the same time. For this purpose, parties are to use the List of Interested Parties issued by the Commission in Decision 99-8.

112.

The Commission invites comment on:

a) whether the terms that apply to the cable carriers' access service in respect of customers which are competitors relating to:

i) liability for anti-competitive acts,

ii) termination clauses, and

iii) service outages

should be the same terms approved in Order 2000-397 for ILECs and, if not, what the terms in question should be; and

b) the Commission's preliminary view that its determination on winback made under the Broadcasting Act in respect of competition in cable service should also apply in the context of the cable carriers' access service and specifically, whether a cable carrier should not engage in winback activity within 90 days of the date the carrier receives notification of an end-user change of ISP. The Commission set out its determination in a letter dated 1 April 1999, "Re: CISC Dispute - Rules Regarding Communication Between the Customer and the Broadcasting Distribution Undertaking".

113.

Where a document is to be filed or served by a specific date, the document must be actually received, not merely sent, by that date.

114.

Parties wishing to file an electronic version of their submissions can do so by email or on diskette. The Commission email address is procedure@crtc.gc.ca.

115.

The electronic version should be in the HTML format. As an alternative, those making submissions may use "Microsoft Word" for text and "Microsoft Excel" for spreadsheets.

116.

Please number each paragraph of your submission. In addition, please enter the line ***End of document*** following the last paragraph. This will help the Commission verify that the document has not been damaged during transmission.

117.

The Commission will make submissions filed in electronic form available on its web site at www.crtc.gc.ca in the official language and format in which they are submitted. This will make it easier for members of the public to consult the documents.

118.

The Commission also encourages interested parties to monitor the public examination file (and/or the Commission's web site) for additional information that they may find useful when preparing their submissions.

119.

The record of this proceeding may be examined or will be made available promptly upon request at the following Commission offices during normal business hours:

Central Building
Les Terrasses de la Chaudière
1 Promenade du Portage, Room G-5
Hull, Quebec K1A 0N2
Tel: (819) 997-2429 - TDD: 994-0423
Fax: (819) 994-0218

Bank of Commerce Building
1809 Barrington Street
Suite 1007
Halifax, Nova Scotia B3J 3K8
Tel: (902) 426-7997 - TDD: 426-6997
Fax: (902) 426-2721

405 de Maisonneuve Blvd. East
2^nd Floor, Suite B2300
Montréal, Quebec H2L 4J5
Tel: (514) 283-6607 - TDD: 283-8316
Fax: (514) 283-3689

55 St. Clair Avenue East
Suite 624
Toronto, Ontario M4T 1M2
Tel: (416) 952-9096
Fax: (416) 954-6343

Kensington Building
275 Portage Avenue
Suite 1810
Winnipeg, Manitoba R3B 2B3
Tel: (204) 983-6306 - TDD: 983-8274
Fax: (204) 983-6317

Cornwall Professional Building
2125 - 11^th Avenue
Room 103
Regina, Saskatchewan S4P 3X3
Tel: (306) 780-3422
Fax: (306) 780-3319

10405 Jasper Avenue
Suite 520
Edmonton, Alberta T5J 3N4
Tel: (780) 495-3224
Fax: (780) 495-3214

530-580 Hornby Street
Vancouver, British Columbia V6C 3B6
Tel: (604) 666-2111 - TDD: 666-0778
Fax: (604) 666-8322

Secretary General

This document is available in alternative format upon request and may also be examined at the following Internet site: http://www.crtc.gc.ca

	Appendix
	Directions to Cogeco, Rogers, Shaw and Vidéotron
	Include the following Item in the tariffs as Item 102.1.1 for Cogeco, Rogers, Shaw and Item 101.1.1 for Vidéotron:
	"Nowhere in the tariff or in an Agreement entered into between [name of carrier] and its customer with respect to this service, shall there be a limitation, restriction or other term that is less favourable than the basis on which the [name of carrier] uses its facilities to offer its own higher speed retail Internet Service."
	Delete terms providing that the terms and tariffs do not apply to services and facilities provided by the carrier to its own retail IS subscribers (Cogeco, Rogers and Shaw Item 102.1.1; Vidéotron Item 101.1.1).
	Incorporate the service suspension and termination terms set out in paragraph 32 of Order 2000-397.
	a) Amend the definition of Cable Modem Retail Level Internet Services and of the POI and all other relevant terms, removing references to DOCSIS, including the requirement for DOCSIS compatibility and compliance;
	b) Include a term requiring that the cable modem used by the ISP must be compatible with the carrier's access and distribution system.
	Delete all terms that require a) the carrier's approval or certification of specific modem models used by ISPs and b) provide the carrier may change or withdraw such approval once given (Item 102.9.2 for Cogeco, Shaw and Rogers and Item 200.2.k for Vidéotron).
	Include a term providing that the ISP and the carrier will give each other advance notice in writing of POI and network changes that affect the other party six months before the proposed changes or when the carrier or ISP makes the decision to proceed with the change, whichever is earlier (that is, a minimum of 6 months notice).
	Include a term providing that the carrier will maintain a current list of existing POIs in the tariff.
	With reference to the slamming charge, substitute $60 for $300.
	Ensure the tariff clearly indicates that the one year minimum service period applies only to charges associated with the POI, and not to end-user charges.
	Reword terms referring to service availability such that they provide that the access service will be available in locations where the carrier offers retail higher speed IS, provided the necessary facilities and equipment are available (Cogeco, Rogers and Shaw Item 102.3.3, Vidéotron, Item 200(3)(m)).
	With respect to Item 102.1.2 (Rogers and Cogeco), Item 101.1.3 (Vidéotron) substitute and, in the case of Shaw (new Item 102.1.3), insert the following: "These terms do not limit (name of carrier) liability in case of deliberate fault or gross negligence, anti-competitive conduct, or of breach of contract where the breach results from the gross negligence of (name of carrier)."
	Directions to Cogeco, Rogers, Shaw or Vidéotron
	a) Cogeco, Rogers and Shaw - Add "validly" before "disputed" in the first sentence of Item 102.7.2.
	b) Vidéotron - Replace "successfully" in Item 200.3.q with "validly".
	c) Cogeco, Rogers and Shaw - Revise tariffs and service agreements by inserting Vidéotron's slamming procedures (Schedule 6 of Vidéotron's proposed interconnection agreement).
	Cogeco, Rogers and Shaw - Add the words: "on which service is or is to be provided" in Item 101.4.1 after the phrase "[The carrier's] agents and employees may, at reasonable hours, enter Premises".
	Cogeco, Rogers and Shaw - Delete the words "In the event that the End-user cancels the basic cable service provided by [name of carrier] and receives broadcast services from an alternate BDU" in Item 102.3.5 and substitute: "In the event that the End-user's premises are located upon or within real property to which [name of carrier] has not the requisite access or use right,".
	Cogeco (Item 102.5.10), Rogers (Item 102.5.8) and Vidéotron (Item 210.3.f) - Amend the Items to provide for a deposit of $1000.
	Vidéotron - Remove "coaxial" in the definition of Internet Service Provider in Item 200.2
	Vidéotron - Amend Item 200.3.a to provide for a minimum service period of one year.
	Vidéotron - Amend Item 200.3.f to remove the financial penalty.
	Vidéotron - Delete Item 200.3.m.
	a) Shaw and Rogers - Amend the definitions of "end-user" to remove the restriction to a residential end-user (Shaw: Delete Item 101.1.2(d) and Rogers: Delete the second sentence and the restriction to the residential marketplace in the first sentence of Item 102.8.4)), make all required consequential amendments and include, at its option, an item describing the access service as being designed for a residential market.
	b) Shaw and Rogers - Remove the restriction on use of the access service in relation to end-user telecommuting.
	a) Cogeco, Shaw and Vidéotron - Remove terms limiting the types of circuits that ISPs may use to interconnect with the POI.
	b) Rogers - Delete the second sentence in Item 102.5.3.
	c) Cogeco, Rogers, Shaw and Vidéotron - Include the following provision in its tariff: "Interconnections at the POI must be made via (a) one or more dedicated DS3's, (b) Fast Ethernet 100Base-FX, (c) OCS Packet over Sonet, (d) ATM, or other mutually-agreed on high-speed telecommunications facility."
	d) Rogers, Shaw and Vidéotron - Make all consequential changes required to its service or interconnection agreement.
	a) Cogeco, Rogers and Shaw - (i) Delete Item 102.17.1(d); (ii) Delete the reference in Item 102.17(g) to Item 8.3.
	b) Rogers - (i) Amend the references in Item 102.17.1(f) by changing 5.11 and 5.12 to 5.9 and 5.10, (ii) Delete the second sentence of Item 102.8.2 and (iii) Delete the reference in Item 102.17.1(g) to Item 8.4.
	c) Vidéotron - (i) Delete the words "or regulate" in the second sentence in Item 101.7.5 and (ii) Cross-reference "7.5" in Item 101.12.(f) by adding it to that Item.
	Cogeco, Rogers and Shaw:
	a) Delete Item 102.18 (a), (b) and (e);
	b) Delete the reference to 8.3 in Item 102.18(d); and
	c) Amend Item 102.17.7.5 by adding "to a customer or its end-user" before the words "if such immediate action is necessary.".
	Vidéotron - Delete the second sentence in Part B, Item 201.3.g and substitute language reflecting the approach taken in Sections 2.4 and 2.5 of Rogers's and Shaw's service agreements.
	Cogeco, Rogers and Shaw - Amend the tariff to permit resale of the access service.
	Cogeco - Amend Item 101.1.5 by (i) changing "or" to "and" and (ii) deleting the words "and any related agreement".
	Vidéotron - File, within 30 days of the date of this order, Schedules 2 and 3 to its interconnection agreement or advise the Commission when it anticipates it will file these Schedules.
	Rogers and Cogeco - Delete Item 102.2.4.
	Rogers, Vidéotron and Cogeco - Amend Item 102. 12.3 (Rogers and Cogeco) and Item 101.9.2 (Vidéotron) by deleting paragragh (b) and adding a second sentence as follows: "However, where the problem is occasioned by (name of carrier) negligence, (name of carrier) is also liable for the amount calculated in accordance with [Article 12.5 (Rogers and Cogeco) and Article 9.3 (Vidéotron)]".
	Rogers, Cogeco and Vidéotron - Amend Item 102.12.5 (Rogers and Cogeco) and Item 101.9.3 (Vidéotron) by substituting the following at the beginning of the Item: "Except with regard to physical injuries, death or damage to customer premises or other property occasioned by its negligence,.".
	Rogers and Cogeco - Delete Item 102.2.7.
	Shaw's and Rogers's service agreement - Delete section 6.3 and last sentence of section 6.1(3).

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