Search

Decision CRTC 2000-150

Ottawa, 9 May 2000

SaskTel - Transition to federal regulation

Reference: 8663-S22-01/99

Table of contents

Saskatchewan Telecommunications (SaskTel) will join Canada's other major incumbent telephone companies under the Commission's jurisdiction on 30 June 2000. This decision provides the parameters for an 18-month transitional regulatory framework to federal regulation that expires 31 December 2001.

The Commission accepts SaskTel's commitment not to increase utility service rates above the established tariff level at 30 June 2000 during the transition period. However, the Commission finds the company's proposal to freeze the contribution rates inappropriate as its transitional regulatory regime is somewhat different from the other major incumbent telephone companies' price cap regime.The timing of a review of SaskTel's financial situation is likely to coincide with the price cap review of these other telephone companies.

Acceptance of SaskTel's pricing commitment will not preclude the Commission from conducting a review of certain tariffs that require examination. In addition, if the company wishes to introduce new services, seek rate reductions for existing services, or bundle other services with utility services, it will be required to file cost studies as part of its tariff applications.

The Commission believes that sufficient safeguards against cross-subsidization should be in place prior to granting forbearance for specific competitive services. Accordingly, it considers appropriate SaskTel's proposal to align its accounting separation methodology with that of the other major incumbent telephone companies. Further, the Commission has established reporting requirements to monitor SaskTel's financial performance and to ensure that no unreasonable preference is granted to an affiliate of the company.

The Commission requires that SaskTel bring its competitor interconnection tariffs and agreements more closely in line with those approved for the other major incumbent telephone companies.

An assessment of the appropriateness of SaskTel's agreements, terms, conditions and rates will be conducted once they are filed by the company before 30 June 2000.

SaskTel and SaskTel Mobility are granted forbearance effective 30 June 2000 similar to that of the other telephone companies for services found to be subject to competition, consistent with the objectives of the Telecommunications Act. Forbearance is conditional on SaskTel's proposal to align some of the terms and conditions for its services with those of the other major incumbent telephone companies.

Introduction

1. On 21 September 1999, SaskTel filed an application pursuant to Part VII of the CRTC Telecommunications Rules of Procedure proposing a transitional regulatory framework for a period of 18 months, to become effective when SaskTel becomes federally regulated on 30 June 2000.

2. To consider SaskTel's application and seek comments from interested parties, the Commission issued SaskTel – Application for transition to federal regulation, Telecom Public Notice CRTC 99-22, dated 4 October 1999. A list of interested parties to this proceeding is provided in the appendix to this decision.

Transitional regulatory framework

3. The Commission approves an 18-month transitional regulatory framework for SaskTel, during which the company will not increase its utility service rates above the levels established on 30 June 2000. SaskTel will align its tariffs, agreements and terms of service with those of the other major incumbent telephone companies as described below and file them for Commission approval before 30 June 2000. A full review of SaskTel's financial situation is expected to be initiated coincidental to the price cap review for the other major incumbent telephone companies.

Transitional period and pricing commitments

4. SaskTel submitted that eventually it can be subject to a regulatory framework consistent with that applied to the other major incumbent telephone companies. SaskTel further submitted that a full review of its financial situation should be conducted in conjunction with the upcoming proceeding to review the current price cap regime for the other major incumbent telephone companies.

5. SaskTel proposed a transitional regulatory framework for the period 30 June 2000 to 31 December 2001, during which SaskTel committed not to increase the rates for any of its utility services above the levels established on 30 June 2000 and approved by the Commission. Consistent with the Commission's previous directives applied to the other major incumbent telephone companies, SaskTel proposed to freeze the rates for 911 and Saskatchewan relay service throughout the transition period.

6. Interested parties generally opposed the pricing commitments and requested that SaskTel's rates and policies be given only interim approval on 30 June 2000. Some parties were of the view that immediately upon coming under federal regulation, SaskTel should file the standard studies and cost evidence supporting its proposed rates, particularly for contribution and essential competitor services. Parties also had concerns regarding the delay of a full review of SaskTel's financial situation.

7. In that respect, the Commission notes that it is not unusual for it to approve rates for a company coming under federal regulation and initiate a review at a later date, as it did in the case of MTS Communications Inc. (MTS). Further, a request by SaskTel for local rate increases would have required a full review of SaskTel's financial situation. SaskTel's commitment not to increase rates for any of its utility services above the levels established on 30 June 2000 obviates the need for a full review at this time.

8. In light of the above and SaskTel's commitment to align with federal telecommunications policies similar to those applied to other major incumbent telephone companies, the Commission is of the view that the proposed 18-month transitional regulatory framework is reasonable. 

9. Given the length and the purpose of the transition period, the Commission believes it appropriate to accept SaskTel's commitments not to increase rates for any of its utility services above the levels established on 30 June 2000. However, the Commission denies SaskTel's request to freeze the rates for 911 and Saskatchewan relay service during that period. SaskTel's proposal to freeze its contribution rates is dealt with later in this decision. The Commission considers that acceptance of SaskTel's pricing commitment for all utility services will not preclude it from conducting a review, on a case-by-case basis, of certain tariffs that it considers require examination. 

10. The Commission intends to initiate a full review of SaskTel's financial situation within the 18-month transition period. The Commission expects that the timing of the review will coincide with the price cap review of the other major incumbent telephone companies.

11. The Commission notes that a number of important issues other than financial issues may need to be addressed after 30 June 2000, including the roll-out of local number portability, establishment of a portable subsidy mechanism, implementation of a central fund and the recovery of start-up costs. In addition to the above, the Commission notes that in Telephone service to high-cost serving areas, Telecom Decision CRTC 99-16, dated 19 October 1999, it indicated that it would consider how that decision should apply to SaskTel in a future proceeding once it comes under the Commission's jurisdiction.

Tariffs and agreements

Request for final approval

12. SaskTel requested final approval of all rates, terms and conditions for services provided on 30 June 2000 and approval of all agreements in effect on that same day.

13. SaskTel's tariffs and agreements were not filed for approval in this proceeding. The Commission will not, therefore, make a determination in this decision on whether to approve tariffs and agreements either on an interim or final basis. The Commission will make that determination after SaskTel has filed its tariffs containing all terms, conditions and rates for services (excluding those which are forborne) to be provided on 30 June 2000 and its agreements in effect on that same day.

Interconnection agreements

14. SaskTel indicated that the interconnection agreements that it has with other carriers have been filed with the Commission. SaskTel stated that it may enter into agreements with other carriers before 30 June 2000 and that it will submit for the Commission's approval all agreements with other carriers that have not previously received approval.

15. The Commission directs SaskTel to file before 30 June 2000, all other interconnection agreements that have not been previously approved by the Commission.

Provincial E-911 and Saskatchewan relay services

16. SaskTel indicated that it will file all Provincial E-911 Service Agreements with the Commission by 30 June 2000. Further, Saskatchewan relay service is provided under terms and conditions which are consistent with Commission decisions. SaskTel stated that the tariffs associated with this service will be filed for Commission approval prior to 30 June 2000.

17. The Commission directs SaskTel to file before 30 June 2000, Provincial E-911 Service Agreements and to make the terms and conditions for the provision of Saskatchewan relay service consistent with those approved for the other major incumbent telephone companies, as it indicated it would do in this proceeding.

Customer-specific agreements

18. SaskTel noted that the Saskatchewan Telecommunications Act permits it to enter into a special agreement with a customer for the provision of telecommunications services where the terms and conditions are at variance with those of SaskTel's tariffs. SaskTel stated that it intends to replace these customer-specific agreements (CSAs) with tariffed services by 30 June 2000.

19. However, SaskTel noted that it will not be possible to obtain customers' consent to vacate three of the CSAs without a significant financial liability. In view of this, SaskTel stated that it did not intend to make these three CSAs part of its tariffs. Pursuant to subsection 25(4)(b) of the Telecommunications Act, SaskTel requested final approval of these three CSAs, on 30 June 2000, with the restriction that the agreements may not be made available to new subscribers, or in additional quantities or at additional locations to current customers, and may not be renewed.

20. The Commission accepts SaskTel's proposal to file for approval the three CSAs noted above which will be allowed to expire and not be renewed.

21. The Commission directs SaskTel to file, before 30 June 2000, the three CSAs and tariffs for all telecommunications services not forborne from in this decision.

Support structure agreements

22. SaskTel stated that the only support structure agreements currently in place are between SaskTel and cable operators. SaskTel stated that there are essentially two forms of agreement, one which was negotiated as part of the multi-million dollar sale of SaskTel's cable television plant to the local cable television operators in 1986, and the other which has been offered to cable television operators that were not part of the sale transaction.

23. The Canadian Cable Television Association (CCTA) stated that it has several concerns respecting the provisions for support structures currently in place in SaskTel's territory. The CCTA argued that these issues could be resolved by requiring SaskTel to adopt the same support structure tariffs and agreements as required for the other major incumbent telephone companies. The CCTA submitted that SaskTel should be directed to put forward a proposed tariff for joint use pedestals and the tariff should be consistent with those of the other major incumbent telephone companies.

24. In reply, SaskTel stated that it has developed a draft support structure agreement, to be amended according to Telecom Order CRTC 2000-13, dated 18 January 2000. It intends to put a support structure agreement in place prior to 30 June 2000 and make it available to eligible entities requesting access to support structures on a going-forward basis. However, SaskTel objected to the CCTA's attempts to have the Commission order existing permits to be transferred to the new agreement under the same terms and conditions. SaskTel stated that the cable companies, having obtained valuable benefits as a result of the sale of SaskTel's cable plant to them in 1986, should not be permitted to escape their responsibilities under the agreement as part of this proceeding.

25. In light of the above, the Commission directs SaskTel to file for approval, before 30 June 2000, its current support structure agreements signed with cable operators. Issues regarding these agreements can be raised with the Commission on a going-forward basis. The Commission further accepts SaskTel's proposal and directs it to file, before 30 June 2000, its support structure agreement for future services consistent with Order 2000-13 and to make this agreement available on a going-forward basis.

Imputation test

26. SaskTel submitted that should the company introduce any new services or wish to lower rates of any of its existing services, it would submit tariff applications, supported by the necessary documentation and costing information. SaskTel stated that it is in the process of developing Phase II costing capabilities to support its future tariff filing requirements. In this regard, the Commission notes that in this proceeding SaskTel stated that its imputation test methodology will be the same as that prescribed by the Commission.

27. The Commission directs SaskTel to file for approval its imputation test methodology by 31 October 2000. Until such approval, SaskTel must include cost studies as part of its tariff applications where an imputation test would be required. Filings requiring cost studies would include new services, rate reductions, and services bundled with utility services.

Terms of service

28. SaskTel indicated that prior to 30 June 2000, it will adopt the terms of service consistent with those currently in force for the other major incumbent telephone companies.

29. The Commission directs SaskTel to file before 30 June 2000 and to align its terms of service applicable to competitors as well as the terms of service applicable to all customers with those approved by the Commission for the other major incumbent telephone companies.

Safeguards against cross-subsidization

30. The Commission considers that the Split Rate Base (SRB) methodology and intercorporate transaction reports are appropriate tools to safeguard against cross-subsidization from the utility segment of a telephone company. In this regard, it accepts SaskTel's proposed SRB methodology along with its proposed changes and directs the company to report its intercorporate transactions on a quarterly basis.

Split Rate Base methodology

31. SaskTel indicated that the methodology used in its SRB reporting system did not evolve from Phase III methodology as did that of the other telephone companies. SaskTel submitted that its SRB methodology assigns revenue, expense and investment amounts to the utility and competitive segments according to its definition of these segments. SaskTel identified two differences between its methodology and that of the other incumbents:

a) the treatment of customer profile information; and

b) the lack of empirical evidence that all costs identified as common are fixed in nature.

32. SaskTel indicated that it planned to address these two differences by 30 June 2000.

33. Parties submitted that, as SaskTel's SRB methodology is not based on Phase III costing methodology, it is difficult to assess its reasonableness. They also submitted that SaskTel will be the only major incumbent telephone company that has not had its SRB methodology reviewed and approved by the Commission. Parties also expressed concern regarding how SaskTel reflects its use of direct connection service and the implied costs for the service in its SRB methodology.

34. SaskTel replied that, although its methodology did not evolve from Phase III methodology, it did employ the Phase III costing principles and methodologies to develop its SRB manual. The company noted that the audits performed by Deloitte & Touche confirmed that these procedures are substantially consistent with Phase III methodology. SaskTel submitted that it has an accounting separation in place consistent with appropriate SRB methodology and sufficient for the purpose of providing the competitive safeguards necessary for forbearance.

35. With respect to the direct connection service, SaskTel submitted that its treatment of switching and aggregation revenues and costs is completely consistent with Commission directives in Implementation of regulatory framework - splitting of the rate base and related issues, TelecomDecision CRTC 95-21, dated 31 October 1995.

36. After reviewing SaskTel's specific switching and aggregation assignments to the SRB segments, the Commission considers that SaskTel's treatment of its switching and aggregation revenues and costs is in compliance with Commission directives in Decision 95-21.

37. The Commission finds SaskTel's definition of its utility and competitive segments, in its SRB methodology, to be consistent with current directives. The methodology used by SaskTel is reasonably in line with those of the other telephone companies, with the exception of the two differences noted by SaskTel. Therefore, the Commission accepts SaskTel's proposed SRB methodology for the proposed transition period and directs that, by 30 June 2000, it provide empirical evidence to support its assignment of costs to the common category and modify its assignment methodology as it applies to customer profile information in compliance with the directives in Decision 95-21.

Intercorporate transaction policies

38. SaskTel filed a copy of its intercorporate transaction policies as part of this proceeding. In addition, SaskTel proposed to file, during the transition period, intercorporate transaction reports as provided by other major incumbent telephone companies operating under price regulation. SaskTel indicated that it is the company's understanding that services provided to SaskTel Mobility through SaskTel's Carrier Services Group (CSG) are not required to be included in intercorporate transaction reports.

39. The Commission considers that the general principles outlined in SaskTel's policy are consistent with those set out in Review of intercorporate transactions policies, rules and procedures, Telecom Decision CRTC 97-5, dated 21 March 1997.

40. Intercorporate transaction reports are an effective tool to ensure that no undue or unreasonable preference is granted to an affiliate of the telephone companies, and can help to identify any potential cross-subsidies to an affiliated company.

41. Although SaskTel has an accounting separation system, the Commission has not yet been through a full review of SaskTel's financial situation. Therefore, total company intercorporate transactions and a quarterly basis reporting requirement would be more beneficial in monitoring SaskTel's operations during the transition period.

42. Consistent with previous decisions, as the CSG is a division of SaskTel, the Commission is of the view that transactions between this division of SaskTel and affiliated companies should be reported as intercorporate transactions.

43. The Commission approves SaskTel's intercorporate transaction policy as submitted and directs the company to include, as part of its reporting requirement, all transactions which combine to exceed $100,000 annually, between the total company (including the CSG) or integral affiliates and all its non-integral affiliates. Furthermore, the Commission directs SaskTel to report intercorporate transactions on a quarterly basis, within 90 days of the end of the quarter commencing on 1 October 2000.

Competitive services

44. The Commission considers it appropriate for SaskTel to align its competitor interconnection tariffs in a manner consistent with those approved for other major incumbent telephone companies. SaskTel's proposal to freeze its contribution rates during the transition period is hereby denied. The company is directed to show cause as to why it should not adopt the $0.003/minute/end rate for direct connection service approved for other major incumbent telephone companies.

Contribution rates and calculation methodology

45. In its application, SaskTel proposed that its interexchange contribution rates be approved on a final basis and be frozen until the end of the transition period, or until the Commission implements changes to the contribution mechanism as a result of the proceeding pursuant to Review of contribution collection mechanism and related issues, Telecom Public Notice CRTC 99-6, dated 1 March 1999. SaskTel estimated that its average contribution rate would be $0.0184/minute/end effective 30 June 2000. SaskTel indicated that this rate would decrease to approximately $0.0125/minute/end, if its application to the Government of Saskatchewan for local rate increases were approved.

46. Parties submitted that only interim approval should be given to SaskTel's contribution rates, pending a full review of SaskTel's studies and cost evidence that supports its contribution rates.

47. The Commission notes some differences between SaskTel's contribution calculation methodology and that of the other major incumbent telephone companies:

48. SaskTel proposed that it use a per-circuit surcharge for WSPs, as a proxy of one of the other major incumbent telephone companies that has similar operational and service environments and similar contribution requirement until a decision is issued for PN 99-6.

49. Rogers Wireless Inc. (RWI) submitted that a traffic study similar to that performed by WSPs, as a result of Telecom Order CRTC 97-590, dated 1 May 1997, would be a superior method of determining the level of the WSP surcharge to SaskTel's proposal of arbitrarily adopting a surcharge of another service provider.

50. The Commission notes that conditions have changed since the 1997 WSP traffic study was performed in the other major incumbent telephone companies' territories, i.e., change in number of WSPs and growth in minutes. In the Commission's view, it would be difficult to produce comparable results for SaskTel. Therefore, the Commission considers SaskTel's proposal of adopting a proxy rate to be acceptable, given the circumstances and the length of the transition period. Further, the Commission is of the view that the service environment of MTS would more closely resemble that of SaskTel than those of other major incumbent telephone companies and considers it appropriate that SaskTel use MTS'sWSP surcharge of $9.27 per-circuit during the transition period. The Commission expects SaskTel to include the impact of the WSP surcharge in its contribution requirement calculation and to file tariffs to reflect the surcharge effective 30 June 2000.

51. With respect to SaskTel applying contribution on APLDS' DAL minutes, the Commission considers that this approach should result in a more accurate reflection of market minutes in the calculation of the contribution rate. Accordingly, this approach is acceptable for SaskTel during the transition period.

52. With respect to SaskTel's toll-free access to Internet service, SaskTel proposed to include the minutes attributed to the toll-free dial-up to the Internet in the calculation of its contribution rates. The Commission considers that it is appropriate that SaskTel include these minutes in the base for determining the contribution rates, consistent with the methodology approved for other major incumbent telephone companies.

53. The Commission accepts SaskTel's undertaking to implement a contribution exemption regime on 30 June 2000 consistent with other major incumbent telephone companies.

54. The Commission considers SaskTel's proposal to freeze the contribution rates to be inappropriate since SaskTel's proposed regulatory framework is somewhat different from the price cap regime of the other major incumbent telephone companies and therefore it is denied. The Commission expects that the contribution rates approved on 30 June 2000 will remain in place for the duration of the transition period.

55. With respect to the level of SaskTel's contribution rates, the Commission notes that, although there are some differences in SaskTel's contribution calculation methodology, SaskTel's contribution rates are comparable with those of the other major incumbent telephone companies. The Commission accepts SaskTel's contribution calculation methodology for the transition period. Given the local rate increases recently approved by the Government of Saskatchewan, the Commission expects SaskTel to reduce its average contribution rate to $0.0125/minute/end at 30 June 2000, as per its proposal.

56. The Commission directs SaskTel to adopt a proxy per-circuit WSP surcharge of $9.27, the equivalent of that applicable to MTS, modify its contribution calculation to include SaskTel's toll-free access minutes to the Internet and implement a contribution exemption regime by 30 June 2000.

Direct connection rate

57. SaskTel proposed to unbundle its current switching and aggregation rate of $0.017/minute/end and offer a $0.007/minute/end rate for direct connection service by 30 June 2000. The Commission notes that by letter dated 9 March 2000, a $0.003/minute/end rate for direct connection service was approved for the other major incumbent telephone companies.

58. The Commission directs SaskTel to file unbundled tariffs for the provision of switching and aggregation services. The Commission further directs SaskTel to show cause by 30 June 2000, as to why SaskTel should not adopt the $0.003/minute/end rate approved for the other major incumbent telephone companies in the Commission's letter dated 9 March 2000.

Other competitive services

59. The Commission directs SaskTel to align, on a going-forward basis, its competitor interconnection tariffs in a manner consistent with those approved by the Commission for the other major incumbent telephone companies. SaskTel is to file a tariff for the provision of billing and collection service and to adopt the technical specifications in the technical guideline approved by the Commission as a basis for providing the service, to modify the terms for its wireless interconnection tariffs to bring them in line with other companies' tariffs, and to adjust its local loop rates consistent with Commission decisions.

Forbearance

60. The Commission grants SaskTel forbearance, effective 30 June 2000, from the regulation of terminal equipment, toll and toll-free services, interexchange private line and packet data services, retail end-user Internet services and wireless services, to the extent described below and conditional on the terms established in this decision.

61. Pursuant to subsection 34(4) of the Telecommunications Act, sections 24, 25, 27, 29 and 31 of the Act do not apply to SaskTel (or SaskTel Mobility in the case of wireless services) to the extent that these sections are inconsistent with the Commission's determinations in this decision.

Terminal equipment

62. SaskTel requested that the Commission forbear, effective 30 June 2000, from regulating the sale, lease (rental) and maintenance of terminal equipment provided by the company. More specifically, SaskTel requested forbearance from sections 24, 25, 27, 29 and 31 of the Act, to the same extent granted the other major incumbent telephone companies in relation to terminal equipment in Review of regulatory framework, Telecom Decision CRTC 94-19, dated 16 September 1994.

63. SaskTel sells, rents and maintains various types of single-line and multi-line terminal equipment (e.g., voice terminals, wireless terminals, Centrex terminal sets, key systems, private branch exchange systems and data terminal equipment for business customers). The Commission forbore from regulating these types of terminal equipment for other major incumbent telephone companies in Decision 94-19.

64. Terminal interconnection was permitted for all businesses with single-line services and residential customers in Saskatchewan starting in November 1989. This permitted all customers with single-line services to provide their own inside wire and jacks and to install and connect their own terminal equipment to SaskTel's network. Similarly, in January 1990, businesses with multi-line services were allowed to connect their own terminal equipment to SaskTel's network.

65. SaskTel's bills list equipment rental and service charges separate from network access charges.

66. The company stated that it provides a demarcation point (i.e., modular connection device) located as close as possible to the location at which SaskTel's cable enters the customer's premises. All wire and cable beyond that point is the customer's responsibility.

67. The Commission notes that, while a number of interveners raised concerns about the granting of forbearance in general, none of them raised concerns or questioned the evidence provided by SaskTel on the terminal equipment market in Saskatchewan.

68. The Commission considers that the terminal equipment market in Saskatchewan exhibits all the characteristics of a competitive market. There are numerous competitive suppliers, low barriers to entry, aggressive pricing and customers are able to easily switch equipment suppliers in both the single-line and multi-line segments of the market.

69. In light of the evidence filed by SaskTel, the Commission considers the sale, lease and maintenance of single-line and multi-line terminal equipment in Saskatchewan to be sufficiently competitive to warrant forbearance pursuant to subsection 34(2) of the Act. In particular, the Commission considers that it is appropriate to forbear from exercising its powers under sections 24 (in part), 25, 27, 29 and 31 of the Act and retain its powers under section 24 to ensure that SaskTel maintains procedures for the handling of confidential customer information.

70. However, since SaskTel submitted that 65% of households and 79% of businesses continue to lease at least one telephone set from the company, the Commission directs SaskTel to notify its customers through a bill insert that they may provide their own telephone jacks and use their own telephone sets. The Commission directs SaskTel to submit a draft copy of its notification to the Commission, before 30 June 2000, for review prior to sending it to its customers.

Toll and toll-free services

71. SaskTel requested that the Commission forbear, effective 30 June 2000, from regulating SaskTel's current and future toll and toll-free services, consistent with the forbearance granted to the other telephone companies in Forbearance - Regulation of toll services provided by incumbent telephone companies, Telecom Decision CRTC 97-19, dated 18 December 1997. In particular, SaskTel requested forbearance from sections 25, 27 (in part) and 31 of the Act. SaskTel submitted that, consistent with Decision 97-19, toll services for the purpose of this application include basic toll and discounted toll services and toll-free services (i.e., 800/888/877 services).

72. SaskTel also requested that the Commission forbear from exercising all of its powers and duties under section 29 of the Act. It noted that in the proceeding initiated by letter dated 9 August 1999 to consider Forbearance for section 29 international agreements of the former Stentor member companies, many of those companies requested that the Commission forbear from section 29 for all agreements with other telecommunications carriers that relate exclusively to forborne services, whether domestic or international.

73. In Decision 94-19, the Commission identified specific areas of concern relevant to toll forbearance that must be met in addition to the general forbearance criteria identified in section 34 of the Act. SaskTel believes that it has met the additional competitive safeguards for toll forbearance identified in that decision.

74. In Decision 97-19, the Commission determined that the filing of an imputation test, requiring that toll and toll-free services are priced above the floor level prescribed by the Commission, was not necessary for forborne toll and toll-free services. In this regard, it noted, among other things, that retaining its powers under subsection 27(2) would reduce the incentive to engage in below-cost pricing by ensuring that the terms and conditions under which forborne services are made available for resale and sharing are not unjustly discriminatory or unduly preferential.

75. Parties generally opposed granting SaskTel forbearance from the regulation of toll services. They identified the lack of an approved SRB methodology, the need for a ceiling on basic toll rates to prevent cross-subsidization of highly competitive toll services by less competitive toll services, and past restrictive interconnection rules as some elements to be addressed prior to granting forbearance.

76. Based on the evidence provided, the Commission is of the view that the toll and toll-free markets in Saskatchewan exhibit the characteristics of a competitive market. The Commission notes that consistent with its determinations in Decision 97-19, these markets are national in scope. There are no significant barriers to entry in toll markets in Saskatchewan, and a number of competitors, including facilities-based suppliers, have been providing long distance services in the province for some time. There also appears to be considerable price competition and movement in market share.

77. With respect to parties' concerns regarding SaskTel's SRB methodology, the Commission states in this decision that it accepts its methodology for the proposed transition period.

78. Further, SaskTel has committed to remove prior to 30 June 2000 any barriers identified by interveners. As such, the Commission notes that SaskTel committed to revise its Access Services Tariff and interconnection arrangements in order to align its procedures to be consistent with those of the other major incumbent telephone companies. SaskTel stated that interconnection through trunk-side direct connect facilities to SaskTel's local switches will be made available prior to the company coming under federal regulation on 30 June 2000, and that line-side interconnection will be available on 30 June 2000. In addition, SaskTel stated that coincident with the introduction of line-side interconnection, it will be expanding the scope of services available to resellers and that it will be prepared to enter into billing and collection arrangements with APLDS that require such services. SaskTel submitted that interconnection facilities will continue to be available to APLDS through its CSG, which has been established consistent with the Commission's determinations in Competition in the provision of public long distance voice telephone services and related resale and sharing issues, Telecom Decision CRTC 92-12, dated 12 June 1992.

79. The Commission notes that SaskTel has a co-location policy in place and considers that its co-location terms are generally consistent with those approved for the other major incumbent telephone companies. The Commission also notes that SaskTel stated that it would completely align any remaining differences in its co-location terms with those of the other major incumbent telephone companies prior to 30 June 2000.

80. The Commission considers that toll and toll-free markets in Saskatchewan are sufficiently competitive to warrant forbearance pursuant to section 34 of the Act, and that the additional conditions identified for toll forbearance in Decision 94-19 have been met to the Commission's satisfaction.

81. In light of the foregoing, and subject to the conditions below, the Commission forbears from regulating under sections 24 (in part), 25, 27 (in part), 29 (in part) and 31 of the Act the provision of toll and toll-free services by SaskTel. The Commission retains, consistent with Decision 97-19, its powers:

82. Consistent with Decision 97-19, the Commission imposes the following section 24 conditions on the offering and provision of toll and toll-free services by SaskTel:

83. In addition to the above, the Commission also imposes the following section 24 conditions on the offering of toll and toll-free services. Forbearance will be conditional on SaskTel having the following in place by 30 June 2000:

Interexchange private line and packet data services

84. SaskTel requested forbearance, effective 30 June 2000, from regulation of its current and future interexchange private line (IXPL) services of bandwidth DS-0 or higher where there is evidence of the presence of facilities-based competition and access to facilities. The company contends that such forbearance is consistent with the principles established in Stentor Resource Centre Inc. - Forbearance from regulation of interexchange private line services, Telecom Decision CRTC 97-20, dated 18 December 1997.

85. SaskTel further requested that it be added to the process initiated by Telecom Order CRTC 99-434, dated 12 May 1999, which required competitors to file semi-annual reports identifying all IXPL routes on which they provide or offer IXPL service at speeds of DS-3 or greater on a private line basis to at least one customer using terrestrial facilities from other than the incumbent local exchange carrier (ILEC) or an affiliate of that ILEC. SaskTel requested that the Commission indicate in its decision that SaskTel is entitled to forbearance on all such routes identified.

86. With respect to packet data services, SaskTel requested forbearance from sections 25, 29, 31, and subsections 27(1), (5) and (6) of the Act. SaskTel noted that such forbearance would grant SaskTel the same level of forbearance afforded to other data service providers in Canada.

87. SaskTel stated that for the purposes of this application, IXPL services include high capacity (bandwidth DS-0 or higher) telecommunications transport services including those services offered in conjunction with the other telephone companies under the names Megaplan (Megaroute and Megastream), High Capacity 45, VideoRoute, as well as other dedicated digital data services (DDS) at 56 kbps. IXPL services are generally used by customers to transport large volumes of data, or to form the backbone for a large corporation's own national wide area networks.

88. Packet data services are offered in conjunction with the other major incumbent telephone companies and include Datapac, HyperStream, Pospac and any future packet data and frame relay services offering essentially the same functionality. Packet data and frame relay services are used by small, medium and large businesses to enable data to be transferred and processed between various types of computer configurations (i.e., host-to-host, host-to-remote, LAN-to-LAN, LAN-to-WAN, etc.).

89. In response to a Commission letter dated 7 January 2000, Call-Net Communications Inc. stated in an 11 February 2000 letter that its operating company Sprint Canada is capable of currently providing DS-3 (or greater) bandwidth IXPL services between Regina and Saskatoon, thereby meeting the criteria established in Order 99-434.

90. SaskTel contends that competitors have made substantial in-roads into IXPL, frame relay and packet data markets in the province. It currently holds 82% of the IXPL market in the province and about 66% of the packet data and frame relay market. The interveners did not provide specific comments relating to the degree of competition in these markets in Saskatchewan. No specific comments on market share, level of rates or barriers to entry were provided.

91. IXPL and packet data services in Saskatchewan tend to be offered on a national level in conjunction with the other major incumbent telephone companies. The rates for these services in Saskatchewan tend to be the same as those offered by the other companies, which are determined at the more competitive national level.

92. The Commission notes that SaskTel's request for forbearance for IXPL services pertains only to intra-provincial IXPL since any route originating or terminating in Saskatchewan which meets the forbearance criteria set out in Decision 97-20 would already be forborne pursuant to that decision.

93. The IXPL, packet data and frame relay markets in Saskatchewan generally exhibit the characteristics of competitive markets. There do not appear to be any significant barriers to entry, a number of competitors have entered the markets in question (particularly the packet data and frame relay markets), and major facilities-based competitors such as AT&T Canada, Sprint, Bell Nexxia and TELUS Communications Inc. operate large capacity fibre routes across the province with termination points in Regina and Saskatoon. In this regard, the Commission notes that Sprint currently provides IXPL services between Regina and Saskatoon at a DS-3 or greater bandwidth. In addition, Shaw Communications offers ATM-based services in the province advertised as alternatives to frame relay services. The Commission considers that these competitors are well positioned to provide competitive IXPL and packet data services, and expects that they will be a source of increasingly greater competitive pressure in the near future.

Interexchange private line services

94. In light of the above, forbearance is granted from regulating the provision of current and future High Capacity (bandwidth DS-0 or greater) and DDS (or equivalent) IXPL services by SaskTel, on the same terms and conditions governing the other incumbents in Decision 97-20.Consistent with that decision, the Commission will forbear from the exercise of its powers under sections 24 (in part), 25, 27 (except for 27(3)), 29 (in part) and 31 of the Act for the provision of current and future High Capacity (bandwidth DS-0 or greater) and DDS (or equivalent) IXPL services by SaskTel.

95. The Commission will retain its powers under section 24 to impose the same conditions protecting confidential customer information as are currently imposed on the other major incumbent telephone companies. These conditions are to be included, where appropriate, in all contracts or agreements with customers for the provision of these services. Also, it will retain its powers under section 24 to impose any future conditions that become necessary.

96. The Commission will retain its powers under subsection 27(3) with respect to powers and duties not forborne in this decision. Also, the Commission will retain its powers under section 29 since SaskTel and the other major incumbent telephone companies have agreements and arrangements to offer services at a national level. However, the Commission will not retain its powers under section 29 in respect of those agreements which were forborne in Order 99-1202.

97. The Commission considers that SaskTel should be added to the process initiated by Order 99-434 for identifying routes that should be subject to forbearance, and that where the conditions for forbearance set out in that order are met, forbearance on the routes which qualify should be extended. In light of Call-Net's letter dated 11 February 2000 stating that Sprint offers IXPL services in SaskTel's territory that meet the criteria established in Order 99-434, the Commission herein forbears, to the extent outlined above, from regulating the provision of IXPL services between Regina and Saskatoon.

Packet data and frame relay services

98. In light of the degree of competition in the packet data and frame relay markets, the Commission considers it appropriate to forbear from regulating the provision of current and future packet data and frame relay services by SaskTel on the same terms and conditions and under the same sections of the Act as granted the other major incumbent telephone companies in Telecom Order CRTC 96-130, dated 19 February 1996. In particular, the Commission will forbear from exercising its powers under sections 24 (in part), 25, 29 and 31 and subsections 27(1), (5) and (6) of the Act for the provision of Datapac, Pospac, Hyperstream and any future packet data switched services and frame relay services offering essentially the same functionality.

99. Consistent with Order 96-130, the Commission will retain its powers under section 24 to require that conditions governing the treatment of customer confidential information are put in place and to impose certain conditions in the future, if necessary. Similarly, the Commission will retain its powers under subsections 27(2), 27(3) and 27(4) of the Act regarding issues related to access to the networks and the resale and sharing of forborne packet data and frame relay services.

100. Also, consistent with Order 96-130 for the provision of future packet data or frame relay services on a going forward basis, SaskTel is directed to file with the Commission a block diagram showing all types of plant resources to be employed. It should indicate whether such resources are discrete or shared, together with a description of the general types of applications which may be handled by the service in order to demonstrate that the service meets the conditions of forbearance.

Internet services

101. SaskTel requested that the Commission forbear, effective 30 June 2000, from regulating retail end-user Internet services provided by SaskTel, including those it may offer in the future.

102. SaskTel requested forbearance from the same sections of the Act and essentially on the same terms and conditions granted to other major incumbent telephone companies in Forbearance from retail Internet services, Telecom Order CRTC 99-592, dated 25 June 1999. In particular, SaskTel requested forbearance from sections 24 (in part), 25, 27 (in part), 29 and 31 of the Act for the provision of retail end-user Internet services.

103. SaskTel also requested that it be granted an exemption from section 36 of the Act with respect to involvement in the content of its own Internet services, consistent with that granted to the other major incumbent telephone companies in Stentor - Request for approval under section 36 of the Telecommunications Act, Telecom Decision CRTC 99-4, dated 31 March 1999.

104. SaskTel stated that its CSG provides digital subscriber line (DSL) capability to allow competitors to provide high-speed Internet services to customers. In addition, SaskTel's CSG provides unbundled call forward busy for Internet call waiting service for Internet service providers (ISPs) or alternate providers of Internet call waiting.

105. Some parties submitted that it would be inappropriate to forbear from SaskTel's Internet services until after the Commission has conducted a review of SaskTel's SRB procedures, practices and results.

106. The Commission considers that the Internet services market in Saskatchewan is intensely competitive. Based on the evidence filed in this proceeding, there is significant price rivalry and movement of market share. Barriers to entry appear to be quite low, considering that numerous competitive ISPs (including small local and large national service providers) have entered the provincial market in a relatively short period of time. Moreover, based on the market share information submitted, the cable companies have a large share of the Internet services market, particularly in the major centres in the province. In Regina and Saskatoon, the cable companies are the largest service providers. The Commission notes that the Internet market share data and other evidence on competitiveness submitted by SaskTel were not disputed by other parties.

107. SaskTel stated that all of the underlying telecommunications facilities necessary for the provision of Internet services are readily available at tariffed rates, and alternative sources of transmission facilities are emerging. The Commission further notes that major cable companies in Saskatchewan were ordered by the Commission to provide non-discriminatory third-party access to their high-speed networks.

108. In light of the high degree of competition in the retail Internet market in Saskatchewan, the Commission considers that forbearance from regulating the provision of retail end-user Internet services by SaskTel on the same terms and conditions and from the same sections of the Act as granted other major incumbent telephone companies in Order 99-592 would be appropriate.

109. Consistent with Order 99-592, the Commission will forbear from theregulation of SaskTel's retail end-user Internet services pursuant to sections 24 (in part), 25, 27 (in part), 29 and 31 of the Act.

110. Also, the Commission will retain its powers and duties under section 24 to impose conditions regarding confidential customer information as are currently imposed on the other major incumbent telephone companies. These conditions are to be included, where appropriate, in contracts or agreements with customers for the provision of these services. The Commission will also retain its powers under section 24 to impose conditions on the provision of retail end-user Internet services that may be necessary in the future. Similarly, the Commission will retain its powers under subsections 27(2), 27(3) in part, and 27(4) to provide an additional safeguard against any undue preference.

111. Further, consistent with Decision 99-4, the Commission hereby grants SaskTel approval under section 36 of the Act, for involvement in the content of SaskTel's Internet services.

Wireless services

112. SaskTel Mobility, an affiliate of SaskTel, requested that the Commission forbear, effective 30 June 2000, from regulating mobile wireless services it provides, including future mobile wireless services, to essentially the same degree as in Regulation of mobile wireless telecommunications services, Telecom Decision CRTC 96-14, dated 23 December 1996.

113. SaskTel stated that it does not currently offer competitive mobile wireless services in-house but requested forbearance from regulation of future in-house mobile wireless services, as defined in Decision 96-14, and from the same sections of the Act as in that decision.

114. In particular, SaskTel Mobility and SaskTel requested forbearance from sections 24 (in part), 25, 29, 31 and subsections 27(1), (5) and (6) of the Act for the provision of public-switched mobile voice services, and from sections 24, 25, 27, 29 and 31 of the Act for other mobile wireless services.

115. SaskTel stated that it is not seeking forbearance for exchange radio telephone service, general mobile telephone service and northern radio telephone service, which it is providing in the far north and remote areas.

116. SaskTel Mobility currently offers both analog and digital cellular services as well as enhanced specialized mobile radio (ESMR), wireless data and paging. SaskTel Mobility also has a licence and spectrum from Industry Canada to provide personal communications service (PCS) at 1.9 GHz and intends to introduce this service in 2000.

117. Parties generally opposed granting forbearance for SaskTel's wireless services. Issues related to SaskTel's dominance in the market and its unapproved SRB methodology have been raised by parties. The Commission notes that as discussed previously in this decision, safeguards against cross-subsidization and the scrutiny of costing studies have been identified as essential prior to granting forbearance.

118. Regarding the relevant geographic market for forbearance purposes, RWI submitted that SaskTel is incorrect to say that the market is national, since SaskTel operates only within the province of Saskatchewan and cannot influence prices set in the rest of Canada. It further stated that SaskTel's relatively high market share indicates a lack of competition in mobile wireless services in Saskatchewan.

119. RWI raised a number of concerns about several conditions contained in SaskTel's wireless network access tariff which it considers must be addressed before forbearance for mobile wireless services can be considered.

120. The Commission notes that concerns regarding terms of services for WSPs are addressed in a previous section of this decision.

121. The Commission considers that, based on the information provided, the mobile wireless market in Saskatchewan is sufficiently competitive to warrant forbearance. The Commission notes that SaskTel indicated that Rogers Cantel Inc. (now RWI) has 23% of the cellular market in Saskatchewan. However, given the much larger geographic coverage of SaskTel Mobility's network, which covers a much larger part of the remote rural area of the province than RWI's network, RWI's market share in major centres in the province probably exceeds its 23% province-wide share.

122. Microcell Telecommunications Inc. and Clearnet Communications Inc. are now marketing their PCS in the province. Microcell plans to build its network and TELUS to expand its mobile wireless services in the province. It appears that the mobile wireless market in Saskatchewan will become considerably more competitive.

123. The Commission also considers that the mobile wireless market in Saskatchewan is competitive in the wake of major advertising campaigns and low rates for mobile wireless service (which SaskTel submitted are similar to those offered in the rest of Canada). The Commission notes that none of the interveners disputed SaskTel's submissions in this regard.

124. There are sufficient competitive safeguards in place to ensure against anti-competitive cross-subsidies and predatory pricing, particularly at present, since mobile wireless services are being offered through a structurally separate affiliate. The Commission notes that SaskTel Mobility will adopt the same conditions of forbearance mandated by the Commission for other wireless carriers in past decisions. All support services provided by SaskTel to SaskTel Mobility must be provided pursuant to support services agreements at rates set above costs. SaskTel Mobility's and other WSP's telecommunications requirements must be handled through SaskTel's CSG to ensure a level playing field.

125. In the event that SaskTel starts to offer mobile wireless services on an in-house basis, the Commission considers that adequate safeguards are also in place to ensure against anti-competitive cross-subsidies. These are addressed in a previous section of this decision.

126. In light of the above, the Commission considers it appropriate to forbear from regulation of mobile wireless services by SaskTel Mobility and future in-house services by SaskTel under the same terms and conditions and the same sections of the Act which apply to the other major incumbent telephone companies in Telecom Order CRTC 99-991, dated 13 October 1999.

127. The Commission will forbear from exercising its powers and performing its duties under sections 24 (in part), 25, 29 and 31, and subsections 27(1), 27(3) (in part), 27(5) and 27(6) of the Act for the provision of public-switched mobile voice services, as defined in Decision 96-14, by SaskTel Mobility and by SaskTel (in the event it provides these services on an in-house basis).

128. Similarly, the Commission will forbear from sections 24, 25, 27, 29 and 31 of the Act for the provision of other wireless services, as defined in Decision 96-14, by SaskTel Mobility and by SaskTel (in the event it provides these services on an in-house basis).

129. In addition, the Commission directs SaskTel Mobility and SaskTel to comply with the following competitive safeguards:

Other reporting requirements

130. The Commission considers that an appropriate level of reporting requirement is needed in order to monitor SaskTel's financial performance in a timely fashion.

131. SaskTel proposed to file, during the transitional period, actual financial results for the utility and competitive segments on a semi-annual basis, as provided by other major incumbent telephone companies subject to price cap regulation.

132. SaskTel will be coming under the Commission's jurisdiction through a transitional regulatory framework without a prior extensive review of its financial situation and without the same regulatory framework that applies to the other telephone companies. In light of the above, the Commission considers that a more frequent level of reporting would be more appropriate for SaskTel.

133. The Commission notes that SaskTel currently has no SRB forecasting methodology and no plan to develop one. SaskTel should be expected to provide a financial forecast in a future proceeding to look at its financial situation.

134. Other reporting requirements normally associated with rate of return regulation, such as Phase I depreciation studies, are required to be filed by telephone companies requesting to change their depreciation parameters. Under these circumstances, SaskTel would also be required to file these studies during a full review of its financial situation.

135. The Commission directs SaskTel to file SRB results on a quarterly basis, 45 days after the end of each quarter, annual audited results by 31 October of the following year, and SRB manual updates annually by 31 March of each year.

136. The Commission also expects SaskTel to develop the ability to produce:

a) SRB forecast results for the purpose of establishing the company's revenue and contribution requirement in a future proceeding to review SaskTel's financial situation; and

b) Phase I depreciation studies, should it request a change in depreciation parameters.

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

Interested parties

Aliant Telecom Inc., Angus TeleManagement Group Inc., AT&T Canada Corp., AT&T Canada Telecom Services Company, Bell Canada, Mr. Andrew Briggs, Brulyn Consulting, Call-Net Enterprises Inc., Canadian Cable Television Association (CCTA), Clearnet Communications Inc., Consumers' Association of Canada (CAC), G. Pizante Consulting, Inc., Government of Saskatchewan, Industry Canada, Microcell Telecommunications Inc., MTS Communications Inc., NBI/Michael Sone Associates, NelliganPower, NewTel Communications Inc., O.N. Tel, Primus Telecommunications Canada Inc., Quadrant Newmedia, Rogers Wireless Inc. (RWI), RSL COM Canada Inc., Telesat Canada, TELUS Communications (B.C.) Inc., TELUS Communications Inc., Vidéotron Communications Inc.

Date modified: