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Decision CRTC 2001-534

Ottawa, 31 August 2001

Forbearance from regulation of incumbent local exchange carriers' out-of-territory services

Reference: 8640-T42-01/00

The decision in brief

This Commission decision approves an application by TELUS Communications Inc. (TCI), which asked the Commission to refrain from regulating certain services provided by TCI outside its traditional operating territory.

In addition, as requested by other incumbent local exchange carriers, this decision is extended to all other telephone companies regulated by the Commission.

The Commission retains its powers to ensure that the confidentiality of customer and competitor information will continue to be protected, and the Commission also retains the necessary powers to protect against undue preference or unjust discrimination.

Regulatory safeguards that have been established by the Commission - including the split rate base, price caps and bundling rules - are expected to limit cross-subsidization and maintain a competitive environment for telecommunications services in Canada.

Background

1. TELUS Communications Inc. (TCI) is amalgamating TCI, TELUS Communications (B.C.) Inc. (TCBC) and TELUS Mobility Cellular Inc. (TMCI). TMCI provides wireless services in various parts of Canada on a forborne basis. With the recent purchase of Clearnet Communications Inc., TMCI also plans to operate as a competitive local exchange carrier (CLEC) outside its traditional operating territories of British Columbia and Alberta.

2. Since the beginning of competition in telecommunications services, the Commission has allowed major telephone companies to offer services in competition with other suppliers. The Commission has also forborne from regulating services offered by the telephone companies in competitive markets when the Commission found that the companies did not dominate those markets.

The proceeding

3. On 17 April 2000, TCI requested forbearance from regulation of services provided by the amalgamated entity in geographic areas outside the territories in which TCI and TCBC operate as incumbent local exchange carriers (ILECs).

4. TCI requested the same scope of forbearance from the regulation of out-of-territory services that was granted by the Commission in three decisions:

The forbearance determinations in these decisions applied to, respectively:

5. In a letter dated 25 May 2000, Bell Canada, on behalf of Island Telecom Inc., Maritime Tel & Tel Limited, MTS Communications Inc., NBTel Inc., NewTel Communications Inc. and Saskatchewan Telecommunications (collectively, Bell Canada et al.) requested that the Commission's findings with respect to TCI's application should also apply to other telephone companies regulated by the Commission, when they provide services outside their traditional operating territories.

6. In response, on 14 July 2000, the Commission issued Public Notice CRTC 2000-98, Seeking comments on telcos' forbearance outside their traditional territories. PN 2000-98 identified two issues:

  1. whether it would be appropriate to forbear from regulation of services provided out-of-territory; and
  2. the adequacy of the Commission's regulatory safeguards to address anti-competitive practices if a telephone company provides out-of-territory services on a forborne basis.

7. Bell Canada et al. and TCI were made parties to this proceeding. The Public Interest Advocacy Centre, on behalf of Action Réseau Consommateur, the Consumers' Association of Canada, la Fédération des associations coopératives d'économie familiale du Québec and the National Anti-Poverty Organization (ARC et al.), Canada Payphone Corporation (CPC), GT Group Telecom Services Corp. and the Competition Commissioner also participated in the proceeding.

Positions of the parties

Appropriateness of forbearance

8. TCI argued that it would be appropriate for the Commission to forbear from out-of-territory services provided by an ILEC, since an ILEC is not dominant outside its traditional operating territory. TCI submitted that the requested forbearance is consistent with the policy objectives of the Telecommunications Act (the Act), that markets for services provided by ILECs outside their traditional territory are sufficiently competitive to protect user interests, and that forbearance would not be a threat to continued market competition.

9. TCI submitted that the same issues are raised when considering forbearance from regulation of out-of-territory services as when considering forbearance from in-territory services. Further, TCI argued that an ILEC supplying out-of-territory services would not be dominant, as it would be competing in the traditional territory of another ILEC, as well as with other competitors.

10. The Competition Commissioner agreed with the applicants' evidence that they do not have market power or control bottleneck facilities outside their traditional geographic areas, and that there are no financial, technological or regulatory barriers to entry into the delivery of wireline services. Therefore, the Competition Commissioner supported TCI's application. The Competition Commissioner submitted that the Commission should forbear, pursuant to section 34(1) of the Act, from regulation of the telephone companies' out-of-territory services.

11. Group Telecom submitted that TCI's application is not a forbearance application since, if the application were denied, TCI could continue to offer, on a forborne basis, the services offered by its affiliates.

The adequacy of competitive safeguards

12. ARC et al., CPC and Group Telecom were concerned that the ILECs might obtain a competitive advantage by using shared corporate services and management resources to provide out-of-territory services at lower costs than their competitors. Therefore, ARC et al. recommended that the Commission forbear conditionally, and order the ILECs to maintain records on the sharing of operating costs (such as advertising and consumer information programs) between an ILEC and its affiliates/divisions.

13. ARC et al. also submitted that forbearance from the companies' out-of-territory operations should be conditional on the protection of confidential customer information, consistent with federal legislation, including the new Personal Information Protection and Electronic Documents Act.

14. CPC recommended that the Commission monitor possible subsidy flows from an ILEC's Utility service to its Competitive service components, and that all agreements between the ILECs regarding payphones be terminated.

15. TCI submitted that the Commission determined in Telecom Decision CRTC 94-19, Review of regulatory framework, dated 16 September 1994, that costing safeguards, the imputation test, as well as the split rate base and price cap regulation are adequate competitive safeguards when an ILEC provides both regulated and competitive services.

16. TCI argued that out-of-territory services would be assigned to the Competitive segment of the split rate base, and that this assignment would protect against cross-subsidies from Utility services to out-of-territory services provided by the company. Accordingly, TCI submitted that the conditions proposed by ARC et al. and CPC are not required. TCI also submitted that, as more services become competitive, there are fewer opportunities for telephone companies to cross-subsidize competitive services, and that the Commission could use its powers under section 27(2) of the Act to resolve any instances of undue preference or unjust discrimination.

17. Bell Canada et al. submitted that if the application were approved, the Commission would retain its powers under sections 27(2), (3) and (4) of the Act to deal with allegations of undue preference or unjust discrimination. Further, the Commission would retain its competitive safeguards, such as Phase III/split rate base accounting, the imputation test, and the bundling rules.

18. The Competition Commissioner submitted that the competitive safeguards reduce the likelihood and incentives for cross-subsidies from Utility to Competitive services. This would thus reduce the incentive and the opportunity for the major telephone companies to engage in anti-competitive pricing both within and outside their traditional territories. The Competition Commissioner submitted that the Commission should continue to exercise some of its powers under sections 24, 27(2), (3) and (4) of the Act.

Conclusions

19. In several recent decisions, the Commission has forborne from exercising certain regulatory powers in relation to mobile wireless, retail Internet and interexchange services provided directly by an ILEC both within and outside the ILEC's territory.

20. The Commission notes that the ILECs that are parties to this proceeding (Bell Canada et al. and TCI) have CLEC affiliates that offer services on a forborne basis pursuant to the Commission's findings in Decision 97-8. Pursuant to Decision 98-8, ILEC affiliates may now also provide payphone services on a forborne basis outside their territory in competition with other ILECs. In addition, several ILEC affiliates have registered as non-dominant carriers pursuant to Decision 95-19 and offer services both inside and outside the affiliated ILECs' traditional territories on a forborne basis.

21. In this proceeding, the ILECs have requested that the Commission forbear from regulating certain services identified in paragraph 4 above, when those services are provided by ILECs outside their traditional geographic territory.

22. In this proceeding, no party contested that ILECs do not have market power outside their traditional service territories, since they will be competing with the ILEC and with other carriers.

23. The Commission is of the view that where a company that operates as an ILEC in its local serving territory provides local exchange services outside its ILEC serving territory, it should be considered as operating as a CLEC. In this context, it should therefore be subject to the regulatory framework applicable to a CLEC, which is contained primarily in Decision 97-8. Moreover, when it offers local pay telephone service as a CLEC, it would be subject to the regulatory framework established in Decision 98-8. Accordingly, the forbearance determinations in Decisions 97-8 and 98-8 apply to the provision of services as a CLEC by a company that otherwise operates as an ILEC, and the forbearance determinations in this decision do not apply to these services.

24. The ILECs also requested forbearance with regard to those services for which the Commission forbore to other carriers in Decision 95-19 for other non-dominant carriers. These services will be referred to below as "the services in question".

25. ARC et al., CPC and Group Telecom were concerned that the ILECs might obtain an advantage over competitors to the extent that they could use shared corporate services and management resources to provide out-of-territory services at lower costs than their competitors. Therefore, ARC et al. recommended that the Commission forbear conditionally, and order the ILECs to maintain ILEC/affiliate-division cost-sharing records for operations such as advertising and consumer information programs.

26. CPC recommended that the Commission monitor possible subsidy flows from the ILEC's Utility to Competitive services, and that all agreements between ILECs regarding payphones be terminated.

27. The Commission is of the view that the proposed measures are not required and that existing competitive safeguards, such as price caps, the split rate base, the imputation test and the bundling rules are sufficient to protect against anti-competitive behaviour and prevent cross-subsidization.

28. With regard to Group Telecom's recommendation that the Commission deny TCI's application because of alleged past violations of Commission rules and orders, the Commission notes that the issues raised by Group Telecom have either been disposed of by the Commission, or resolved. The Commission is of the view that Group Telecom's argument is without merit.

29. The Commission considers that the provision of the services in question by ILECs outside of their traditional territories should be subject to the same regulatory framework that applies to the provision of the services by competitor carriers. That is, the services in question should be subject to the same degree of forbearance as set out in Decision 95-19 for non-dominant carriers.

30. Pursuant to section 34(1) of the Act, the Commission finds, as a matter of fact, that forbearance to the extent set out below in respect of the services in question provided by ILECs outside their traditional territories is consistent with the Canadian telecommunications policy objectives outlined in section 7 of the Act. In addition, pursuant to section 34(2) of the Act, the Commission finds, as a matter of fact, that the services in question to be provided by ILECs outside their traditional territories will be subject to competition sufficient to protect the interests of users.

31. Pursuant to section 34(3) of the Act, the Commission also finds that such forbearance would not unduly impair the continuance or the establishment of a competitive market for the forborne services.

32. Accordingly, pursuant to section 34 of the Act, the Commission refrains from exercising its powers and performing its duties pursuant to sections 24 (in part), 25, 29, 31 and sections 27(1), (5) and (6) of the Act in relation to the services in question provided by ILECs outside their traditional territories, to the extent set out below.

33. The Commission will continue to exercise powers and perform duties under sections 27(2) and (4) of the Act, with regard to issues related to access to the networks of competing carriers, and the resale and sharing of their services.

34. The Commission considers it necessary to retain section 27(3) of the Act in relation to the services in question, as this section refers to sections with respect to which the Commission will continue to exercise powers and perform duties, as well as to section 34 itself and to section 40, which is not one of the sections enumerated in section 34. 

35. The Commission retains its powers under section 24 of the Act in order to impose the same conditions on the provision by ILECs of the out-of-territory services in question as were imposed by the Commission in respect of the services covered in Decision 95-19, with the exception of the foreign carrier agreements condition that no longer applies.

36. For example, ILECs providing the services in question must comply with the registration requirements of Decision 95-19. The existing conditions regarding disclosure of confidential information to third parties will continue to apply. Also, the Commission retains its powers under section 24 of the Act to impose conditions as needed in the future.

37. The Commission therefore orders that, pursuant to section 34(4) of the Act, effective immediately, sections 24, 25, 27, 29 and 31 of the Act do not apply to the services in question provided by ILECs outside of their traditional territories to the extent that those sections are inconsistent with the determinations in this decision.

Secretary General

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

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