ARCHIVED - Order CRTC 2001-145

Order CRTC 2001-145

Ottawa, 15 February 2001

Contribution-eligible direct access line traffic provided by long-distance providers' affiliates

Reference: 8695-C12-13/00

The Commission denies the application by TELUS Communications (B.C.) Inc. and TELUS Communications Inc.(collectively TELUS), requesting that the Commission: (1) deny Call-Net Enterprises Inc.'s and AT&T Canada Corp.'s exemptions from payment of the direct access line (DAL) surcharge; (2) consider imposing an affiliate rule with respect to alternate providers of long-distance services use' of DALs; and (3) declare that contribution-eligible traffic, carried by a pure DAL provider on behalf of other service providers, be subject to contribution on a per-minute basis. The Commission also denies the request by Bell Canada, Island Telecom Inc., Maritime Tel & Tel Limited , MTS Communications Inc., NBTel Inc. and NewTel Communications Inc. (collectively Bell Canada et al.), that the Commission direct Call-Net and AT&T Canada to pay the DAL contribution surcharge retroactive to 1 March 2000.

In Contribution on traffic carried by alternate providers of long distance services over direct access lines, Telecom Decision CRTC 99-9, dated 20 July 1999, the Commission provided, among other things, a simple exemption mechanism from the payment of the direct access line (DAL) surcharge for those alternate providers of long-distance services (APLDS) that do not use any DALs.

On 2 March and 17 March 2000, AT&T Canada and Call-Net, relying on that provision in Decision 99-9, filed affidavits stating that they no longer offered long-distance services on DALs and noted that their DAL-based business had been assigned to their affiliates. AT&T Canada claimed that Bell Canada and other incumbent local exchange carriers (ILECs) do not pay the DAL surcharge even though affiliates, such as Bell Nexxia Inc., provide DAL-based long-distance services.

The application

On 6 April 2000, TELUS submitted that the actions of AT&T Canada and Call-Net were contrary to the wording of Decision 99-9. TELUS asserted that AT&T Canada and Call-Net should not be allowed to avoid the payment of contribution on their DAL traffic by transferring responsibility or ownership of their DAL facilities to an affiliate.

TELUS requested that the Commission:

• deny Call-Net's and AT&T Canada's exemption applications;

• consider imposing an affiliate rule with respect to APLDS' use of DALs; and

• declare that contribution-eligible traffic, carried by a pure DAL provider on behalf of other service providers, be subject to contribution on a per-minute basis.

On 12 June 2000, the Commission issued Public Notice CRTC 2000-82 entitled Seeking comments on contribution-eligible DAL traffic provided by long distance providers' affiliates. The process was to consider the appropriate treatment of contribution-eligible traffic carried over DALs to end-customers where DAL services are provided by the affiliate of any provider of long-distance services, including the possible implementation of an affiliate rule.

Procedural matters

On 15 June 2000, Call-Net requested, among other things, that the Commission suspend the PN 2000-82 proceeding until there is a determination from the Review of contribution collection mechanism and related issues, Telecom Public Notice CRTC 99-6, dated 1 March 1999, proceeding as to the future of the current contribution mechanism. The company also requested that the Commission direct the telephone companies to stop billing Call-Net for the DAL surcharge. AT&T Canada supported Call-Net's request.

Both Bell Canada et al. and TELUS requested that the Commission issue an immediate order that the DAL surcharge applies to APLDS, on an interim basis, whether the DALs are used by the APLDS directly or by an affiliate.

On 21 June 2000, Commission staff responded to parties' requests. On the basis that it was not apparent what the outcome of PN 99-6 or PN 2000-82 would be and that there would likely be a proceeding in 2001 to implement the decision in the PN 99-6 proceeding, Commission staff stated that it was not appropriate to suspend the DAL proceeding at that time. With respect to parties' requested directions regarding billing and payment of contribution on traffic carried on affiliates' DALs, Commission staff stated that directions would not be appropriate at that time, as the rules, as they applied to affiliates of the APLDS, Bell Canada et al. and TELUS were the subject of the current PN 2000-82 proceeding.

Subsequently, Videotron requested that the Commission review the 21 June 2000 Commission staff opinion.

On 12 July 2000, Bell Canada et al. argued that interim relief was warranted, noting that their application for interim relief was intended to preserve their rights to collect the DAL surcharge retroactively in the event that Bell Canada et al.'s position in this matter is ultimately upheld. TELUS supported Bell Canada et al.'s request. On 18 July 2000, Call-Net submitted that Bell Canada et al. had failed to meet the test for interim relief.

On 8 August 2000, the Commission issued a letter decision, denying a suspension of the PN 2000-82 proceeding. In addition, the Commission considered that it was inappropriate to issue an interim order as requested by Bell Canada et al. and TELUS or to direct Bell Canada et al. and TELUS to stop billing the APLDS, endorsing the reasons given in the Commission staff letter of 21 June 2000.

Positions of incumbent telephone companies

The ILECs submitted that the exemption requested by Call-Net and AT&T Canada is clearly contrary to the wording and obvious intent of Decision 99-9. The ILECs argued that Call-Net and AT&T Canada are using DALs to route contribution-eligible traffic and cannot avail themselves of the Commission's exemption mechanism by virtue of the fact that the DALs are owned or controlled by an affiliate.

The ILECs submitted that an examination of interrogatory responses suggests that the transfer of DALs to affiliates was entirely cosmetic. The ILECs noted that, after March 2000, no changes occurred to Call-Net or AT&T Canada with respect to DAL-circuit and facility configurations. No changes occurred to the identity of the company responsible for the maintenance, operation, customer care or administrative functions for DALs.

The ILECs suggested that Call-Net's and AT&T Canada's actions would have an adverse effect on the industry. They expressed concern regarding the significant reduction of contribution available to the Central Fund, limiting the funding available to local service providers in high-cost serving areas and hindering the further development of local competition. In addition, they submitted that ILECs and APLDS who pay contribution with respect to their DAL-traffic, would be placed at a competitive disadvantage in relation to Call-Net, AT&T Canada and others who establish affiliates to avoid paying contribution.

The ILECs expressed the need to modify the DAL surcharge exemption process. TELUS proposed the adoption of an affiliate rule which would state that, regardless of how contribution-eligible traffic is carried, whether by an APLDS, an affiliate or some other DAL provider, the DAL surcharge is payable by all APLDS who employ DALs.

Bell Canada et al. expressed concerns that an APLDS' intent on avoiding contribution payments will find an innovative loophole in TELUS' proposed affiliate rule.

Bell Canada et al. proposed that APLDS requiring a DAL surcharge exemption, including any APLDS that choose to reconfigure the way in which its DAL services is offered, whether through an affiliated or unaffiliated party, should be required to make an application to the Commission and demonstrate that the exemption is warranted.

In the alternative, Bell Canada et al. proposed that all APLDS be required to measure and assess contribution on all their DAL traffic. With this approach, the amount of contribution assessed would be tied to the actual traffic volumes and therefore would be competitively equitable.

Bell Canada et al. submitted that, notwithstanding what the Commission may decide as a result of the PN 99-6 proceeding, there is an immediate requirement to restore competitive equity to the current regime and requested that the Commission direct Call-Net and AT&T Canada to remit to the applicable local exchange carrier contribution charges at the surcharge rate, effective 1 March 2000.

Positions of APLDS

AT&T Canada explained that the DALs and the corresponding long-distance services were leased to its affiliate because of the affiliate's facilities and expertise. In addition, paying less in contribution, allows the company to offer its services more cost-effectively. In AT&T Canada's view, this is critical to achieve a level playing field with entities, like Bell Nexxia, in the Canadian long-distance market.

AT&T Canada, Call-Net and RSL COM agreed that changes, at this time, to the contribution mechanism, including an affiliate rule, are not in the public interest and favour wholesale replacement of the current mechanism. Also, AT&T Canada and Call-Net contradicted the ILECs' claims, arguing that the contribution being collected is in excess of what is required to support affordable local service in high-cost areas.

With regard to current exemption requirements, AT&T Canada submitted that the exemption process established in Decision 99-9 does not require the Commission's approval but rather only requires an affidavit attesting to the fact that the APLDS do not use any DALs. Further, AT&T Canada submitted that it would be entirely inappropriate for the Commission to engage in retroactive rule-making in order to introduce changes to the existing DAL surcharge mechanism.

AT&T Canada submitted that the Commission should reject the pleas by the ILECs and should completely eliminate the DAL surcharge payable by APLDS, or alternatively, should maintain the current exemption process for APLDS' affiliates without modification.

Primus Telecommunications Canada Inc. submitted that the ILECs' proposals would be onerous, time consuming and would undermine the Commission's attempts at creating a simple exemption mechanism. Primus proposed that a per-minute or a per-circuit approach be implemented to address both contribution avoidance concerns and the financial penalties faced by service providers that wish to use a limited number of DALs.

Distributel Communications Limited submitted that the distorted incentives provided by the all or nothing DAL surcharge exemption could be avoided if contribution were assessed directly on DAL minutes, thus achieving competitive equity.

The Commission's determination

The Commission considers that, in filing their affidavits, Call-Net and AT&T Canada complied with the exemption provision in Decision 99-9, confirming that they no longer used DALs. The exemption only requires a declaration by way of an affidavit signed by a senior officer attesting to the fact that the company does not use DALs.

However, as previously noted, Call-Net and AT&T Canada, when filing their affidavits, also indicated that their DAL-based business had been assigned to affiliates. The Commission notes that no physical changes have been made to Call-Net's circuits, facility configurations or other meaningful customer activities as a result of its transfer of DALs to its affiliate. As well, AT&T Canada has much the same arrangement with its affiliate.

In the Commission's view, the APLDS have abided by the letter of Decision 99-9. However, the Commission is of the view that the actions of Call-Net and AT&T Canada of assigning DALs to affiliates do not conform to the Commission's intent in Decision 99-9.

The Commission considers that the actions of Call-Net and AT&T Canada would ordinarily warrant an adjustment, on a going-forward basis. However, given that Changes to the contribution regime, Decision CRTC 2000-745, dated 30 November 2000, replaces the current per-minute contribution regime with a revenue-based contribution mechanism and eliminates the DAL surcharge, effective 1 January 2001, the Commission considers that no changes to the existing DAL surcharge contribution mechanism are required on a going-forward basis.

With respect to Bell Canada et al.'s request that AT&T Canada and Call-Net be directed to pay the DAL contribution surcharge retroactively to 1 March 2000, the Commission notes that it considered the request for interim relief, earlier in the PN 2000-82 process, and denied it. The Commission considers that, given all of the circumstances, approving a retroactive adjustment would not be appropriate.

In view of the above, the Commission denies TELUS' application. The Commission also denies Bell Canada et al's request that AT&T Canada and Call-Net be directed to pay the DAL contribution surcharge retroactively to 1 March 2000.

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