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Summary of the decision
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In this decision, effective 1 January 2002, the Commission establishes the framework for long-distance competition in the area of northeastern Ontario served by O.N.Telcom.
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The decision also approves local rate increases. O.N.Telcom asked for increases to take effect on 1 September 2001; the Commission considers that it is appropriate to introduce these rate increases on 1 January 2002, when the new long-distance competition framework comes into effect. It is expected that, with these rate increases, O.N.Telcom's local residential and business customers will pay rates comparable to those for services provided by carriers in other regions of Canada.
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The following features of the regulatory framework for the area served by O.N.Telcom reflect the Commission's careful consideration of the technical conditions in this northern area within the context of the regulatory regime that the Commission put in place for the rest of Canada:
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· competitor interconnections will be permitted at either the local or toll switch, at rates based on Commission costing principles and carriers will only be charged for the facilities that they use;
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· during a two-year transition period, only O.N.Telcom will be allowed to offer host-remote toll links;
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· to encourage the use of transport facilities between Timmins and North Bay, O.N.Telcom will be able to revise its transport facilities rates to take into account both its costs and competitive market conditions;
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· incumbent local exchange carriers (ILECs) will be reimbursed for the costs of installing equal access. The reimbursement will be calculated on the basis of a single cost-based blended rate. This rate will apply for ten years, and will be paid once only for each originating and terminating toll minute. A single rate is consistent with the regulatory regimes in the rest of Canada; it also ensures ILECs can recover their appropriate costs; and
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· O.N.Telcom did not demonstrate that there is a significant amount of uneconomic toll traffic, so the Commission did not agree with the request for a special mechanism to compensate the company for uneconomic toll traffic. The Commission will refrain from regulating long-distance service rates.
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The Commission is very grateful to all the persons who took the time to share their knowledge and points of view during this proceeding.
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Background
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1.
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O.N.Telcom's toll serving area encompasses 200,000 square kilometres in northeastern Ontario. There are 43 communities with approximately 79,000 network access services (NAS) in this territory. The largest community is Timmins with 22,000 NAS.
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2.
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Four incumbent local exchange carriers (ILECs) operate in this region. The largest is Northern Telephone Limited with 66,800 NAS. The others are O.N.Telcom with 5,400 NAS, Bell Canada with 3,700 NAS, and Cochrane Public Utilities Commission with 3,500 NAS. Since O.N.Telcom is the sole provider of toll service, the vertically integrated ILECs, which are characteristic of the rest of Canada, do not exist in this territory, with the exception of O.N.Telcom's own local serving area.
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3.
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Currently, all toll traffic from outside northeastern Ontario is routed from the Bell Canada switch in North Bay and travels over O.N.Telcom facilities to its digital multiplex system-200 (DMS-200) toll switch in Timmins, where it is routed to local end offices. The majority of the traffic terminates in Northern's local serving territory and is routed through Northern's digital multiplex system-100 (DMS-100) local switch in Timmins.
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4.
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O.N.Telcom is a subsidiary of Ontario Northland Transportation Commission and shares some corporate resources and activities. Northern is a subsidiary of Bell Canada and shares certain resources and activities with another Bell Canada subsidiary, Télébec ltée. Cochrane is owned by the municipality of Cochrane, Ontario.
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5.
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In Telecom Decision CRTC 98-14, Regulatory framework - Ontario Northland Transportation Commission, dated 1 September 1998, the Commission approved toll competition. However, the Commission delayed implementation in the area served by O.N.Telcom until after the high cost proceeding, due to concerns about the effect of competition on the ability of profitable toll routes to cross-subsidize unprofitable ones. Decision 98-14 also stated that to the extent possible, the eventual terms and conditions of competition should be the same throughout Canada. As well, Decision 98-14 approved a split rate base (SRB) regulatory framework for O.N.Telcom.
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6.
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This decision results from the proceeding initiated by Public Notice CRTC 2000-107, O.N.Tel - Implementation of toll competition and related matters, dated 20 July 2000. The proceeding included the Commission's consideration of written submissions in response to the public notice, as well as comments gathered during an oral hearing that the Commission conducted in Timmins on 30 April and 1 May 2001.
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Positions of parties
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7.
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O.N.Telcom proposed that interconnection and equal access be restricted to its DMS-200, which is designated as an access tandem connection. To allow interconnection at Northern's DMS-100 would result in significant bypass of O.N.Telcom's facilities. It proposed interconnection rates based on a "Phase II-like" methodology. The company also claimed it requires a direct subsidy for its uneconomic toll routes to the extent it does not recoup these losses in its interconnection rates. Lastly, with respect to the implementation of competition, the company wanted routing restrictions on traffic entering its territory from Bell Canada's territory.
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8.
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O.N.Telcom proposed to raise local residential rates to $19.85 and business rates to $45.45 per month, effective September 2001. O.N.Telcom proposed regulatory forbearance of its toll service, and an SRB regulatory framework with the uneconomic toll connecting trunks and host-remote facilities allocated to the Utility segment. Before Cochrane and Northern enter the toll market, there should be an SRB framework in place for those companies, and O.N.Telcom should be allowed to rebill those companies' local services so customers would have the option of receiving only one bill.
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9.
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Northern and Cochrane (the companies) wanted interconnection at the local or toll switch. They stated that O.N.Telcom does not require a direct subsidy for uneconomic toll routes, and they questioned whether O.N.Telcom has any such routes. They wanted no routing restrictions. They argued that O.N.Telcom's proposed cost of interconnection was too high. They also stated that their final decision on their own entry into the toll market would depend on the terms and conditions for interconnection.
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10.
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The companies filed an SRB proposal. They proposed that O.N.Telcom's SRB regulatory regime should meet the requirements of Decision 98-14 for the Utility segment and that O.N.Telcom should file toll service tariffs that pass an imputation test.
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11.
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Bell Canada stated that there should be no routing restrictions on traffic entering O.N.Telcom's territory. The company is prepared to enter into an agreement with O.N.Telcom regarding the routing of traffic that would ensure a certain amount of use of the transport facilities between North Bay and Timmins. Bell Canada did not oppose toll forbearance for O.N.Telcom, as long as there are no explicit subsidies for uneconomic toll.
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12.
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AT&T Canada Telecom Services Company was of the view that carriers should have the choice to interconnect at the local or toll switch.
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Commission note
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13.
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The Commission notes that the two principal parties to this proceeding, O.N.Telcom and the companies, had very different and polarized views about the correct terms and conditions of toll competition in northeastern Ontario. Both parties were unwilling to meaningfully explore alternatives to their own positions. In arriving at its decision, the Commission had to attempt to design a solution that, while addressing the main concerns of these parties, would put in place a competitive regime to best suit the needs of consumers, business and the telecommunications industry in northeastern Ontario.
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Terms and conditions - General
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14.
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As noted above, in Decision 98-14, the Commission approved toll competition in O.N.Telcom's territory and considered that, as much as possible, the terms and conditions of competition should be the same throughout Canada. The Commission also stated that modifications might be required to reflect the uniqueness of O.N.Telcom's operating environment.
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15.
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The Commission considers that the terms and conditions for toll competition in O.N.Telcom's operating territory should be the same as those in the territories of the independent telephone companies (ITCs), pursuant to Telecom Decision CRTC 96-6, Regulatory framework for the independent telephone companies in Quebec and Ontario (except Ontario Northland Transportation Commission, Québec-Téléphone and Télébec ltée), dated 7 August 1996, subject to the modifications set out below.
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Location of interconnection
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16.
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In Telecom Decision CRTC 97-6, Unbundled rates to provide equal access, dated 10 April 1997, the Commission stated that competitors could connect at a Stentor owner company (SOC) end office switch, a direct connect (DC); or at a SOC toll (tandem) switch, an access tandem connection.
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17.
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O.N.Telcom proposed that competitors should only be allowed to interconnect at its DMS-200 toll switch in Timmins, thereby gaining access to all 79,000 NAS. Competitors should not be allowed to interconnect at any of the end office switches.
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18.
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The companies believe that competitors should be allowed to connect at the end office switches and not be limited to connect only at the toll office. The companies stated that this type of interconnection is consistent with the framework for toll competition in the rest of Canada.
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19.
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Bell Canada stated that competitors should be allowed to connect at either the end offices or O.N.Telcom's toll switch.
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20.
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AT&T Canada stated that competitors should be permitted to interconnect with O.N.Telcom for origination and termination of traffic in its serving territory and to also be allowed the option to directly interconnect with Cochrane, Northern and any other local exchange carrier (LEC) in O.N.Telcom's serving area.
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21.
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The Commission's view is that mandated interconnection and provision of equal access at solely O.N.Telcom's DMS-200 switch in Timmins would be a regulatory barrier to toll-market entry. The Commission, therefore, will allow interconnection at O.N.Telcom's DMS-200, at Northern's DMS-100, at Cochrane's local switch, and at other locations where it is technically feasible and demand warrants it.
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22.
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Based on the Commission's experience in the rest of Canada, the Commission is of the view that trunk-side interconnection is the most efficient means of interconnecting networks. Therefore, line-side interconnection will not be allowed in O.N.Telcom's current toll-serving territory.
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Provisioning of host-remote links for toll traffic to local exchange carriers' end offices
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23.
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Currently, some of the facilities between Northern's DMS-100 in Timmins and Northern's remotes are shared between Northern and O.N.Telcom. These facilities carry local traffic, in the case of remotes, and administration circuits for Northern and toll traffic on behalf of O.N.Telcom. Northern and O.N.Telcom have a number of joint-use agreements that outline the terms and conditions for sharing facilities.
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24.
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O.N.Telcom also provides facilities to Bell Canada for administration and common channel signalling 7 (CCS7) circuits from North Bay to Bell Canada's local exchanges in O.N.Telcom's operating territory.
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25.
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O.N.Telcom also provides facilities that carry toll traffic between the local exchanges of Bell Canada and Cochrane, and O.N.Telcom's DMS-200 in Timmins.
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26.
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O.N.Telcom proposed that only it would be allowed to continue to provide the toll component of host-remote links. O.N.Telcom was of the view that competitive access to this network segment is a local competition issue.
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27.
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The companies stated that technically, toll competitors have the option of provisioning their own host-remote links between the DMS-100 switch in Timmins and the remote facilities which subtend off of this switch. The companies noted that this arrangement is in place today for O.N.Telcom. The companies also stated that Northern has the capability to provide its own host-remote links for toll traffic. Northern requested authorization to provide these links as part of its DC interconnection proposal.
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28.
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Bell Canada stated that the jointly provided host-remote facilities currently in place should be normalized to reflect the industry standard that exists elsewhere in Canada. The LEC should have the option of normalizing any links connecting its own hosts and remotes by self provisioning, or by leasing circuits or otherwise acquiring transport from a third party such as O.N.Telcom.
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29.
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The Commission notes that if the host-remote links were the responsibility of the LEC and not O.N.Telcom, the latter's proposed host-remote aggregation charge would not be required, as these costs would be reflected in the LEC's DC rate.
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30.
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The Commission also notes that there are joint use facility agreements between O.N.Telcom and Northern for the provisioning of some host-remote links with two-year renewal clauses requiring six months' notification as part of these agreements.
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31.
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The Commission finds that the LEC is entitled to the provision of host-remote links, including those required for the carriage of toll traffic, between its switching centres. However, for the period from 1 January 2002 to 1 January 2004, the host-remote links must continue to be provided for toll traffic by O.N.Telcom.
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32.
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The Commission is of the view that a two-year transition period for the host-remote links would encourage competitive entry while allowing the parties to resolve any outstanding contractual issues. This transition period would allow O.N.Telcom time to adjust and develop the appropriate business strategies for a competitive environment.
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33.
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O.N.Telcom should consider the opportunity costs of the current host-remote links, given that the ILECs will have the right to self-provision these links in 2004. The Commission is of the view that the ILECs should be aware of O.N.Telcom's long-term competitive rate for the host-remote links in advance so they may make informed investment decisions for the longer term. Therefore, in addition to issuing, within 30 days of this decision, a tariff for an interim host-remote link rate, approved in paragraph 64, O.N.Telcom is to file a proposed final tariff for the host-remote link rate to replace the interim rate.
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Equal access
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34.
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In Decision 98-14, the Commission directed Northern and O.N.Telcom to implement equal access in their territories by 1 July 2000 to coincide with the expected introduction of toll competition in their territories. For those exchanges in which O.N.Telcom is the LEC, O.N.Telcom could implement equal access through its switches at its end offices or through its toll switch, using the local access and transport area equal access system (LEAS).
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35.
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O.N.Telcom indicated that the LEAS software has already been installed in the Timmins toll switch to capture toll-billing records and to foster the implementation of feature group D equal access to the end offices where O.N.Telcom is the local service provider.
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36.
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O.N.Telcom stated that feature group D interconnection at the access tandem is more cost efficient inasmuch as it will provide new entrants with access, through a single point of presence, to all the ILECs' customers (i.e., those of Northern, Bell Canada, Cochrane and O.N.Telcom), including the three end offices that Northern will not have yet upgraded by 2002.
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37.
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The companies believed that equal access should be implemented in the same manner as approved by the Commission for the other ITCs in Decision 96-6. This approach involves the installation of feature group D software with CCS7 signalling on the local switch.
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38.
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The companies noted that this form of equal access has already been adopted in the serving territory of Cochrane.
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39.
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The companies also stated that the long-distance industry's familiarity with this form of equal access will help to reduce the technical barriers to entry in the toll market in northeastern Ontario by ensuring that interexchange carrier/LEC interconnection arrangements are the same as those in other parts of Canada.
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40.
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The companies stated that equal access should be mandated for all end offices in northeastern Ontario with, perhaps, the exception of the end offices that are located in Detour Lake, Abitibi Canyon, Mattice, Gowganda and Opasatika. Abitibi Canyon and Detour Lake are served by old analog switching technology and it is not clear that the costs of implementing equal access for these two end offices would be commensurate with the associated benefits. The companies stated that they would not be opposed to the implementation of equal access on demand in these locations.
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41.
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Bell Canada indicated that its five end offices in O.N.Telcom's territory are provisioned with equal access software. Bell Canada stated that it would expect O.N.Telcom to implement equal access, defined as feature group D with CCS7 signalling, and that Bell Canada would be given the flexibility to interconnect at either the O.N.Telcom access tandem or at the end office.
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42.
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Bell Canada also stated that if the policy objective were to promote facilities-based competition, then the toll competitor should generally be allowed to use, at its option, its own facilities to connect to end offices where it makes technological and economic sense.
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43.
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AT&T Canada opposed the LEAS arrangement on the basis that, from a toll competitor's perspective, it would be a more costly means of obtaining equal access than through direct interconnection with the LECs' end office (Northern and Cochrane) at the LEC's Carrier Access Tariff (CAT) rates. The LEAS arrangement will require the toll competitor to pay O.N.Telcom for transport, as well as for contribution and administrative charges; the toll competitor would not have to incur these costs under the relevant CAT.
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44.
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The Commission notes that in Decision 98-14, paragraph 79, Northern and O.N.Telcom were directed to implement equal access in their territories and the interconnection must provide features equivalent or superior to feature group D with CCS7 signalling capability.
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45.
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The Commission directs Northern to provide equal access based on CCS7 and feature group D on the DMS-100 in Timmins, prior to 1 January 2002, and to provide the capability in other locations based on competitor demand.
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46.
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The Commission further notes that in Decision 98-14, O.N.Telcom was permitted to implement equal access through its switches at its end offices or through its toll switch, using the LEAS. The Commission reminds O.N.Telcom that the LEAS arrangement is to apply only to O.N.Telcom facilities.
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Interconnection rates
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47.
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While Bell Canada already has interconnection rates that have been approved by the Commission, O.N.Telcom, Northern and Cochrane have proposed interconnection rates for the following services, as applicable: access tandem (O.N.Telcom only), DC, equal access start up and host-remote link (O.N.Telcom only). The access tandem rate was proposed to recover the incremental cost associated with switching and aggregation of interexchange carrier traffic on the company's interexchange network at O.N.Telcom's DMS-200. The DC rate was proposed to recover the cost of the switching of interexchange carrier traffic at the local exchanges and the transport of traffic, as applicable, on host-remote links in the ILEC's local serving areas, between a host switch and a remote switching centre. The equal access rate was proposed to recover the start-up costs for provisioning equal access on the switches. O.N.Telcom's host-remote link rate recovers the cost of O.N.Telcom's toll-connecting facilities configured as host-remote links between Northern's DMS-100 host in Timmins and Northern's remotes subtending off the DMS-100. The proposed rates for the above services are presented in Table 1 at paragraph 64.
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48.
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The Commission notes that with the proposed equal access service tariffs of the ILECs (O.N.Telcom, Northern and Cochrane), an interexchange carrier could pay as much as three equal access charges for a toll call depending on where the call originates and terminates. The Commission finds this to be inappropriate, and accordingly approves a blended equal access rate of $0.001250 per conversation minute per end, applicable to all toll traffic on the basis of originating and terminating minutes in O.N.Telcom's toll territory, to be paid only at the DC point (i.e. at the local switch). A single equal access rate is consistent with other regulatory regimes in Canada. This blended equal access rate has been set to allow the four ILECs operating in O.N.Telcom's toll territory to fully recover their equal access costs over a ten-year period along with a 25% mark-up. Based on the equal access cost incurred by each ILEC as estimated by the Commission and explained further below, the resulting allocation is: O.N.Telcom 39%, Northern 54%, Cochrane 4% and Bell Canada 3%. The Commission further expects these four ILECs to make arrangements to pool the equal access revenues and to distribute them among each other.
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49.
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In arriving at its determination that the blended equal access rate should be $0.001250, the Commission has adjusted the equal access cost component proposed by Northern and O.N.Telcom.
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50.
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The Commission's major adjustments to the equal access costs proposed by Northern are:
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a) the disallowance of the costs of converting the DMS-10 switches in Mattice, Opasatika and Gowganda to remotes subtending off the DMS-100 in Timmins. Northern suggested that this would be the cheapest way to provide feature group D and CCS7. The Commission notes that the total number of NAS affected by these switches is less than 1% of Northern's NAS and considers that the conversion costs per line would be too high. The Commission further notes that the toll customers served by these switches would continue to have access to an interexchange carrier's toll service connected to O.N.Telcom's DMS-200;
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b) the removal of the ongoing costs associated with circuit rentals. The Commission finds that these costs should not be included in the equal access costs but should be included as part of the ongoing costs of the DC service; and
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c) a 50% reduction to Northern's proposed CCS7 and local automatic message accounting costs. In the Commission's view, these costs should not be assigned entirely to the equal access service since these features will provide other benefits to the company. The Commission considers that a 50% reduction to these costs reflects an appropriate assignment of these costs to the equal access service.
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51.
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For O.N.Telcom's proposed equal access costs, the Commission's decision reflects:
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a) the reduction of the LEAS software and investment costs: this was determined on the basis of a more appropriate average of three years of demand (which is expected to increase over time), rather than one year;
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b) the elimination of the ongoing primary interexchange carrier/customer account record exchange (PIC/CARE) billing costs: the Commission notes that these ongoing costs are generally recovered from relevant PIC/CARE processing tariffs; and
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c) a reduction to the land and building cost factors by four percentage points to bring these costs more into line with those of other ILECs.
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52.
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The Commission has also considered and adjusted downward the access tandem, DC and host-remote link costs (and thus rates) to reflect the use of end-of-study terminal value calculations based on the discounted service potential approach to calculate Phase II costs. In the Commission's view, the discounted service potential method provides an appropriate economic measure of the remaining plant value to be used in Phase II cost studies as determined in Telecom Decision CRTC 98-22, Final rates for unbundled local network components, dated 30 November 1998.
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53.
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The land and building cost factor that was used in O.N.Telcom's DC cost study has been reduced by four percentage points to bring this cost more in line with that of other ILECs for this service. The Commission has also reduced the capital unit costs for the host-remote link study by an additional productivity offset of 8% over the 1997 to 2001 period in order to reflect the productivity improvements and price changes reasonably anticipated for this type of plant over this period. Direct and indirect host-remote link expenses (including, principally, the plant and network operation costs, and rights-of-way) were reduced by approximately one third to reflect expected operating expense levels of other ILECs. The results of these adjustments are set out in Table 1 of paragraph 64. The rate for the host-remote link is approved on an interim basis, pending the finalization of O.N.Telcom's new rate, pursuant to paragraph 33.
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54.
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Additionally, the uneconomic toll component in O.N.Telcom's proposed access tandem rate has been eliminated, consistent with the rationale discussed in paragraphs 66 to 75 below. O.N.Telcom's proposed access tandem rate also reflects the reduction of the toll switching unit costs. This reduction was determined by the Commission on the basis of a more appropriate average of three years of demand (which is expected to increase over time), rather than one year.
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55.
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Northern and Cochrane proposed the use of Télébec's DC rate of $0.007600 per conversation minute per end for their own DC service. In its final argument, Northern stated that it is fully prepared to develop a host-remote transport service rate that would apply as of the first day of toll competition. In the Commission's view, O.N.Telcom's host-remote link rate of $0.004300 per conversation minute per end is a reasonable interim proxy rate for Northern's host-remote link rate until Northern files its own cost-based proposed rate for this service, which Northern may start to charge on 1 January 2004. The Commission notes that, as per this decision, Northern is not permitted to provision toll host-remote links until 1 January 2004. Hence, the DMS-100 host-remote rate listed in Table 1 of paragraph 64 would have to be remitted by Northern to O.N.Telcom for each originating and terminating toll minute that travels on these facilities as of 1 January 2002 until 31 December 2003. Furthermore, Northern's rate for DC service is to exclude the host-remote link service. This per conversation minute rate is obtained by subtracting the host-remote link component rate of $0.004300 from O.N.Telcom's DC rate of $0.008000, which leaves a DC service component rate of $0.003700. With respect to Cochrane's DC service, the Commission notes that Cochrane provides no host-remote link service. Accordingly, the Commission considers it appropriate for Cochrane to adopt Northern's DC service rate of $0.003700 per conversation minute per end.
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56.
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Bell Canada proposed the use of the DC rate of $0.003256 per conversation minute per end and the equal access rate of $0.001194 per conversation minute per end; rates that are currently in use by most ex-Stentor companies. Parties did not object to the use of the proposed DC rate. The Commission finds this DC rate to be appropriate for Bell Canada. Bell Canada would use the blended equal access rate of $0.001250 per conversation minute per end in O.N.Telcom's current toll territory.
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North Bay/Timmins transport
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57.
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O.N.Telcom proposed a $0.006800 North Bay/Timmins transport rate to recover the incremental costs associated with the transport of interexchange carrier traffic on the company's interexchange network between the Bell Canada point of network interconnection in North Bay and the Timmins DMS-200.
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58.
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Currently, all toll traffic to and from O.N.Telcom's toll operating territory is routed between O.N.Telcom's DMS-200 in Timmins and Bell Canada's facilities in North Bay.
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59.
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O.N.Telcom proposed that there be a transition period in which Bell Canada must continue to route at least a portion of its toll traffic to O.N.Telcom over O.N.Telcom's facilities that interconnect with Bell Canada in North Bay. Specifically, O.N.Telcom proposed that starting in 2002, Bell Canada is to route 100% of its traffic to O.N.Telcom over O.N.Telcom's facilities with a 25% decline in each subsequent year until year-end 2005.
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60.
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Bell Canada stated it does not want routing restrictions and is willing to consider an exchange of toll minutes with O.N.Telcom based on a proportionate return basis.
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61.
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The companies stated that they were not in a position to comment on the impact of O.N.Telcom's proposal to retain these arrangements during a transition period where O.N.Telcom would continue to carry a declining portion of Bell Canada's toll terminating traffic. However, to the extent that O.N.Telcom's proposal prevents toll carriers, such as Bell Canada, from selecting the interconnection arrangement of their choice (i.e., access tandem or DC), the companies are opposed to this approach to the implementation of toll competition.
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62.
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The Commission is of the view that O.N.Telcom's position regarding traffic restrictions on the North Bay/Timmins route would hinder the roll out of toll competition.
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63.
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The Commission directs O.N.Telcom and Bell Canada to renegotiate a new agreement based on proportionate return basis for incoming traffic. O.N.Telcom and Bell Canada are directed to file a proposed new agreement within 30 days of this decision to be effective 1 January 2002. In the light of the Commission's determinations in this decision, O.N.Telcom may wish to review its transport rate. In so doing, O.N.Telcom is encouraged to accommodate interexchange carriers that could use the Timmins/North Bay facilities and interconnect at the DMS-100 or DMS-200 in Timmins.
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64.
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In light of the foregoing, the Commission approves the following per conversation minute per end interconnection rates in O.N.Telcom's toll territory, effective 1 January 2002:
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Proposed and approved rates per conversation minute per end
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Company
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Rate element
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Proposed
rate
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Approved
rate
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O.N.Telcom
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Access tandem
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$0.006600
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$0.005000
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Direct connect (DC)
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$0.009200
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$0.008000
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Equal access
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$0.001300
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$0.001250
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Host-remote link (interim)
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$0.006400
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$0.004300
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Transport rate
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$0.006800
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$0.006800
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Northern
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DC (DMS-100)
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$0.007600
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$0.003700
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DC (DMS-100 host-remote)
(interim)
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N/A
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$0.004300
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Equal access
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$0.001500
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$0.001250
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Cochrane
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DC
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$0.007600
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$0.003700
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Equal access
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$0.001500
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$0.001250
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Bell Canada
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DC
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$0.003256
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$0.003256
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Equal access
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$0.001194
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$0.001250
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65.
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The Commission directs that tariff pages implementing these rates be issued within 30 days to be effective 1 January 2002.
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Uneconomic toll
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66.
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In Decision 98-14, the Commission stated that, with the introduction of toll competition in O.N.Telcom's operating territory, the subsidy from toll services would likely be significantly eroded. In order to address the erosion of subsidy, the Commission would have to allow O.N.Telcom to raise local rates or establish other terms and conditions for competition that would offset this loss of toll subsidy.
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67.
|
O.N.Telcom defined uneconomic toll to include those segments of toll-connect routes (excluding host-remote links) and associated toll markets where, in a competitive marketplace, toll revenues are not forecast to recover related Phase III costs, including a rate of return of 11.375% on the invested capital. The company also assumed that the routing restrictions and other aspects of its proposal would be implemented.
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68.
|
O.N.Telcom filed an uneconomic toll study that was a Phase III type study, using embedded costs. This study generated an average annual shortfall in uneconomic toll of $667,000.
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69.
|
The companies stated that the economic studies relating to these alleged uneconomic toll routes both overestimate the costs and underestimate the revenues of these routes and, as a consequence, it is not even clear that these uneconomic routes actually exist.
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70.
|
Bell Canada stated that it is not aware of any evidence that uneconomic toll has created a serious problem regarding end-customer access to toll services in a competitive market. Bell Canada believed that this is the only type of problem that would warrant regulatory intervention with respect to uneconomic toll. Given the potential for market distortions inherent in the use of subsidies to address the issue of uneconomic toll, clear evidence of a serious problem with respect to end-customer access would be required before resorting to such a solution.
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71.
|
The Timmins Economic Development Corporation and the City of Timmins defined uneconomic toll as a service area or region, which cannot support the cost of services. They suggested that the reality is that there are areas in northeastern Ontario that cannot support the services they require due to location and low population density.
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72.
|
The Commission notes that the uneconomic toll study was a Phase III type study, using embedded costs. The Commission considers that a Phase II study would have been more appropriate under the circumstances because such a study involves an incremental cost approach. Further, the study did not directly include the impact of a government grant on the Cochrane/Moosonee portion and excluded contributions from other services using the facilities on the route.
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73.
|
The Commission notes that the revenues from what O.N.Telcom identified as its uneconomic toll routes are a small percentage of the company's total operating revenues.
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74.
|
The Commission also notes that if Bell Canada and Northern leased facilities from O.N.Telcom to provide toll services to these communities, the requirement for a toll subsidy, if any, would be further reduced.
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75.
|
The Commission is of the view that, in consideration of the points raised above, no explicit toll subsidy is required and therefore denies O.N.Telcom's request for an explicit toll subsidy.
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Toll carrier of last resort/Obligation to serve
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76.
|
In Telecom Decision CRTC 99-16, Telephone service to high-cost serving areas, dated 19 October 1999, the Commission established a basic service objective for LECs that includes, among other items, access to the long-distance network.
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77.
|
O.N.Telcom stated that as the incumbent toll carrier for its toll-serving territory, it fulfils the role of toll carrier of last resort. That is, O.N.Telcom is ready to ensure that all customers within its territory will continue to have access to quality toll services.
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78.
|
The companies stated that to date, no toll carrier that serves northern Ontario or northern Quebec has ever been designated by the Commission as a toll carrier of last resort. Indeed, despite arguments made by Télébec and Québec-Téléphone, now known as TELUS Communications (Québec) Inc. (TELUS Québec), in the proceeding that led to Telecom Decision CRTC 96-5, Regulatory framework for Québec-Téléphone and Télébec ltée, dated 7 August 1996, regarding the high costs of providing toll service to certain northern and eastern regions of Quebec, the Commission has chosen not to designate these service providers as toll carriers of last resort.
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79.
|
The companies submitted that it would be contrary to Decision 99-16 and the Commission's general approach to toll competition in the southern portions of Canada to designate a toll carrier of last resort in the operating territory that is now served by O.N.Telcom.
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80.
|
The companies believed it would be premature to identify a toll carrier of last resort in northeastern Ontario in the absence of any evidence that there is a need for such an entity. If there is evidence after the introduction of toll competition that a toll carrier of last resort should be designated for northeastern Ontario, then that would be the appropriate time, in the companies' view, to address this issue.
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81.
|
During the oral hearing, Northern stated that if O.N.Telcom decides not to provide access to long-distance service providers, then Northern would address the situation as a LEC with the responsibility of providing toll access to Northern's customers.
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82.
|
Bell Canada stated that the reality of competitive toll markets in Canada would suggest that the designation of a carrier as the toll carrier of last resort with an obligation to provide toll service in O.N.Telcom's toll operating territory is not required. Bell Canada questioned why pre-emptive action would be taken in the absence of any demonstrated problem, since after several years of toll competition in most other regions in Canada, the issue has not arisen.
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83.
|
Bell Canada noted that end-customer access to toll services, first and foremost, is the responsibility of the LEC. Access to toll is a fundamental element of basic local service and various mechanisms and approaches have already been adopted by the Commission to support LECs in the provision of high-quality basic local service at fair and reasonable rates.
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84.
|
The Commission notes that access to the long-distance network is an important element in the basic service objectives for LECs, which were established in Decision 99-16.
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85.
|
The Commission also notes that Bell Canada and the companies both indicated that it would be premature to designate a carrier of last resort without any indication of problems with customers accessing the toll network.
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86.
|
The Commission notes that there have not been any problems with customers accessing the toll network and the Commission does not foresee any problems in the future. The Commission agrees with Bell Canada and the companies that the LEC is the carrier that is responsible for providing access to the toll network and that a toll carrier of last resort need not be identified at this time.
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Regulatory framework
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Form of regulation for O.N.Telcom
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87.
|
O.N.Telcom proposed to continue the SRB regulatory framework established in Decision 98-14 for its Utility segment. This would include a rate of return on equity (ROE) range of 10.375% to 12.375% for the Utility segment and a deferral account to record any Utility segment earnings in excess of the maximum approved ROE.
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88.
|
O.N.Telcom also proposed to modify the existing Phase III costing to include a new broad service category called Utility switching and aggregation (SWAG). This category would include revenues generated by its proposed SWAG access tandem and the host-remote aggregate rates, costs for unusually long toll connecting trunks and host-remote links, and be designed to identify any shortfall associated with uneconomic toll. O.N.Telcom proposed that the company's uneconomic SWAG facilities and the associated host-remote links be treated from a costing perspective in the same manner as
the Commission treated this type of facilities for Northwestel in Decision 99-16.
O.N.Telcom expected to recover any shortfall in this category, net of imputed SWAG revenues from the company's own Competitive segment, through the new national, revenue-based contribution collection mechanism.
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89.
|
Both Bell Canada and the companies saw no need to depart from the regulatory framework that was established in Decision 98-14 for O.N.Telcom's Utility segment. With respect to the Competitive segment, the companies stated that it is necessary to modify the regulatory framework to prevent O.N.Telcom from using its dominant position in the market to the detriment of any competitors. In the companies' view, safeguards are needed to ensure that O.N.Telcom does not engage in anti-competitive behaviour.
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90.
|
The Commission agrees with these parties and concludes that the existing regime is appropriate for the Utility segment and should continue.
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91.
|
The companies cited the exclusion from the Utility SWAG of the revenues and costs associated with O.N.Telcom's own usage of the access tandem service, the exclusion of the direct revenues associated with the provision of uneconomic toll service, and the inclusion of the revenues from O.N.Telcom's potentially competitive host-remote aggregation service as reasons for concluding that O.N.Telcom's proposal to introduce the Utility SWAG broad service category is seriously flawed and that competitive inequities will arise if the Commission approves it.
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92.
|
The Commission shares these concerns and is also concerned with the methodology used to develop the amount of subsidy as an inappropriate mix of revenues and costs is included in its calculation, and considers that the design of the category is flawed because it ensures, inappropriately, that as O.N.Telcom's market share increases, the subsidy also increases.
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93.
|
In light of the above considerations and the Commission's determination that no subsidy is required for uneconomic toll, the Commission concludes that the proposed Utility SWAG broad service category is inappropriate and should be denied.
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94.
|
In Decision 98-14, the Commission directed O.N.Telcom to set up a deferral account to capture any excess earnings associated with the Utility segment, and indicated that the distribution of the amounts collected in the account would be determined at a later date. The Commission directs O.N.Telcom to continue to accumulate any excess earnings from the Utility segment in a deferral account.
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Form of regulation for other incumbent local exchange carriers entering the toll market
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95.
|
O.N.Telcom stated that prospective competitors entering the market should not be able to cross-subsidize their toll operations from their Utility segment operations. As the SRB regime is the accepted safeguard in other parts of Canada to ensure this does not occur, O.N.Telcom proposed that other ILECs entering the market should implement an SRB framework as a pre-condition to entry.
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96.
|
Northern agreed with O.N.Telcom and submitted a request in the proceeding to split its rate base by filing an SRB manual. Bell Canada stated that the implementation of an SRB framework would be desirable to allow the segregation of competitive toll assets, revenues and expenses from the rate base.
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97.
|
The Commission agrees that in order to ensure no cross-subsidization between the Utility and Competitive segments, ILECs entering the market should be required to have an approved SRB framework in place.
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98.
|
The Commission notes that the SRB manual filed by Northern in this proceeding has not yet been approved and is of the view that a detailed review of the manual should be delayed, particularly until after the outcome of the process initiated by Public Notice CRTC 2001-61, New regulatory framework for small independent telephone companies and related issues, dated 30 May 2001, is known, as changes to the regulatory framework may make further review unnecessary.
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Outcome of the Public notice 2001-61 process
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99.
|
The Commission notes that O.N.Telcom is a participant in the PN 2001-61 proceeding and will be subject to determinations made as a result of it. The Commission concludes that the rate base/rate of return regime established in Decision 98-14, as modified in this decision, should continue to be in place for O.N.Telcom until the outcome of the PN 2001-61 process is finalized. The Commission notes that the regulatory framework for both O.N.Telcom and other ILECs entering the toll market may be affected as a result of its determinations at the conclusion of that process.
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Host-remote facilities
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100.
|
O.N.Telcom proposed that the final network configuration to be considered is the unusual provisioning arrangements for host-remote facilities that have evolved in the territory. O.N.Telcom maintained that it should continue to have the obligation to provide host-remote links for toll purposes and that there is insufficient information on the record to consider competition on host-remote links. O.N.Telcom submitted that it would not be appropriate to use local facilities for competitive toll purposes without compensation to the Utility segment.
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101.
|
The companies submitted that it was not appropriate to include the revenues and costs associated with host-remote aggregation in O.N.Telcom's proposed Utility SWAG category. Bell Canada was of the view that the jointly provisioned host-remote facilities that are in place should be normalized to reflect the industry standard that exists elsewhere in Canada. Bell Canada also took the position that any LEC should have the option of normalizing any links connecting its own hosts and remotes either by self-provisioning or otherwise acquiring transport from a third party such as O.N.Telcom.
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102.
|
Notwithstanding the desire to maintain similarity with interexchange competition in the rest of the country, the Commission notes that the overlaying of the Northern DMS-100 and host-remote facilities over O.N.Telcom's toll-connect facilities has resulted in facilities that now carry both local and toll traffic. The Commission notes that, according to currently approved Phase III/SRB methodology, host-remote facilities are assigned to the Competitive segment by O.N.Telcom as part of toll connect service, and to the Utility segment by Northern and the ex-Stentor members as part of DC access service.
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103.
|
The Commission notes that Northern is proposing to offer a host-remote transport service that would compete directly with O.N.Telcom's proposed host-remote aggregation service, once toll competition is introduced in the region.
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104.
|
From a Phase III/SRB perspective, the Commission is of the view that O.N.Telcom and ILECs in O.N.Telcom's toll operating territory should be treated similarly for like usage of like facilities.
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105.
|
Consequently, the Commission has concluded that revenues and costs associated with host-remote facilities in O.N.Telcom's toll operating area that are used for the transport of toll traffic shall be included in the Competitive segment, regardless of carrier.
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106.
|
O.N.Telcom is directed to amend its SRB procedures manual, at the time of its next regularly scheduled update, to reflect the assignment to the Competitive segment of revenues and costs for host-remote facilities that are used for the transport of toll traffic.
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107.
|
Further, should Northern enter the toll market in O.N.Telcom's toll territory, the Commission directs that Northern's proposed SRB manual be amended to include the assignment to the Competitive segment of costs and revenues of owned, or leased, or purchased host-remote facilities used for toll traffic.
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Access tandem and equal access
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108.
|
In Telecom Decision CRTC 95-21, Implementation of regulatory framework - Splitting of the rate base and related issues, dated 31 October 1995, the Commission noted that, in Telecom Decision CRTC 92-12, Competition in the provision of public long distance voice telephone services and related resale and sharing issues, dated 12 June 1992, it determined that access tandem connection service was a bottleneck service, although it recognized that, from a technical perspective, competitors could interconnect at the end office switch. Further, the Commission considered that, in the long term, competitive alternatives to access tandem connection service may arise from local service competitors and from high-volume toll service competitors that use DC service, in conjunction with their own trunking and tandem switch to provide access tandem connection service to other toll competitors.
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109.
|
In Decision 95-21, the Commission was of the view that this proceeding provided no persuasive reasons for changing the finding in Decision 92-12 that access tandem service provided to interexchange carriers is a bottleneck service. On that basis, the Commission concluded that access tandem connection service provided to interexchange carriers should be assigned to the Utility segment.
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110.
|
In Decision 95-21, the Commission also determined that the costs for toll connecting trunks and related toll switching used by the telephone companies' Competitive segment should be assigned to the Competitive segment. In that same decision, all connections provided to the Stentor member companies' Competitive segment toll services are considered to be direct connections.
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111.
|
In Decision 95-21, the Commission allowed the Stentor member companies to exclude their use of access tandem switching services from the calculation of the access tandem charge because it was more likely that these companies would use end office interconnection arrangements. The Commission noted, however, that the telephone companies would generally use DC service. Where such connections are used, the Commission was of the view that the costs for toll-connecting trunks and related toll switching used by the companies' Competitive segment should be assigned to the Competitive segment.
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112.
|
Referencing Decision 95-21, O.N.Telcom indicated that according to its proposal, the company's Competitive segment is using a DC service equivalent in that the Competitive segment is charged separately for the O.N.Telcom SWAG DC service rate, and that all
equal access costs are absorbed by the Competitive segment, in that the segment itself is providing the equal access service to the interexchange carriers.
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113.
|
The companies submitted that O.N.Telcom had incorrectly assigned its own usage of the access tandem switch to the Utility segment rather than assign the costs and revenues to the Competitive segment in accordance with Decision 95-21.
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114.
|
The Commission is of the view that, in accordance with current regulatory treatment of equal access costs and revenues, equal access costs and revenues should be assigned to the Utility segment in accordance with O.N.Telcom's approved SRB manual, similar to the ex-Stentor member companies. With O.N.Telcom's current approved SRB approved methodology, which is consistent with the ex-Stentor companies, all access tandem costs and revenues are assigned to the Utility segment.
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115.
|
The Commission is of the view that to the extent possible, Northern, Cochrane and O.N.Telcom access tandem and equal access facilities should be treated similarly.
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116.
|
In view of the unique non-vertically integrated nature of the major players in the territory, and the proximity of O.N.Telcom's DMS-200 and Northern's DMS-100 switches, the Commission is of the view that, contrary to the facilities positioning in the rest of the country, O.N.Telcom's access tandem connection facilities in the territory should be treated as non-bottleneck facilities. The Commission has therefore determined that O.N.Telcom's access tandem connection costs and revenues are to be assigned to the Competitive segment. O.N.Telcom is directed to amend its SRB procedures manual, at the time of its next regularly scheduled update, to reflect the assignment of access tandem revenues and costs to the Competitive segment.
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117.
|
The Commission is of the view that, should Northern enter the toll market in O.N.Telcom's toll operating territory, then Northern will be required to assign the revenues and costs of owned, purchased or leased access tandem connection service to the Competitive segment. Should Northern enter the toll market, it is to amend its proposed SRB manual to reflect the assignment of the access tandem connection revenues and costs to the Competitive segment.
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Official telephone service
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118.
|
O.N.Telcom has proposed a treatment of its official telephone service (OTS) costs and revenues according to the assignment of costs and revenues at tariffed rates on a cost-centre basis. Revenues are recorded on the company's books and the revenues are treated as costs for the cost centre that incurs them.
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119.
|
The Commission notes that O.N.Telcom has proposed an SRB/Phase III treatment of its OTS costs, which differs from the methodology used by the ex-Stentor companies and the larger independent telephone companies. Further, the company's proposal does not comply with the Commission directive pertaining to the treatment of OTS as outlined in Telecom Order CRTC 99-363, In the matter of the Phase III costing, Carrier Access Tariff (CAT) and split rate base procedures manual filed for approval by O.N. Tel, dated 22 April 1999.
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120.
|
The Commission is of the view that O.N.Telcom's OTS adjustment methodology for SRB purposes should be treated in a manner similar to the rest of the country and that the prior Commission order dealing with the company's OTS adjustment should be maintained. Therefore, at the time of its next SRB manual update, O.N.Telcom is directed to amend its procedures manual to reflect the assignment of OTS costs and revenues in a manner consistent with the ex-Stentor companies' methodology.
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Consumer/Competitive safeguards
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Toll forbearance for O.N.Telcom
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121.
|
As indicated in Telecom Decision CRTC 94-19, Review of regulatory framework, dated 16 September 1994, the key issue in determining whether to forbear from the regulation of a telecommunications service is whether a company has market power in the market for which forbearance is considered. In the context of this proceeding, O.N.Telcom would have market power if it could raise prices above competitive levels for an appreciable period of time.
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122.
|
The Commission stated in Decision 94-19 that determinants of market power include:
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· market share;
|
|
· economic, financial or regulatory entry barriers;
|
|
· customers' ability and willingness to switch between suppliers;
|
|
· suppliers or service providers' ability to increase output; and
|
|
· evidence of rivalrous behaviour, such as aggressive pricing or marketing campaigns.
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123.
|
The Commission also noted that a large market share may not indicate market power if there are no entry barriers, if customers are able and willing to switch between suppliers, and if suppliers can increase output.
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124.
|
As stated in O.N.Telcom's tariffs, and for the purposes of forbearance in this section, the company's message toll services include two-point, overseas, facsimile, aircraft and 800 services. No party to this proceeding submitted that there were economic or financial barriers to entry into O.N.Telcom's message toll market. Similarly, no party submitted that potential entrants into the market would have difficulty increasing output in response to market demands.
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125.
|
Bell Canada stated that if the terms and conditions of toll competition in O.N.Telcom's territory are similar to the terms and conditions in the rest of Canada, there would also be a competitive market for toll services in O.N.Telcom's territory, and that it would be appropriate for the Commission to forbear from regulation of toll services provided by O.N.Telcom. However, Bell Canada argued that forbearance from regulation would not be appropriate if interconnection and provision of equal access were mandated at O.N.Telcom's DMS-200.
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126.
|
Both O.N.Telcom and the companies agreed that in O.N.Telcom's service territory, users are anticipating competition in the long-distance market. However, Northern stated that O.N.Telcom will initially have a 100% market share, and may only see gradual erosion of its market share. Accordingly, Northern submitted that O.N.Telcom is dominant, and that O.N.Telcom's toll services should continue to be regulated.
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127.
|
O.N.Telcom submitted that it is reasonable to expect large national carriers to enter the market, pursuing aggressive pricing with rates considerably below O.N.Telcom's current rates. O.N.Telcom stated that customers expect benefits from toll competition, and would likely switch to lower priced competitors.
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128.
|
O.N.Telcom stated that it is not an integrated toll carrier. The company argued that, in its territory, Northern is the incumbent LEC, and has the ability to present customers with the choice of one-stop shopping. Accordingly, O.N.Telcom stated that it expects to lose significant market share to Northern, if Northern were to enter the toll market.
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129.
|
The Commission agrees with Northern that O.N.Telcom could initially have a large market share in the toll market, since, in view of Telecom Decision CRTC 99-18, Customer definition and ownership of subscriber information in independent telephone companies' territories, dated 1 December 1999, all message toll users initially are O.N.Telcom's customers. The Commission also has the view that O.N.Telcom may lose market share gradually. However, absent any economic, financial, or regulatory barriers to entry, the Commission is of the view that O.N.Telcom would not have market power in the sense of having the ability to increase prices above competitive levels for an extended period of time. The Commission notes that Northern and Bell Canada could provide message toll services in O.N.Telcom's territory on a forborne basis pursuant to Telecom Decision CRTC 95-19, Forbearance - Services provided by non-dominant Canadian carriers, dated 8 September 1995, and Telecom Decision CRTC 97-19, Forbearance - Regulation of toll services provided by incumbent telephone companies, dated 18 December 1997. Accordingly, the Commission is of the view that it is appropriate to forbear from message toll services provided by O.N.Telcom.
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130.
|
Pursuant to section 34(1) of the Telecommunications Act (the Act), the Commission finds, as a matter of fact, that forbearance to the extent set out below from message toll services provided by O.N.Telcom is consistent with the Canadian telecommunications policy objectives outlined in section 7 of theAct.
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131.
|
In addition, pursuant to section 34(2) of the Act, the Commission finds, as a matter of fact, that message toll services provided by O.N.Telcom will be subject to competition sufficient to protect the interests of users.
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132.
|
Pursuant to section 34(3) of the Act, the Commission also finds that such forbearance would not unduly impair the continuance or establishment of a competitive market for the forborne services.
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133.
|
The Commission will forbear from O.N.Telcom's message toll services to a similar extent as in Decision 97-19. The Commission will retain its powers under section 24 of the Act (conditions on the offering and provision of telecommunications services) in order to continue to deal with the confidentiality of customer information. Accordingly, on a going-forward basis, the existing conditions concerning customer confidentiality are to be included, where appropriate, in all contracts or other arrangements with customers for the provision of services forborne in this decision. Further, the Commission will retain its powers under section 24 of the Act to impose further conditions on O.N.Telcom in the future if circumstances should require it.
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134.
|
In addition, to protect the interests of users, and in light of the Canadian telecommunications policy objectives, the Commission considers it appropriate to adopt the following additional conditions applicable to the offering or provision of message toll services by O.N.Telcom:
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a) O.N.Telcom shall provide to the Commission, and make publicly available, a basic toll schedule setting out the rates for basic toll service. This schedule is to include the 50% discount currently applicable to calls which originate from, and are billed to, the residence service of a registered certified hearing or speech-impaired telecommunications devices for the deaf (TDD) user. O.N.Telcom shall update this schedule within 14 days of any change to the rates for basic toll service;
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|
b) annual increases in rates of the basic toll schedule shall not exceed the rate of inflation; and
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|
c) O.N.Telcom shall ensure that all message toll customers and applicants for message toll services can choose basic toll service.
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|
135.
|
Consistent with the Commission's approach for incumbent telephone companies in Decision 97-19, the Commission will forbear from the exercise of its section 27(1) powers in respect of O.N.Telcom's message toll services, other than the continued exercise of its powers under section 27(1) of the Act in respect of basic toll service in order to implement the conditions on O.N.Telcom's basic toll schedule.
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136.
|
Consistent with its approach in Decision 97-19, the Commission will retain its section 27(2) powers in respect of issues related to access to O.N.Telcom's network and resale and sharing of its message toll services. Similarly, the Commission will continue to exercise all its section 27(2) powers in respect of basic toll services. Subject to the Commission's concerns regarding bundling, described below, in all other respects, the Commission will forbear from the exercise of its powers under section 27(2) of the Act.
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137.
|
The Commission considers it necessary to retain its powers and duties under sections 27(3) to 27(6) of the Act to the extent that they refer to compliance with powers and duties not forborne from in this decision.
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138.
|
The Commission therefore orders that, pursuant to section 34(4) of the Act, effective 1 January 2002, sections 24, 25, 27, 29 and 31 of the Act do not apply to message toll services provided by O.N.Telcom to the extent that those sections are inconsistent with the determinations in this decision.
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139.
|
O.N.Telcom is directed to issue, within 90 days of this decision, tariff pages removing the tariffs for its message toll services, to the extent prescribed in this decision. Forbearance will be effective 1 January 2002.
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|
Carrier Service Group for O.N.Telcom
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|
140.
|
Since Decision 92-12, the Commission has required that ILECs that offer competitive services and also provide service to competitors form Carrier Services Groups (CSGs) to protect the confidentiality of competitor information. Through the CSG, competitors may make interconnection arrangements without alerting the ILEC of their plans. Decision 92-12 required the ex-Stentor companies that were party to the decision to set up CSGs. The CSGs were patterned after similar groups that the ex-Stentor companies formed when competition became possible in the market for terminal equipment. The requirement was subsequently extended to all the ex-Stentor companies. In Decision 96-5, the Commission also required Télébec and Québec-Téléphone (now TELUS Québec) to establish CSGs.
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141.
|
Further, in a letter dated 31 March 2000, wherein the Commission adjudicated a dispute between Bell Canada and O.N.Telcom, the Commission stated that future relationships between Bell Canada and O.N.Telcom should be handled through their respective CSGs.
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142.
|
In this proceeding, O.N.Telcom stated that it would have a CSG for interconnection arrangements. Bell Canada submitted that the Commission should implement the same terms and conditions for toll competition as elsewhere in Canada. The companies stated that O.N.Telcom requires a CSG to handle service requests from toll competitors and resellers, and that the procedures for O.N.Telcom's CSG should be identical to those for Télébec and TELUS Québec.
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143.
|
The Commission notes that O.N.Telcom provides several competitive services, such as interexchange private line, Internet access and wireless services, in addition to message toll services. Consistent with prior decisions, the Commission directs O.N.Telcom to form a CSG to handle interconnection arrangements, and to file with the Commission proposed procedures for its CSG in the fourth quarter of 2001.
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Quality of service
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144.
|
O.N.Telcom is currently subject to the quality of service reporting requirements for companies with less than 25,000 NAS (Decisions 96-6 and 98-14). Bell Canada and Northern are subject to the regime established in Telecom Decision CRTC 97-16, Quality of service indicators for use in telephone company regulation, dated 24 July 1997, and Decision CRTC 2000-24, Final standards for quality of service indicators for use in telephone company regulation and other related matters, dated 20 January 2000. The quality of service standards generally apply to service provided to the companies' end customers.
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|
145.
|
However, specific quality of service standards apply to PIC/CARE procedures. Normally, companies file their PIC/CARE manuals for approval by the Commission. Further, in Order CRTC 2000-397, Altering terms of service for competitors that are customers, dated 12 May 2000, the Commission directed changes to telephone companies' Terms of Service to ensure competitive equity when telephone companies provide service to customers that also are competitors. The Commission notes that O.N.Telcom changed its Terms of Service to comply with Order 2000-397 and issued the relevant tariff pages effective 12 May 2000.
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146.
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O.N.Telcom agreed to implement quality of service standards for PIC/CARE activation, but argued that measurement should commence only after the ILECs have completed all arrangements required for PIC/CARE activation. O.N.Telcom undertook to file its PIC/CARE manual within the period determined by the Commission in this proceeding. Bell Canada and the companies agreed with O.N.Telcom's position. Accordingly, within 30 days of this decision, O.N.Telcom shall file for approval its manual for PIC/CARE activation, to be effective 1 January 2002.
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Northern/Cochrane
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147.
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An issue in this proceeding was whether competitive safeguards would be required for Northern or Cochrane if these carriers should enter the toll market.
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148.
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The requirements for CSGs apply to ILECs that also offer competitive services. ILECs that offer toll services must also have an approved PIC/CARE manual. These requirements are intended to achieve competitive equity between the ILEC and its competitors. The CSGs protect the confidentiality of competitor information. The PIC/CARE procedures permit customers to switch interexchange carriers without alerting the ILEC before the switch is effective.
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149.
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The companies argued that if they were to enter the toll market in O.N.Telcom's territory, they would be entrants, and they should not be required to implement regulatory safeguards, as the Commission has not, until now, required entrants to form CSGs or comply with other competitive safeguards that apply to the ILECs.
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150.
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The Commission is of the view that, in the circumstances of the O.N.Telcom serving territory, it would be appropriate if Cochrane and Northern were required to form CSGs if they were to enter the toll market. They are ILECs that dominate their respective local markets, and a CSG and the PIC/CARE procedures are required to prevent these companies from leveraging that dominance into the toll market.
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151.
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The Commission notes that both Cochrane and Northern now offer several competitive services, including Internet access and wireless services. Northern also offers interexchange private-line services. Since the companies are ILECs and offer services in competition with other service providers, the Commission is of the view that they should have CSGs. Accordingly, the Commission directs these parties to establish CSGs, and to file, within 90 days of this decision, the proposed procedures of their CSGs for approval by the Commission. The Commission also directs Cochrane and Northern to implement the PIC/CARE procedures, and to file their PIC/CARE manuals for Commission approval, prior to entering the toll market.
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Other matters
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152.
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In implementing a regulatory framework that is appropriate for increasingly competitive telecommunications markets, the Commission developed the rules for bundling, promotions, and winbacks.
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153.
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Among other things, in Decision 94-19, the Commission established bundling rules governing the pricing of bundled services that include several tariffed services, and for bundles that include tariffed and forborne services.
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154.
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When the Commission approved competition in long-distance services, it did not establish any specific rules for the incumbents to win back customers that had elected to be served by competitors. With the PIC/CARE procedures, all service providers obtain daily information on customer transfers. In Telecom Decision CRTC 96-7, Tariff filings relating to promotions, dated 18 September 1996, the Commission was of the view that consumers would obtain the most benefits from competition if there were no rules governing customer winbacks. However, inDecision 96-7, the Commission implemented rules governing the marketing of competitive services on a promotional basis.
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155.
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Telecom Decision CRTC 98-4, Joint marketing and bundling, dated 24 March 1998, eliminated the joint marketing restrictions for most companies, and established rules for the bundling of tariffed services with services of an affiliated company, with services of a non-affiliated company and with non-telecommunications services offered in-house by the telephone company (i.e., broadcasting services).
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156.
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The Commission is of the view that the existing rules and determinations adopted for bundling, promotions and winbacks should apply to O.N.Telcom.
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Rebilling
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157.
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O.N.Telcom submitted that, to ensure competitive equity, it requires the ability to rebill local services provided by Northern and Cochrane if the latter enter the toll market now served by O.N.Telcom.
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158.
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In Decision 92-12, when the Commission first introduced facilities-based competition in the long-distance market, it recognized that the ILECs obtained an advantage from being able to provide both local and long-distance services, and bill for both services, on the same bill. However, the Commission did not consider this an undue advantage.
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159.
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Since Decision 92-12, more and more services have become competitive. Further, the major telephone companies have introduced tariffs for resale and sharing, and most of the services of the telephone companies can now be resold. Of specific interest to this proceeding, local services provided by the ex-Stentor companies can be resold. A condition of such resale is that residential service can only be resold to provide residential service.
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160.
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The Commission notes that in the case of local services, resale is equivalent to rebilling, because the facilities-based company continues to provide the service.
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161.
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When services are resold, the telephone companies normally sell them to resellers or sharing groups at tariffed rates. An exception is that the rates for unbundled loops that are sold pursuant to Decision 97-8 are significantly less than the tariffed rates for local service.
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162.
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O.N.Telcom submitted that Northern or Cochrane could provide customers with a single bill for local and long-distance services if they were to enter the toll market. O.N.Telcom argued that customers prefer a single bill for local and long-distance services, and that accordingly, O.N.Telcom would be disadvantaged unless it could also offer the convenience of a single bill to its customers.
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163.
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Bell Canada and the companies agreed that O.N.Telcom should be able to rebill ILECs' local services, but were opposed to wholesale tariffs for rebilled services.
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164.
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The Commission considers that O.N.Telcom may obtain some of the advantages enjoyed by an integrated telephone company if it were permitted to rebill the local exchange services provided by other carriers. Accordingly, the Commission directs Northern to file a proposed tariff within 30 days of this decision for competitive toll service providers to resell or rebill Northern's local exchange services. To ensure competitive equity, the Commission will permit rebilling of local exchange services provided by all local carriers in the region. Thus, O.N.Telcom and Cochrane will also be required to file proposed resale/rebilling tariffs within two weeks of receiving a request for rebilling.
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O.N.Telcom tariff notices 57 and 57A
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165.
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O.N.Telcom filed TN 57 on 12 March 1999 and TN 57 A on 15 May 1999 requesting approval of an interconnection charge of $0.0349 per conversation minute for the transport of interexchange company traffic on the company's interexchange network.
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166.
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By letter dated 31 March 2000, the Commission directed O.N.Telcom to unbundle its proposed $0.0349 interconnection charge to set a proxy DC rate of $0.007596 and $0.027304 as a proxy access tandem rate. The Commission also directed the parties to settle using the unbundled rates as an interim measure pending the final resolution of TN 57.
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167.
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O.N.Telcom submitted that the rates proposed in TN 57 were appropriate until the commencement of toll competition in its territory and requested that TN 57 be approved as soon as possible.
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168.
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Bell Canada and the companies were essentially of the view that TN 57 should be denied, on the basis that the underlying costing and study information that was used to calculate the proposed rates contained fundamental flaws in their design and application.
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169.
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The Commission notes that toll competition was originally envisaged to occur in O.N.Telcom's operating territory as early as 1 July 2000. The Commission considers that the interim rates as set are appropriate to the circumstances and conditions in place for the period leading up to the implementation of toll competition in O.N.Telcom's operating territory. The Commission also notes that new interconnection rates will become effective with the implementation of toll competition on 1 January 2002.
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170.
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In light of this, the Commission approves O.N.Telcom's proxy interim access tandem rate of $0.027304 and its proxy interim DC rate of $0.007596 on a final basis for settlement purposes up to 31 December 2001. Therefore, TNs 57 and 57A are denied.
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Contribution 1998-2001
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171.
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In Decision 98-14, the Commission considered there was no need to set a proxy CAT for O.N.Telcom for 1998 and 1999, given that toll competition would not be introduced in O.N.Telcom's territory until July 2000. The Commission stated that it intended to establish the level of the CAT for O.N.Telcom in the proceeding to implement toll competition in O.N.Telcom's operating territory.
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172.
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By letter dated 31 March 2000, the Commission set a temporary contribution rate that has been determined on the basis of another carrier's information (a proxy interim contribution rate) for 1998 of $0.0519 per minute and a proxy interim contribution rate of $0.0408 per minute for 1999, based on Northern's approved CATs for 1997 and 1998, respectively. This letter also indicated the 1999 rate would remain in place until a revised interim rate could be set.
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173.
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O.N.Telcom provided the following actual/estimated contribution requirements, net of direct connection charges in lieu of a direct toll rate, applicable to toll traffic originating and terminating on the company's local exchanges:
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· actual 1999 contribution requirement of $1.5 million, based on 16.8 million minutes at $0.0874 per minute;
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· an estimated 2000 contribution requirement of $1.9 million, based on 19.2 million minutes at $0.0968 per minute; and
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· an estimated 2001 contribution requirement of $1.5 million, based on 25.5 million minutes at $0.0581 per minute.
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174.
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The Commission notes that, consistent with the intent of Telecom Decision CRTC 99-5, Review of contribution regime of independent telephone companies in Ontario and Quebec, dated 21 April 1999, contribution requirements were essentially considered to be capped at approved 1999 levels subject to adjustments related to local rate increases. As well, the Commission further notes that according to Decision 99-5, the ITCs were to file with the Commission, by 1 January 2000, proposals detailing how they intended to reduce their subsidy requirement to no more than 25% by no later than 2002.
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175.
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The Commission notes that O.N.Telcom did not submit a proposal on 1 January 2000 as to how it would achieve the 25% target by 2002. The Commission also notes that O.N.Telcom's 2001 proposed contribution requirement includes a proposed 1 September 2001 local rate increase as part of this proceeding. As indicated in paragraphs 182 and 183 in this decision, the Commission is deferring the implementation of the proposed rate increase until 1 January 2002.
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176.
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In consideration of the above, the Commission has determined that O.N.Telcom's 1998 interim proxy contribution rate of $0.0519 is made final and O.N.Telcom's 1999 interim proxy contribution rate of $0.0408 is made final for settlement purposes to 31 December 2001.
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Contribution 2002
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177.
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In Decision CRTC 2000-745, Changes to the contribution regime, dated 30 November 2000, the Commission established a revenue-based contribution collection mechanism on a national basis to be effective 1 January 2001. The ITCs were exempted from the effective date. The Commission indicated it would, during the transition year, initiate a process to address modifications necessary to include the independents under the revenue-based mechanism in 2002. This process began with the release of PN 2001-61.
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178.
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O.N.Telcom indicated that it believed that an extended transition period will be required prior to a move from a Phase III contribution requirement calculation to a Phase II calculation. As a result, for the purposes of its proposal, O.N.Telcom assumed its contribution requirement will continue to be calculated on a Phase III basis until at least the end of 2004. O.N.Telcom also noted that it expected that Decision 2000-745 will apply to it except to the extent it is varied as a result of the PN 2001-61 process.
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179.
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The companies were of the view that O.N.Telcom's contribution requirement should be calculated in accordance with the formula established by the Commission in Decision 2000-745 for the calculation of the total subsidy requirement of the ex-Stentor companies.
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180.
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The Commission is of the view that O.N.Telcom's 2002 proposed contribution requirement, as calculated according to the previous per-minute mechanism, may no longer be appropriate. However, given the evolution of the contribution collection mechanism, as determined by Decision 2000-745 and Decision CRTC 2001-238, Restructured bands, revised loop rates and related issues, dated 27 April 2001, as well as the pending outcome of the PN 2001-61 proceeding, the Commission notes that neither the length nor the circumstances of a transition period contribution requirement for the independent telephone companies has been determined.
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181.
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The Commission therefore approves a 2002 contribution/subsidy requirement of $1,008,040 for O.N.Telcom, net of DC SWAG revenue, on an interim basis, as a proxy subsidy requirement, subject to the outcome of the process initiated by PN 2001-61.
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Local rates
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182.
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O.N.Telcom applied to increase monthly local rates for single-line residential service and single-line business rates, effective 1 September 2001.
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183.
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The Commission approves O.N.Telcom's proposed monthly local single-line rates to be effective 1 January 2002 to coincide with the effective date for the terms and conditions of toll competition in O.N.Telcom's toll-serving territory. These rates are $19.85 for single-line residence service (including Touch-Tone) and $45.45 for single-line business service (including Touch-Tone). Additionally, the Commission approves O.N.Telcom's proposal to eliminate all intra-exchange mileage charges for Temagami Lakes. The Commission directs O.N.Telcom to issue tariff pages reflecting the proposed rates by 15 November 2001 to be effective 1 January 2002.
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Secretary General
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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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Appendix
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Reference documents
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Legislation
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Telecommunications Act, S.C. 1993, c.38, as amended
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Public notices
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Public Notice CRTC 2001-61, New regulatory framework for small independent telephone companies and related issues, dated 30 May 2001
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Public Notice CRTC 2000-107, O.N. Tel - Implementation of toll competition and related matters, dated 20 July 2000
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Public Notice CRTC 2000-107-1, O.N. Tel - Implementation of toll competition and related matters, dated 30 November 2000 - Amendment to PN 2000-107
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Decisions
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Decision CRTC 2001-238, Restructured bands, revised loop rates and related issues, dated 27 April 2001
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Decision CRTC 2000-745, Changes to the contribution regime, dated 30 November 2000
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Decision CRTC 2000-24, Final standards for quality of service indicators for use in telephone company regulation and other related matters, dated 20 January 2000
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Telecom Decision CRTC 99-18, Customer definition and ownership of subscriber information in independent telephone companies' territories, dated 1 December 1999
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Telecom Decision CRTC 99-16, Telephone service to high-cost serving areas, dated 19 October 1999
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Telecom Decision CRTC 99-5, Review of contribution regime of independent telephone companies in Ontario and Quebec, dated 21 April 1999
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Telecom Decision CRTC 98-22, Final rates for unbundled local network components, dated 30 November 1998
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Telecom Decision CRTC 98-14, Regulatory framework - Ontario Northland Transportation Commission, dated 1 September 1998
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Telecom Decision CRTC 98-4, Joint marketing and bundling, dated 24 March 1998
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Telecom Decision CRTC 97-19, Forbearance - Regulation of toll services provided by incumbent telephone companies, dated 18 December 1997
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Telecom Decision CRTC 97-16, Quality of service indicators for use in telephone company regulation, dated 24 July 1997
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Telecom Decision CRTC 97-8, Local competition, dated 1 May 1997
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Telecom Decision CRTC 97-6, Unbundled rates to provide equal access, dated 10 April 1997
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Telecom Decision CRTC 96-7, Tariff filings relating to promotions, dated 18 September 1996
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Telecom Decision CRTC 96-6, Regulatory framework for the independent telephone companies in Quebec and Ontario (except Ontario Northland Transportation Commission, Québec-Téléphone and Télébec ltée), dated 7 August 1996
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Telecom Decision CRTC 96-5, Regulatory framework for Québec-Téléphone and Télébec ltée, dated 7 August 1996
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Telecom Decision CRTC 95-21, Implementation of regulatory framework - Splitting of the rate base and related issues, dated 31 October 1995
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Telecom Decision CRTC 95-19, Forbearance - Services provided by non-dominant Canadian carriers, dated 8 September 1995
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Telecom Decision CRTC 94-19, Review of regulatory framework, dated 16 September 1994
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Telecom Decision CRTC 92-12, Competition in the provision of public long distance voice telephone services and related resale and sharing issues, dated 12 June 1992
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Orders
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Order CRTC 2000-397, Altering terms of service for competitors that are customers, dated 12 May 2000
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Telecom Order CRTC 99-363, In the matter of the Phase III costing, Carrier Access Tariff (CAT) and split rate base procedures manual filed for approval by O.N. Tel, dated 22 April 1999
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Telecom Order CRTC 97-1922-1, dated 5 February 1998 (Erratum to Telecom Order CRTC 97-1922, dated 23 December 1997 - "O.N. Tel's settlement agreement with Bell should be made interim as of 1 January 1998 in order to allow the additional revenues from these local rate increases to be reflected in a lower negotiated revenue settlement agreement for 1998")
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Date Modified: 2001-09-13
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