ARCHIVED - Order CRTC 2001-184

Order CRTC 2001-184

Ottawa, 1 March 2001

Local competition: Sunset clause for near-essential facilities

Reference: 8622-C12-12/00

The CRTC extends the sunset period for near-essential facilities, without specifying a termination date, until such time as the market for such facilities is sufficiently competitive.

On 11 July 2000, the Commission issued Public Notice CRTC 2000-96, Local competition: Proceeding to consider extending the sunset rule for near-essential facilities and to treat copper loops as essential facilities. PN 2000-96 sought comments on:

Local competition, Telecom Decision CRTC 97-8, dated 1 May 1997, provides the principles and procedures that permit competitive entry into the local exchange market. In Decision 97-8, the Commission mandated the unbundling of certain incumbent local exchange carriers' (ILECs) service and facility components that competitive local exchange carriers (CLECs) will require, but will not generally be able to provide themselves. To this end, the Commission established a definition of an essential facility. To be considered essential, a facility must meet all three of the following criteria: (a) it is monopoly controlled; (b) a CLEC requires it as an input to provide services; and (c) a CLEC cannot duplicate it economically or technically. The following items met the definition of essential facility: central office codes, subscriber listings and local loops in certain bands.

The Commission also mandated that certain facilities, functions or services which did not meet the definition of an essential facility, but for which the competitive supply is very limited, also be unbundled and priced on the basis of rating principles established for essential facilities, for a period of five years, commencing 1 May 1997 (the sunset clause). The Commission stated in Decision 97-8 that after this five-year period, these facilities will not be subject to mandatory unbundling and essential facilities rating. Such items, commonly referred to as near-essential facilities, include: local loops in low cost bands, transiting of switched local traffic and signalling networks (i.e., common channel signalling system 7 (CCS7) transiting), and extended area service (EAS) delivery of CLEC-originated switched local traffic.

Comments and/or reply comments were received from: Bell Canada on behalf of itself and Island Telecom Inc., Maritime Tel & Tel Limited, MTS Communications Inc., NBTel Inc., NewTel Communications Inc. and Saskatchewan Telecommunications (Bell Canada et al.); Action Réseau Consommateur, the Consumers' Association of Canada, and the National Anti-Poverty Organization (NAPO); Futureway Communications Inc.; GT Group Telecom Services Corp. (Group Telecom); Riptide Networks Inc.; AT&T Canada Corp. and AT&T Canada Telecom Services Company (AT&T Canada); MaxLink Communications Inc.; Microcell Telecommunications Inc.; Call-Net Enterprises Inc. on behalf of itself and NorthPoint Canada Communications Inc. (Call-Net); Cannect Communications Inc., C1.com Inc. on behalf of itself and AXXENT Corp. (C1); Vidéotron Communications Inc. on behalf of Vidéotron (1998) ltée and Vidéotron Télécom (1998) ltée; EastLink Telephone; TELUS Communications (B.C.) Inc. and TELUS Communications Inc. (TELUS); and Commissioner of Competition (Competition Bureau).

Position of parties

Should the sunset clause be extended?

All of the new entrants (except Futureway) submitted that the current five-year sunset clause for near-essential facilities, ending on 1 May 2002, should be extended. In most cases, the entrants argued for an additional three- to five-year period, and proposed that a review at, or near, the end of the extension period be conducted by the Commission to determine if further extension is warranted. NAPO and the Competition Bureau proposed that the sunset rule be extended until such time that sufficient competition exists in the provision of near-essential facilities and that a termination date not be specified. They argued that an analysis of the state of competition is a better objective standard than choosing a specific sunset date, since there is no way to predict beforehand the evolution of competition.

The entrants generally submitted that the sunset period for near-essential facilities must be extended, for a number of reasons, including:

Most of the entrants submitted that the ILECs will continue to be the dominant source of supply of near-essential facilities and argued that it is crucial that near-essential facilities remain available at regulated rates.

Bell Canada et al., Futureway and TELUS submitted that an extension of the current sunset period is unwarranted and argued that the principles established by Decision 97-8 are sound and still apply.

Bell Canada et al. identified CLECs providing voice, data and high-speed access (over their own facilities) in major local telephone markets. They submitted that there is a high level of entry in the local exchange market, and that extending the sunset period for near-essential facilities is not a critical factor in sustaining the evolution of competition.

Bell Canada et al. also stated that while they are not opposed to a reasonable extension of the sunset period, any extension must be conditional upon the telephone companies receiving a fair price for their services. TELUS stated that in light of the delays in implementing the local competition regulatory framework, an 18-month extension of the sunset date would be reasonable. However, both Bell Canada et al. and TELUS stated that it is imperative that any such extension be firm and final.

Bell Canada et al., Futureway and TELUS submitted that extending the sunset period for near-essential facilities would remove incentives for entrants to invest in building their own facilities. They argued that entrants' increased reliance on the facilities of the ILECs will limit genuine competition, and thus undermine the Commission's objective of facilities-based competition.

The entrants and NAPO submitted that, contrary to the assertions by Bell Canada et al. and TELUS, extending the sunset period will not impede investment in facilities, either by the ILECs or the entrants. They noted that since the rates charged by the ILECs for near-essential facilities are compensatory (tariffed at Phase II costs plus a 25% mark-up), the ILECs will continue to have an incentive to invest in such facilities. Also, the entrants will continue to have an incentive to build-out their own networks, since access to the ILECs' local loops will simply complement their own build-outs, and thus make it more economic for CLECs to serve a greater geographic range of customers and achieve the necessary minimum efficient scale of operations. They argued that increased competition will stimulate, not deter investment in facilities.

What criteria should be used to determine the appropriate period?

The entrants generally proposed that the onus should be on the ILECs to demonstrate on a case-by-case basis that, for a given geographic area, the near-essential facility in question is subject to sufficient competitive supply such that CLECs have a viable alternative to the ILECs' facilities. The following measures of competition were proposed:

Other parties, such as Group Telecom, MaxLink and C1, proposed that at the end of the extension period, the Commission initiate a proceeding to define the appropriate market test and to determine the regulatory framework that will apply to services relieved of near-essential status.

Near-essential local loops

The entrants submitted that the sunset rule on local loops should be extended. They stated that local loops are a critical input affecting their ability to compete in the local telephony market, and that self-supply of such loops is simply not economically feasible, and has been hampered by, among other things, difficulties and delays in obtaining access to municipal rights-of-way and access to buildings.

Most of the entrants also stated that economically feasible substitutes to the ILECs' near-essential local loops are not available. They submitted that other access technologies for providing fixed access, such as coaxial cable, are not economically viable and are still largely unproven or unsuitable for ubiquitous deployment.

AT&T Canada, C1 and Group Telecom submitted that the new entrants face a considerable cost disadvantage when deploying local loops. Since the ILECs have nearly 100% of the market, they can optimize their feeder systems and amortize costs over a large customer base. By contrast, the entrants have a very small number of customers, which are widely-dispersed. Consequently, it is difficult for the entrants to acquire a critical mass of geographically concentrated customers that would make self-supply of local loops economic. Thus, the entrants must rely on unbundled loops from the ILECs.

C1 proposed that all near-essential local loops be deemed to be essential facilities. AT&T Canada proposed that the local loops in question remain as near-essential facilities indefinitely, with the exception of Type C loops (supporting T1 bandwidth) and higher-speed accesses, which should remain near-essential for an additional five years, followed by a review to examine the state of local competition in near-essential facilities.

Copper loops

Group Telecom and Call-Net submitted that copper (i.e., metallic) continuity of a loop, either from the ILEC's central office to the customer's premises or the metallic portion of a combined copper/fibre loop from the ILEC's remote switch to the customer's premises, meets the criteria of an essential facility in bands where local loops are currently considered essential and as a specific type of near-essential facility in other bands. They submitted that the significance of continuous copper loops is the metallic continuity required for digital subscriber line (DSL) technology which enables the high-speed transmission of alpha-numeric, sound and video information in a digital format over ordinary copper telephone lines to and from homes and business (e.g., high-speed Internet).

Group Telecom, Call-Net and C1 argued that, similar to the case for local loops in general, they must rely on the provision of continuous copper loops by the ILECs in order to enter the DSL market. Call-Net stated that as a result of the ILECs' copper plant monopoly, they have a corresponding dominance in the DSL market, and that it is unlikely that a competitive supply of copper loops will emerge at any time in the foreseeable future.

Bell Canada et al. and TELUS submitted that unbundled copper loops are not the only means by which competitors can provide high-speed digital access services to their end-customers, and stated that substitutes, such as cable, fibre optic and various wireless technologies, are currently being used in Canada to provide broadband voice, Internet access and data services to customers. Further, Bell Canada et al. argued that the logic underlying the arguments that copper loops are essential, if accepted, would require the Commission to order cable modem, wireless and any other providers of high-speed Internet access services to also unbundle their service offerings.

Transit services

The entrants noted that transiting is provided by a carrier to permit communications between two other carriers who are themselves not interconnected, but who are both interconnected with the carrier offering the transiting. The alternative to transiting is for each carrier to connect directly with every other carrier. They noted that in Decision 97-8 the Commission found that, given the small volumes of traffic that would be exchanged in the early stages of competition, direct interconnection with every other CLEC, wireless service provider (WSP) and inter-exchange carrier (IXC) would present a significant barrier to entry. Accordingly, the Commission mandated the provisioning of transiting, at regulated rates, for a period of five years in order to accelerate entry into the local market by removing the burden on CLECs of having to provide trunks between themselves and every other carrier. The ILECs are required to provide CLECS with the following types of transit services:

The entrants submitted that the sunset period for local, toll and EAS transiting should be extended because they still have a very small share of the local market, and therefore lack the critical mass of customers that would enable the economic self-supply of transiting. They submitted that there are no CLEC to CLEC or CLEC to IXC combinations that can cost justify direct interconnection with every other carrier, since almost all the traffic is ILEC to CLEC and not CLEC to CLEC.

For example, AT&T Canada stated that traffic that would be carried on 18 local transit trunk groups would require the construction of over 200 trunk groups if it was required to interconnect directly with three other CLECs and four WSPs in each of the 18 exchanges.

Transiting on an ILEC's CCS7 signalling network allows CLECs, WSPs and IXCs that are not themselves interconnected to exchange signalling data.

The entrants noted that in Decision 97-8, the Commission recognized that there were no alternative sources of supply of CCS7 signalling and that it would take time for CLECs to obtain their own signalling transfer points (STPs). Therefore, the Commission determined that CCS7 signalling should be subject to mandatory unbundling and essential facilities pricing for a period of five years.

The entrants submitted that access to the CCS7 signalling network is essential for setting up and taking down calls, and for providing enhanced services (e.g., call display, three-way calling, distinct rings). They submitted that the same criteria for extending the sunset rule for other forms of transiting should also apply to CCS7 signalling.

Conclusions

The Commission notes that the near-essential facilities in question are critical inputs required by entrants, and that in virtually all cases the ILECs are the only available source of such facilities. The Commission considers that entrants in the local market face substantial barriers to entry, which limit their ability to expand their networks and acquire customers through self-supply of such facilities. Moreover, in light of the delays in implementing local competition and remaining entry barriers, the Commission considers that competition will not evolve sufficiently prior to the end of the sunset period (1 May 2002). The Commission considers that not extending the current mandated access period for near-essential facilities would make it more difficult for entrants to acquire the critical mass of customers necessary to make entry and expansion of their own networks economic, and would significantly limit the development of competition in the local exchange market.

The Commission considers that it would be appropriate to extend the sunset period without specifying a particular termination date. The Commission considers that the major disadvantage with extending the sunset rule with a firm and final termination date is the difficulty in determining at this time what the appropriate sunset extension period should be. In this regard, the Commission notes that it is not possible to accurately forecast at this time the degree to which competition in the local market in fact will evolve. If too short a period is chosen and sufficient alternate sources (including self-supply) of near-essential facilities have not emerged, the evolution of local competition would be hampered. Too long a period would be unfair to the ILECs since they would be required to continue to provide such facilities (at mandated rates) despite competitive alternatives being readily available to the CLECs. The Commission therefore considers that extending the sunset period for a specific period would not be appropriate.

The Commission is not persuaded by Bell Canada et al.'s and TELUS' argument that removal of a firm and final termination date for the sunset clause would result in significantly fewer incentives for entrants to invest in their own facilities. The Commission considers that most CLECs will likely use the ILECs' near-essential facilities to complement their own networks, rather than rely entirely upon the ILECs' near-essential facilities. Indeed, availability of ILECs' near-essential facilities during the early stages of competition, facilitates entry and would be pro-competitive and enhance facilities-based competition.

The Commission considers that the record of this proceeding does not provide an adequate basis for adopting criteria that could be used as benchmarks to determine when the market has become sufficiently competitive to no longer require mandated unbundling and pricing. Moreover, the Commission considers that it would be premature to adopt criteria now in light of uncertainties with respect to the evolution of the markets in question, the impact of current and emerging technologies, and the relative economic positions of the various players in the market.

The Commission agrees with those parties that proposed that no distinctions should be made in the approach and treatment among the different types of near-essential facilities in question. Therefore, the Commission considers that all near-essential facilities that are the subject of this proceeding be subject to the same determinations.

In light of the above, the Commission extends the sunset period for near-essential facilities, without specifying a termination date, until such time as the market for such facilities is sufficiently competitive. The Commission considers that the onus should be on the ILEC in question to apply for relief from mandated unbundling and essential facilities pricing, demonstrating that the provision of near-essential facilities is sufficiently competitive in a particular rate band and/or geographic area. The Commission notes that a more accurate assessment of the state of competition in the market(s) in question can be made at that time.

Copper loops

The Commission notes that, contrary to the position taken by some parties to this proceeding, the intent of PN 2000-96 was not to address the issue of whether the metallic (i.e., copper) portion of a hybrid fibre/copper local loop should be an essential facility (i.e. subject to mandatory unbundling). Rather, the intent was to obtain comment on whether near-essential local loops should be made essential.

Based on the record of this proceeding, the Commission is not persuaded that it would be appropriate to deem, at this time, near-essential local loops to be essential. Nonetheless, the Commission notes that with the extension of the sunset rule, all near-essential local loops will be subject to mandatory unbundling and essential facilities pricing until such time that the provision of such loops is subject to sufficient competition.

Secretary General

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