ARCHIVED - Telecom Decision CRTC 2002-76
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Ottawa, 12 December 2002 Reference: 8622-G7-02/02 1 6 16 16 29 40 67 77 84 89 144 156 161 178 180 This decision disposes of an application by GT Group Telecom
Services Corp. related to certain activities of Bell Canada and its
affiliate, Bell Nexxia Inc. (Bell Nexxia), as well as regarding the
adequacy of the affiliate rule in the current environment. With respect to the issues specific to Bell Canada and Bell Nexxia,
the Commission has concluded that: · Bell Canada must move its Carrier Services Group (CSG) out
of Bell Nexxia and back into Bell Canada. · Bell Canada may provision forborne Bell Nexxia
services via Bell Canada's CSG if it chooses to do so. · At least 111 single source and packaged arrangements of Bell Canada
and Bell Nexxia, involving Bell Canada tariffed service elements,
constitute bundling within the meaning of the Commission's bundling
rules. By failing to file tariffs for approval in respect of these
arrangements, Bell Canada breached the Commission's bundling rules. · In order to bring Bell Canada into compliance with the
bundling rules and to permit the Commission to determine if any
additional measures are necessary, Bell Canada is required to file
proposed tariffs and to provide the Commission with information regarding
all contracts for single source and packaged arrangements involving Bell Canada
tariffed service elements together with other services, whether offered
directly by Bell Canada or through Bell Nexxia or through any
other Bell Canada affiliate under common control with Bell Canada. · Certain services provided by Bell Canada to Bell Nexxia may be
telecommunications services. To the extent that they are, section 25 of
the Telecommunications Act (the Act) requires that
they be provided pursuant to approved tariffs. In order to determine
whether or not Bell Canada is compliant with the Act, the Commission
has directed Bell Canada to provide it with information relating to
the services in question. The Commission is inviting the large incumbent local exchange carriers
(ILECs), other than Bell Canada, to show cause why the Commission's
determination regarding the location and operation of Bell Canada's
CSG should not apply to them. The Commission is also requiring the other large ILECs to provide the
Commission with information comparable to that required from Bell Canada,
regarding services the ILECs provide to their affiliates. With respect to the general issue of the adequacy of the affiliate
rule, the Commission has concluded that it is necessary to modify the
rule. The Commission has changed the definition of "affiliate"
to include only those persons that are not Canadian carriers and that
control or are controlled by the ILEC or that are controlled by a person
that also controls the ILEC. In all cases, control means direct or
indirect control in fact. The Commission has also changed the conditions under which an ILEC may
provide tariffed services to an affiliate. Specifically, an ILEC may not
provide an ILEC affiliate with non-forborne services which the affiliate
uses to provide telecommunications services to the public, except
pursuant to an approved tariff which identifies the rates, terms and
conditions under which the relevant telecommunications services are
provided by the affiliate to the public. Those rates, terms and
conditions must be identical to the rates, terms and conditions which
would apply if the telecommunications services in question were provided
to the public by the ILEC, instead of by the affiliate. The Commission has reviewed the application of section 34 of the Act,
as well as certain of its forbearance orders in light of its findings
regarding the activities of Canadian carriers under common control with
an ILEC. The Commission is of the preliminary view that services provided
by such a Canadian carrier should be entitled to forbearance if and only
if the same services would be entitled to forbearance if they were
provided by the ILEC. The Commission is also of the preliminary view that
any non-forborne telecommunications services provided by such a Canadian
carrier should be subject to the same rules and requirements as would
apply if the services were provided by the ILEC. The Commission is inviting the large ILECs to show cause why the
Commission should not implement its preliminary view with respect to the
regulation of Canadian carriers under common control with an ILEC. Finally, as an interim measure while the Commission considers the
regulation of Canadian carriers under common control with an ILEC, such
Canadian carriers may not resell any tariffed service of an affiliated
ILEC, except pursuant to a tariff filed by the Canadian carrier and
approved by the Commission. This prohibition does not apply to the resale
of tariffed asymmetric digital subscriber line access service to Internet
service providers. I Introduction 1. On 31 January 2002, GT Group Telecom Services Corp. (Group Telecom)
filed an application pursuant to Part VII of the CRTC
Telecommunications Rules of Procedure (the Rules) requesting
that the Commission investigate the activities of Bell Canada's
wholly-owned subsidiary, BCE Nexxia Inc. (Bell Nexxia), and
institute additional safeguards for the affiliates of incumbent local
exchange carriers (ILECs) operating within the serving territory of the
ILEC (an "in-region affiliate"). Group Telecom copied its
application to all interested parties to Affiliate rule, Telecom
Public Notice CRTC 99-3, 19
January 1999 (Public Notice 99-3)
and Price cap review and related issues, Public Notice CRTC 2001-37,
13 March 2001 (Public Notice 2001-37). 2. Comments in support of Group Telecom's application were filed on
8 February 2002 by Call-Net Enterprises Inc. (Call-Net) and on 21 February
2002 by the Public Interest Advocacy Centre on behalf of Action Réseau
Consommateur, the Consumers' Association of Canada and Fédération des
associations coopératives d'économie familiale (ARC et al.). 3. On 15 February 2002, TELUS Communications Inc. (TELUS) filed comments
opposing Group Telecom's application. TELUS argued, among other
things, that the procedures established under Part VII of the Rules
restricted the ability of affected parties to provide meaningful
representations. 4. By way of a letter dated 1 March 2002, the Commission amended the
procedures for the process initiated by Group Telecom's application.
Specifically, the Commission permitted all parties, and not solely the
applicant, to file reply comments. Parties were invited to provide
comments on the issues raised by Group Telecom's application by 11 March
2002, with reply comments to be filed by 21 March 2002. Parties who
had already filed comments could file supplementary comments on 11 March
2002. 5. In addition to the comments from ARC et al., Call-Net and TELUS noted
above, the Commission received comments dated 11 March 2002 from
Aliant Telecom Inc. (Alliant Telecom), AT&T Canada Corp. on
behalf of itself and AT&T Canada Telecom Services Company
(collectively, AT&T Canada), Bell Canada and Bell Nexxia
(collectively, Bell), Call-Net, Group Telecom, Saskatchewan
Telecommunications (SaskTel), TELUS and Vidéotron Télécom ltée
(VTL). The Commission also received comments from the Independent Members
of the Canadian Association of Internet Providers (IMCAIP) dated 4 March
2002. Reply comments were received on 21 March 2002 from AT&T Canada,
Bell, Call-Net, Group Telecom, SaskTel and TELUS. AT&T Canada
filed a supplementary letter on 25 March 2002. TELUS filed a
supplementary letter on 27 March 2002. 6. Group Telecom's Part VII application was based, in part, on
information filed in the Public Notice 2001-37
proceeding. In that proceeding, Group Telecom and Call-Net filed
evidence proposing that in-region affiliate activities be subject to
additional safeguards. Bell Canada, Aliant Telecom, MTS
Communications Inc. (MTS) and SaskTel objected to this evidence. 7. In Re: Public Notice CRTC 2001-37
- Price cap review and related issues: Follow-up to Decision CRTC 2001-582
re requests for clarification of issues and determinations on
deficiencies and confidentialities, Decision CRTC 2001-618,
28 September 2001 (Decision 2001-618),
the Commission clarified the scope of the Public Notice 2001-37
proceeding: The Commission confirms its determination in Decision 2001-582
that the activities of in-territory affiliates are relevant to
consideration of the state of competition within markets for local
services, and consequently to the pricing flexibility determinations
to be made in this proceeding. Accordingly, evidence in this regard
is within the scope. The Commission also confirms that the
determination of new rules for affiliates is not within the scope of
this proceeding, and that, accordingly, evidence proposing new rules
for affiliates is not within the scope of the proceeding.
8. In accordance with the Commission's determinations in Decision 2001-618,
parties in the Public Notice 2001-37
proceeding were permitted to explore the activities of the ILECs'
in-region affiliates, if any, by way of interrogatories and in
cross-examination at the October 2001 oral hearing. 9. In its Part VII application, Group Telecom submitted that, in
light of the evidence related to in-region affiliates generated during
the Public Notice 2001-37
proceeding, there were two issues the Commission must consider: · whether certain activities involving Bell Canada and Bell Nexxia
constituted violations of existing regulatory requirements and, if so,
what remedial action should the Commission take; and · whether additional safeguards with respect to the activities of
in-region ILEC affiliates were required. 10. The first issue identified by Group Telecom involved three
elements: · whether Bell Canada's transfer of its Carrier Services Group
(CSG) to Bell Nexxia was in compliance with regulatory requirements; · whether certain sales and marketing activities of Bell Nexxia
were in breach of either the tariff requirements of section 25 of the Telecommunications
Act (the Act) or the Commission's bundling rules or both; and · whether Bell Canada's provision of certain services and
facilities to Bell Nexxia raised regulatory concerns. 11. In its 1 March 2002 letter on procedure, the Commission also asked
parties to comment as to the circumstances, and under what terms and
conditions, it would be appropriate that CSGs reside in both Bell Canada
and an affiliate such as Bell Nexxia. 12. In this decision, the Commission first examines the issues raised by
Group Telecom which are specific to Bell Canada and Bell Nexxia.
The more general issues relating to possible changes to the existing
restrictions on ILEC affiliates are then addressed. By analysing the
issues in this manner, the Commission has been able to first assess
whether there have been any breaches of existing legal or regulatory
requirements and then consider whether any changes to the regulatory
regime are warranted. 13. Prior to considering these substantive issues, however, it is
necessary to address the argument of Aliant Telecom, Bell and
SaskTel that Group Telecom's application should be considered an
application to review and vary Affiliate rule for primary local
exchange service, Telecom Order CRTC 99-972,
8 October 1999 (Order 99-972).
These companies submitted that Group Telecom had not satisfied the
criteria for a review and vary application set out in Guidelines for
review and vary applications, Telecom Public Notice CRTC 98-6,
20 March 1998 (Public Notice 98-6).
In particular, Aliant Telecom and Bell argued that Group Telecom
raised no new issues which were not central to the Commission's
determinations in Order 99-972.
Furthermore, in their view, Group Telecom did not raise substantial
doubt as to the correctness of Order 99-972. 14. In reply, Group Telecom submitted that it was not contesting the
correctness of the Commission's ruling in Order 99-972
at the time it was made. Instead, citing Public Notice 98-6,
Group Telecom took the position that its application should be
treated as a new application since "new facts or circumstances
have arisen that render the original decision inappropriate or
obsolete". Group Telecom submitted that the "new facts or
circumstances" were those which came to light in the Public Notice 2001-37
proceeding regarding affiliate activities and the nature of the
relationship between Bell Canada and Bell Nexxia. 15. The Commission is of the view that circumstances have changed
significantly since Order 99-972
was decided. At that time, local competition was in its initial stages
and was expected to develop more quickly than has in fact been the case.
In addition, at that time, there was no experience of ILEC affiliate
activities in the context of local competition. Given the current state
of local competition, and the record of the Public Notice 2001-37
proceeding regarding affiliate activities, the Commission considers that
Group Telecom's application should be treated as a new application
and not as a review and vary application. 16. In Competition in the provision of public long distance voice
telephone services and related resale and sharing issues, Telecom
Decision CRTC 92-12, 12 June 1992
(Decision 92-12), the Commission
required the ILECs subject to that decision to establish CSGs to protect
against anti-competitive behaviour when an ILEC was dealing with
competing carriers. 17. In Local competition, Telecom Decision CRTC 97-8,
1 May 1997 (Decision 97-8), the
Commission chose not to require competitive local exchange carriers
(CLECs) to establish CSGs. However, the Commission was of the view that
safeguards might be required for CLECs that were affiliated with a long
distance service provider. The Commission indicated that this possibility
would be considered on a case-by-case basis. 18. In the Public Notice 2001-37
proceeding, Bell Canada indicated that it had transferred its CSG to
Bell Nexxia and that all competing carriers wishing to obtain
services from Bell Canada must therefore go through the CSG located
in Bell Nexxia. However, the evidence in the proceeding made it
clear that Bell Nexxia does not route its own requests for Bell Canada
services via the CSG. Instead, Bell Nexxia deals directly with Bell Canada. 19. Group Telecom submitted that Bell Canada had not received
Commission approval prior to transferring its CSG to Bell Nexxia. In
Group Telecom's submission, the transfer of Bell Canada's CSG
to Bell Nexxia raised two regulatory concerns. First, the location
of the CSG in Bell Nexxia raised concerns as to the proper handling
of confidential competitor information. Second, the fact that Bell Nexxia
did not have to go through the CSG when requesting services from Bell Canada
raised concerns about non-discriminatory access by all service providers
to Bell Canada services. 20. With respect to the second point, Group Telecom argued that for
those services subject to effective competition, there was a limited
incentive for an ILEC to discriminate in favour of an affiliated carrier
since unaffiliated carriers could obtain these services elsewhere, if
necessary. However, in the case of tariffed services, there was little,
if any, alternative supply available to unaffiliated carriers.
Consequently, in Group Telecom's view, an ILEC had an incentive to
give preferential treatment to its affiliates. In such cases, Group Telecom
submitted there was a need for regulatory safeguards to ensure
non-discriminatory access. 21. In light of these concerns, Group Telecom submitted that ILEC
tariffed services should be made available to all other service
providers, including ILEC affiliates, only through a CSG residing within
the ILEC. Group Telecom was of the view that forborne ILEC services
could be adequately provided through a CSG in either the ILEC or an
affiliate. 22. On the basis of this analysis, Group Telecom asked the Commission
to direct Bell Canada and Bell Nexxia to transfer the CSG and
all of its employees back to Bell Canada, within 60 days, and
to require that no employee of Bell Nexxia have any responsibility
for the CSG. 23. AT&T Canada submitted that the rules relating to the
confidentiality of competitor information could apply equally whether the
CSG were located in Bell Canada or Bell Nexxia and, in this
regard, the location of the CSG should not matter. However, AT&T Canada
also argued that the nature of Bell Canada's relationship with Bell Nexxia
raised questions of discrimination and, therefore, it would be
inappropriate for the CSG to continue to operate from within Bell Nexxia. 24. Call-Net argued that the location of the CSG in Bell Nexxia
created enhanced opportunities for anti-competitive behaviour. Call-Net
also provided general information about situations where, in its view,
Bell Nexxia was granted preferential access to Bell Canada
services because it did not have to rely on the CSG to obtain those
services. In particular, Call-Net submitted that in its competitive bids
Bell Nexxia had quoted a mean time to repair (MTTR) of four hours
for certain local exchange services, despite the fact that competitors
were guaranteed an MTTR of only 24 hours by Bell Canada and, hence,
could not offer a four hour MTTR to their customers. Call-Net also
submitted that Bell Nexxia had offered delivery of services within
eight days, when Bell Canada's tariffs required competitors to
accept a much longer service delivery time. 25. VTL argued that the location and operation of the CSG within Bell Nexxia
created incentives and opportunities for abuse. VTL supported Group Telecom's
request that the CSG be moved back to Bell Canada. 26. TELUS indicated that it did not share the concerns expressed by Group Telecom
regarding the operation of the CSG at Bell Canada/Bell Nexxia.
TELUS argued that the purpose of a CSG was to protect confidential
competitor information and, therefore, there was no reason to require
Bell Nexxia to access Bell Canada services via the CSG since
Bell Nexxia did not compete with Bell Canada. TELUS submitted
that the Act did not prohibit discrimination, only unjust discrimination.
In its view, there was nothing unjust about Bell Nexxia accessing
Bell Canada's services directly. On the contrary, TELUS argued that
if Bell Nexxia were required to rely on the CSG, this might slow the
processing of orders for all carriers. 27. Bell submitted that Group Telecom was incorrect in alleging
that Bell Canada needed to seek the Commission's approval for the
transfer of the CSG to Bell Nexxia. Bell also argued that none
of the parties presented any compelling evidence of unjust discrimination
or anti-competitive behaviour on the part of the CSG located in Bell Nexxia.
Rather, in Bell's view, the parties relied entirely on allegations and on
the potential for such abuse. Bell also argued that the fact that
the CSG had been operating effectively for over two years within Bell Nexxia,
while receiving no complaints regarding any improper disclosure of
competitor information between the CSG and Bell Nexxia's retail
operations, provided sufficient evidence that there was nothing to
justify any potential concerns.Bell noted that TELUS and Bell Canada
were both major carriers, operating in competition in each other's
territories, yet neither had any problem dealing with their respective
CSGs, regardless of where they were located in those organizations. 28. Bell indicated that if the Commission were to determine that the
CSG should be located within Bell Canada, Bell Canada and Bell Nexxia
would have Bell Canada's CSG provision Bell Nexxia services to
competitors, acting as an agent on behalf of its subsidiary. In this way,
competitors would not be required to deal with the retail arm of Bell Nexxia
and there would be no need to incur the cost of operating a separate CSG
within Bell Nexxia. 29. The Commission approved a CSG agreement for Bell Canada in Unbundled
rates to provide equal access, Telecom Decision CRTC 97-6,
10 April 1997 (Decision 97-6),
which contemplated that the parties to the agreement would be Bell Canada
and the relevant service provider. The Commission has never approved an
amendment to Bell Canada's CSG agreement that would permit Bell Nexxia
to provide CSG services instead of, or on behalf, of Bell Canada.
Consequently, Bell Canada's transfer of its CSG to Bell Nexxia
and its subsequent reliance on that CSG to provision services to
competitors did not comply with Decision 97-6. 30. The Commission notes Bell's position that the CSG functions in the
same manner within Bell Nexxia as it did as a division of Bell Canada.
However, in the Commission's view, an ILEC should be directly responsible
for the protection of confidential information relating to the use of
ILEC tariffed services by competitors. It is not appropriate for the ILEC
to delegate this role to an affiliate. 31. Furthermore, the Commission does not accept the argument of those
parties who suggested that the sole purpose of the CSG is to protect
confidential competitor information. In the Commission's view, the CSG is
intended to protect against anti-competitive behaviour by an ILEC. The
simplest way that an ILEC could engage in anti-competitive behaviour
would be through the improper use of confidential competitor information.
However, that is not the only possibility. 32. An ILEC could also act in an anti-competitive manner by favouring or
disadvantaging another service provider with respect to access to the
ILEC's tariffed services. In this regard, the Commission notes Call-Net's
comments about preferential treatment of Bell Nexxia by Bell Canada
in respect of service delivery and repair timeframes. The Commission also
notes that Bell did not deny that such preferential treatment had
occurred. 33. The Commission considers the type of behaviour identified by Call-Net
to be a serious matter. In a competitive market, a service provider that
is able to offer faster service delivery or repair will enjoy a
significant competitive advantage. Consequently, the Commission does not
agree with TELUS' argument that this type of preferential treatment for affiliates
is acceptable. 34. In the Commission's view, it is important to ensure that all service
providers, including ILEC affiliates, are subject to the same procedures
to access ILEC tariffed services. The Commission considers that this goal
can best be achieved if the ILEC is the operator of the CSG. This
approach would minimize the opportunity and incentive for
anti-competitive behaviour, while also ensuring that the CSG is located
in an entity subject to the Commission's full regulatory overview under
the Act. 35. The Commission notes Bell's proposal that if the Commission were to
determine that the CSG should be located within Bell Canada, Bell Canada's
CSG would provision Bell Nexxia services. The Commission agrees with
those parties who argued that the provision of Bell Nexxia's
forborne services via Bell Canada's CSG would not raise significant
regulatory concerns. The purpose of a CSG is to provide protections with
respect to tariffed services. Consequently, the possibility of a CSG also
provisioning forborne services is not, in and of itself, unacceptable. 36. Accordingly, the Commission concludes that Bell Canada's CSG may
provision Bell Nexxia's forborne services, provided that no employee
of Bell Nexxia has any responsibility for the CSG. In the event that
Bell Canada and Bell Nexxia choose to proceed on this basis,
Bell Canada must file for approval a revised CSG agreement
incorporating proposed amendments establishing the terms and conditions
pursuant to which Bell Canada's CSG would act on behalf of Bell Nexxia. 37. The Commission notes that if Bell Nexxia were to provide services
that the Commission determined must be offered on a tariffed basis, then
any joint CSG arrangement between Bell Canada and Bell Nexxia
would need to be reassessed. In such a situation, Bell Nexxia would
be required to maintain its own CSG for the provisioning of its tariffed
services to competitors. It is the Commission's view that, in such
circumstances, Bell Nexxia forborne services should also be
provisioned by Bell Nexxia, rather than by Bell Canada. 38. In light of the above, the Commission orders that the CSG for Bell Canada's
tariffed services be moved to Bell Canada by 10 February
2003, and that no employee of any of its affiliates have any
responsibility for Bell Canada's CSG operations. The Commission
notes that if Bell Canada chooses to provision Bell Nexxia
forborne services via Bell Canada's CSG, Bell Canada must also
file a revised CSG agreement for Commission approval no later than 27 January
2003. 39. Based on the record of this proceeding, it appears that no other ILECs
have transferred their CSG to an affiliate. The Commission directs Aliant
Telecom, MTS, SaskTel, Société en commandite Télébec (Télébec),
TELUS and TELUS Communications (Québec) Inc. (TELUS Québec) by 27 January
2003: (a) to confirm in writing whether this is the case; and (b) to
show cause why the Commission's conclusions set out above should not also
apply to them and their affiliates. 40. In its Part VII application, Group Telecom raised concerns about
certain sales and marketing activities of Bell Canada and Bell Nexxia.
As noted above, the relationship between Bell Canada and Bell Nexxia
was explored in the Public Notice 2001-37
proceeding. The following evidence, based on the record of that
proceeding, was relied on by parties to this proceeding. 41. Bell Nexxia is a wholly owned subsidiary of Bell Canada and
commenced operations in 1999. According to Bell Canada, Bell Nexxia
was established to permit a single point of contact for providing
services to customers with a national presence. Any Bell Canada
business account with 20% or more of its telecommunications requirements
outside of Bell Canada's traditional serving territory of Ontario
and Quebec was treated as a national account and was serviced by Bell Nexxia.
Bell Nexxia delivers its services through a combination of its own
facilities, resale of affiliates' services, resale of the services
offered by unaffiliated companies or agency arrangements with affiliated
and unaffiliated companies. 42. Bell Canada's witness in the Public Notice 2001-37
proceeding, Mr. Thomas J. Gillette (Mr. Gillette), stated that Bell Nexxia
acted as the agent of Bell Canada, and not a reseller, in almost all
cases involving tariffed services. Bell Canada initially identified
220 contracts where Bell Nexxia included Bell Canada tariffed
services in packaged or single source arrangements. Subsequently, in The
Companies Exhibit #85, Bell Canada indicated that the number of Bell Nexxia
single source and packaged arrangement contracts was 203. 43. Attachments 1 and 2 of The Companies Exhibit #85 were provided to the
Commission in confidence and, hence, parties to this proceeding did not
have access to the information set out in those attachments. Attachment 1
identifies five types of arrangements whereby Bell Nexxia provided
services to customers. For present purposes, all of these arrangements
are called "single source and packaged arrangements", the terms
used by Bell Canada at the oral hearing in the Public Notice 2001-37
proceeding. 44. Attachment 2 of The Companies Exhibit #85 includes a table listing and
describing the 203 contracts at issue. Of these 203 contracts, at
least 111 included Bell Canada tariffed services which were provided
to customers by Bell Nexxia, acting as Bell Canada's agent,
together with other services. The table numbers identifying these 111
contracts are set out in Appendix A to this decision. The Commission
notes that another 52 contracts listed in Appendix B may be similar in
character. However, the ambiguity of the contract descriptions makes it
impossible to determine with certainty whether Bell Canada tariffed
services were involved or, if so, how they were provided to the customer.
The table numbers identifying these 52 contracts are set out in
Appendix B to this decision. 45. According to Mr. Gillette, in only two of the 203 contracts did Bell Nexxia
offer the Bell Canada tariffed services at below tariff rates. Mr.
Gillette indicated that in those two cases, Bell Nexxia was acting
as a reseller, not as an agent of Bell Canada. 46. Bell Canada paid Bell Nexxia a commission of approximately
11% when Bell Nexxia acted as its agent. The 11% commission was
applied to broad revenues derived from Bell Nexxia's activities,
rather than being applied on a case-by-case basis. Consequently, the 11%
commission was paid on revenues derived from all of the contracts
involving tariffed services, including those where, according to Bell Canada,
Bell Nexxia acted as a reseller, instead of as Bell Canada's
agent. 47. When Bell Nexxia provided Bell Canada services, it generally
offered them together with services of its own. The various services were
either provided to a customer at a single rate for the package or were
priced individually but sold together. In the latter case, prices were
generally subject to discounts to encourage a customer to buy more
services or to commit to use them over a longer term. In all cases, Bell Nexxia
acted as the single point of contact for the customer. 48. There are several Commission decisions which provide the regulatory
background for an assessment of the sales and marketing activities of
Bell Canada and Bell Nexxia outlined above. They relate to
restrictions on resale by Bell Canada affiliates and regulatory
requirements regarding bundling of service elements. 49. In Order 99-972 the
Commission decided to restrict application of the affiliate rule to
primary local exchange services. Specifically, the Commission prohibited
Bell Canada and other ILECs from providing to affiliates that are
not Canadian carriers, local exchange services or facilities for resale
to provide local exchange services in the service territory of the
ILEC. 50. The bundling rules currently applicable to the ILECs were established
in a number of decisions, including: Review of regulatory framework,
Telecom Decision CRTC 94-19, 16 September
1994 (Decision 94-19), Decision 97-8,
Joint marketing and bundling, Telecom Decision CRTC 98-4,
24 March 1998 (Decision 98-4), Stentor
Resource Centre Inc. - Forbearance from regulation of interexchange
private line services, Telecom Decision CRTC 97-20,
18 December 1997 and Bundling framework developed for
customer-specific arrangements, Order CRTC 2000-425,
19 May 2000 (Order 2000-425).
In Section III of Decision 98-4,
the Commission described bundling as follows: ... the Commission in Decision 94-19
stated that "the term bundling generally refers to a situation
where one rate covers a number of service elements", and that
bundling includes "situations where there may be separate rate
elements for each service element, but a number of service elements are
aggregated for purposes of applying volume discounts, with the result
that the discount available is greater than it would be were the
service elements not aggregated". In Forbearance - Regulation
of Toll Services Provided by Incumbent Telephone Companies, Telecom
Decision CRTC 97-19, 18 December
1997 (Decision 97-19) and Stentor
Resource Centre Inc. - Forbearance From Regulation of Interexchange
Private Line Services, Telecom Decision CRTC 97-20,
18 December 1997 (Decision 97-20),
the Commission also described bundling as the inclusion of different
services or service elements under a rate structure. The Commission
noted that this rate structure may be a single rate, a set of rates for
various service elements, and/or rates for one or more service elements
which are dependent on the usage of other services.
51. Group Telecom submitted that Bell Canada breached section 25
of the Act in the two instances when Bell Nexxia provided services
to customers at below tariffed rates. Group Telecom disagreed with
Bell Canada's claim that Bell Nexxia was acting as a reseller
in those cases. Group Telecom argued that Bell Nexxia was
actually acting as Bell Canada's agent since Bell Canada paid
Bell Nexxia a commission based on broad revenues and, therefore,
Bell Nexxia received a commission in respect of the Bell Canada
services provided under those two contracts. Consequently, in Group Telecom's
submission, Bell Canada was in breach of section 25 because of
the actions of its agent, Bell Nexxia, in offering services at below
tariffed rates. 52. Group Telecom also submitted that when Bell Nexxia packaged
or sold Bell Canada services with Bell Nexxia services under a
single source contract or similar arrangement, this constituted bundling
under the Commission's bundling rules. Group Telecom noted that in
the case of packaged arrangements, multiple service components were
combined under one price or a number of aggregate prices and that the
pricing was dependent upon the set of services required by the customer.
Similarly, in the case of single source arrangements, the prices of
individual components were dependent on the usage of other components in
the arrangement. Group Telecom also noted that a variety of Bell Canada's
tariffed services were covered by these arrangements and that about half
of the single source and packaged arrangements contained local access
services. 53. Group Telecom argued that customer-specific arrangements could
involve bundling and that bundles did not have to be aimed at a
mass-market, involving a pre-determined portfolio of products or
services. In this regard, Group Telecom noted Order 2000-425
in which the Commission established rules for customer-specific
agreements that bundle tariffed telecommunications services with forborne
telecommunications services, non-telecommunications services and/or
services of affiliated and non-affiliated companies. 54. Group Telecom submitted that bundling occurs where: (a) multiple
service components are combined under one price or a number of aggregate
prices; or (b) the pricing, either in aggregate or for individual
components, or the availability of services is dependent upon the set of
services required by the customer or the volume of usage of those
services. On the basis of this definition of bundling, Group Telecom
submitted that Bell Nexxia's packaged and single source arrangements
constituted bundles for regulatory purposes. 55. Group Telecom further submitted that Bell Nexxia's packaged
and single source arrangements were customer-specific arrangements. Group Telecom
argued that the very nature of customer-specific arrangements
implied that pricing was contingent or dependent upon the set of services
required by the customer or the customer's expected or actual usage of
those services and, therefore, such arrangements met the Commission's
definition of bundling. 56. Group Telecom submitted that if an affiliate acts as an agent of
its affiliated ILEC in respect of tariffed services and bundles those
tariffed services with other services, the bundled service would be
subject to the tariffing and imputation test requirements. Group Telecom
submitted that Bell Canada had not filed tariffs for these bundles
and, therefore, was in breach of section 25 of the Act. 57. In light of this analysis and the evidence in the Public Notice 2001-37
proceeding, Group Telecom requested the Commission to initiate a
public proceeding to investigate the activities of Bell Nexxia. If
the Commission were to find that there were instances of non-compliance
with section 25 of the Act, Group Telecom proposed that, at a
minimum, an appropriate remedy would involve the mandated termination of
any related contracts or arrangements within 90 days of any such finding. 58. AT&T Canada supported Group Telecom's request for an
investigation of Bell Nexxia but also argued that the investigation
should be expanded to include all ILEC affiliates. AT&T Canada
submitted that the investigation should include, but not be limited to:
(a) a reconciliation of the ILEC general and special facilities
tariffs and the affiliate retail service offerings, and; (b) an
investigation of tariffs and other arrangements that provide services and
facilities to affiliates on an exclusive/discriminatory basis. 59. Call-Net supported Group Telecom's request that the Commission
investigate the activities of Bell Nexxia with a view to determining
the extent of regulatory non-compliance. Call-Net submitted that Bell Canada
and Bell Nexxia were essentially one entity and possess the same
market power and ability to engage in anti-competitive behavior in the
local services market. Call-Net also submitted that Bell Canada used
Bell Nexxia as a "fighting brand" for anti-competitive
purposes. 60. Call-Net emphasized the need for the Commission to impose an
appropriate remedy if the Commission were to find that there had been
regulatory non-compliance by Bell Canada. Call-Net supported Group Telecom's
proposal for the mandated termination of any relevant contracts or
arrangements within 90 days of any such finding. 61. VTL argued that Bell Nexxia is an integral part of Bell Canada's
retail market activities and that competitors are not competing against
Bell Canada and Bell Nexxia as separate entities. VTL supported
Group Telecom's request for an investigation of the activities of
Bell Canada and Bell Nexxia. 62. ARC et al. was of the view that the Commission must ensure that
affiliates were not used to undermine the integrity of the regulatory
framework. ARC et al. supported Group Telecom's request for an
investigation into the activities of Bell Nexxia. 63. Bell submitted that Group Telecom had not advanced any
specific, significant evidence that would warrant a full investigation of
Bell Nexxia. Bell submitted that there could be no doubt that
if Bell Nexxia were offering a bundle of services as an agent of
Bell Canada, then Bell Canada would be offering a bundle of
tariffed and non-tariffed services and would be required to follow the
regulatory requirements of Decisions 94-19,
97-8 and 98-4.
However, Bell argued that the single source arrangements and complex
deals offered by Bell Nexxia as agent of Bell Canada and on its
own behalf did not constitute a "bundle" within the meaning of
those decisions. 64. Bell noted that when Bell Nexxia offered a single source
arrangement, Bell Canada booked the revenue for all tariffed
services at the tariffed rate; Bell Canada booked the revenue for
all forborne services at the agreed upon prices; and Bell Canada
paid Bell Nexxia a commission for the sales support/agency services
provided. If Bell Nexxia's broadband/IP services were a component of
the bid, Bell Nexxia would book the revenues for such services, as
these were not Bell Canada services. In Bell's submission, this
demonstrated that the single source arrangements were not bundles. 65. Bell further submitted that depending on the specific
requirements of the customer, Bell Nexxia offered legacy services as
agent for Bell Canada and broadband/IP services in its own right as
a Canadian carrier. All of these services were packaged together in a
single contract. The resulting arrangement involved services from both
companies and was therefore neither an ILEC bundle nor a
customer-specific arrangement as the single source contract or complex
deal was in fact a joint marketing arrangement involving a package of
services provided by both companies under one contract. 66. Bell submitted that the individual packaging of services, which
was the hallmark of the single source arrangement, did not offend the
bundling rules and was used by competitors in the industry to deliver
one-stop shopping to large national customers. Similarly, there was no
evidence that Bell Nexxia had systematically breached its own
internal pricing policies or that Bell Nexxia had, in fact, engaged
in below-cost selling as a "fighting brand" of Bell Canada.
On the contrary, the preponderance of evidence in the Public Notice 2001-37
proceeding showed that Bell Nexxia was adhering to its own internal
controls. 67. In the Public Notice 2001-37
proceeding, Mr. Gillette stated that in almost all of the cases involving
Bell Canada tariffed services, Bell Nexxia acted as an agent
for Bell Canada, rather than engaging in resale. However, he also
claimed that in two cases where Bell Nexxia provided tariffed
services at below tariffed rates (the two cases), it did so as a reseller
and not as Bell Canada's agent. The Commission does not consider
Bell Nexxia's position credible as it relates to the two cases. 68. There is nothing to distinguish the two cases from the other agency
cases, except Bell Nexxia's assertion that it was acting as a
reseller. Bell Canada paid an overall 11% commission to Bell Nexxia
that covered the two cases on exactly the same basis as the numerous
other cases where Bell Nexxia was acknowledged to be acting as Bell Canada's
agent. There is no evidence to suggest that Bell Canada treated Bell Nexxia
any differently, provided any less sales and marketing or engineering
support to Bell Nexxia in the two cases. There is no evidence that
Bell Canada took any action to indicate to customers that Bell Nexxia
was not acting as its agent in the two cases. Indeed, an inference that
Bell Nexxia was Bell Canada's agent would be natural and
reasonable given that, according to Bell Nexxia, it was acting as
Bell Canada's agent in the other cases where Bell Canada
tariffed services were involved. Moreover, the Commission notes that in
Attachment 2 to The Companies Exhibit #85, the contracts which appear to
relate to the two cases (i.e., #47 and #155) are described as involving
Bell Nexxia acting as Bell Canada's agent in Bell Canada
territory. In light of all of the above, the Commission finds that Bell Nexxia
was acting as Bell Canada's agent in the two cases. 69. With respect to the Commission's bundling rules, there is no dispute
among the parties that Bell Canada must comply with the Commission's
bundling rules whenever Bell Nexxia offers bundles of services as
Bell Canada's agent. Based on The Companies Exhibit #85, there were
at least 111 instances where Bell Nexxia acted as Bell Canada's
agent in the provision of tariffed services which were provided to the
customer together with other services (the agency arrangements). The
question is whether the agency arrangements constituted bundles for the
purposes of the Commission's bundling rules. 70. As noted above, the Commission defined bundling in Decision 98-4
as follows: . "the term bundling generally refers to a situation where
one rate covers a number of service elements", and that bundling
includes "situations where there may be separate rate elements for
each service element, but a number of service elements are aggregated
for purposes of applying volume discounts, with the result that the
discount available is greater than it would be were the service
elements not aggregated". ... [B]undling [can also be described]
as the inclusion of different services or service elements under a rate
structure. ... [T]his rate structure may be a single rate, a set of
rates for various service elements, and/or rates for one or more
service elements which are dependent on the usage of other services.
71. The Commission is of the view that each of the agency arrangements
involved "the inclusion of different services or service elements
under a rate structure" as described in Decision 98-4.
Given that each of these arrangements included a Bell Canada
tariffed service element, the Commission finds that they each qualified
as a bundle. Moreover, since Bell Nexxia acted as Bell Canada's
agent with respect to the provision of Bell Canada's tariffed
services, the Commission finds that the inclusion of those services in
the agency arrangements constituted bundling by Bell Canada. The
Commission does not accept Bell's argument that these arrangements did
not constitute bundling on the grounds that different service elements
were provided by different entities (i.e., Bell Canada and Bell Nexxia)
and because revenues for different service elements were booked
separately by Bell Canada and Bell Nexxia. In the Commission's
view, where an arrangement comes within the description of a bundle set
out in Decision 98-4, it will qualify as
a bundle whether or not a single entity provides all of the service
elements or books all the revenues. 72. The Commission notes that tariffs have not been filed by Bell Canada
with respect to any of the 203 contracts that were identified by Bell Canada
in the Public Notice 2001-37
proceeding. Given the Commission's determination that at least 111 of
these contracts involved bundling of tariffed services by Bell Canada,
including the two contracts where it was claimed that Bell Nexxia
was acting as a reseller, the Commission finds that Bell Canada is
non-compliant for each such bundle. 73. The Commission also notes that in its 11 March 2002 submission in this
proceeding, Bell claimed that under the Bell Nexxia Pricing
Policy, "prices must exceed the sum of all incremental costs for
non-tariffed products or services plus the charges for regulated services
at tariff rates by a target EBITDA margin". This implies that for
each of its single source and packaged arrangements, Bell Nexxia has
already performed a financial analysis using elements of the imputation
test required under the Commission's bundling rules. However, the
Commission has not reviewed these analyses since, contrary to the
bundling rules, Bell Canada did not file tariffs for these bundles. 74. The Commission considers that Bell Canada's failure to comply
with the tariffing requirements of the bundling rules requires prompt
action. In order to bring Bell Canada into compliance and to
permit the Commission to determine any additional measures which may be
necessary, the Commission directs Bell Canada to file, by 27 January
2003, the following material: a) for every contract identified in Appendix A that is in force on the
date of this decision, either under its original term or pursuant to a
renewal or modification of the contract: · a proposed tariff, together with an imputation test analysis
using the Commission's imputation test framework as set out in Order 2000-425;
and
· a copy of the contract(s).
b) for every contract identified in Appendix B that is in force on the
date of this decision, either under its original term or pursuant to a
renewal or modification of the contract: · a proposed tariff, together with an imputation test analysis
using the Commission's imputation test framework as set out in Order 2000-425,
or an explanation as to why a tariff is not required; and
· a copy of the contract(s).
c) for every single source and packaged arrangement that has been
concluded since the preparation of The Companies Exhibit #85, that is in
force as of the date of this decision, either under its original term or
pursuant to a renewal or modification of the contract, and that involves
one or more Bell Canada tariffed service elements and one or more
other services, provided pursuant to a single contract or set of related
contracts, and offered directly by Bell Canada or through Bell Nexxia
or a successor to Bell Nexxia or any other entity that controls or
is controlled by Bell Canada or is controlled by a person who
controls Bell Canada (hereafter, an affiliate in this type of
situation will be referred to as being subject to "common
control" and, here and hereafter, control will be taken to mean
control in any manner that results in control in fact, whether directly
through the ownership of securities or indirectly through a trust,
agreement or arrangement, the ownership of any body corporate or
otherwise): · a proposed tariff, together with an imputation test analysis
using the Commission's imputation test framework as set out in Order 2000-425,
or an explanation as to why a tariff is not required; and
· a copy of the contract(s).
75. The Commission also directs Bell Canada to comply on a
going-forward basis with all Commission decisions in respect of the
bundling of tariffed services, including any bundling by Bell Nexxia
acting as an agent of Bell Canada. In accordance with Decision 94-19
and Price cap regulation and related issues, Telecom Decision CRTC
97-9, 1 May 1997, the Commission is
prepared to consider tariff applications on an ex parte
basis. The Commission will process all such applications as expeditiously
as possible, granting interim approval where appropriate. 76. Finally, the Commission considers it important to ensure that
customers be given notice of the requirement for regulatory approval of
bundles. Consequently, the Commission directs Alliant Telecom, Bell Canada,
MTS, SaskTel, Télébec, TELUS and TELUS Québec to ensure that all
contracts for bundles include a clause specifying that the provision of
the bundle is subject to prior Commission approval and the rates, terms
and conditions set out in the contract are not final until given final
approval by the Commission. This clause must be placed at the beginning
of the contract, printed in a large font and highlighted in bold. 77. The record of the Public Notice 2001-37
proceeding indicates that Bell Canada provides numerous non-tariffed
services to Bell Nexxia. In particular, the evidence in that
proceeding indicates: · Bell Nexxia's customer support group is provided with trouble
ticketing through Bell Canada's help desk in order to manage network
troubles for Bell Nexxia's retail services; · Bell Nexxia has a separate sales organization but does not own
or manage the bulk of the network that it uses in Bell Canada
territory; · all of the engineering support for Bell Nexxia's services is
provided by Bell Canada network operations. Among other things, Bell Canada
configures the routers and manages the router interface on Bell Nexxia's
broadband/IP services; · in 2000, a large portion of Bell Nexxia's corporate group
(e.g., Human Resources, Finance) was repatriated into Bell Canada
and the services formerly provided by that group are now provided by Bell Canada; · on a case-by-case basis, Bell Canada provides Bell Nexxia's
operations with engineering, sales and other corporate support. In many
cases this support relates to individual problems or minor projects where
an invoice is not provided; · Bell Canada works with Bell Nexxia on joint bids and
provides technical assistance to Bell Nexxia in the preparation of
bids involving in-region local network services; and · Bell Nexxia is not billed for engineering support and
help-desk services by Bell Canada. Instead, Bell Canada stated
that its costs are recovered by means of a cost assignment to Bell Nexxia.
This arrangement has not been formalized in writing between the two
companies. 78. Group Telecom submitted that the integration of Bell Nexxia's
operations with those of Bell Canada demonstrated that the two
companies were not separate in any meaningful sense and, therefore, there
was a heightened concern that Bell Nexxia was being used to
circumvent regulation. 79. ARC et al. submitted that the sharing of resources by Bell Nexxia
and Bell Canada could result in the reporting of Utility Segment
revenues that would be lower than should be the case. In ARC et al.'s
view, this could impair the ability of the Commission to properly assess
Bell Canada's costs and revenues in the future. 80. AT&T Canada argued that the arrangements between Bell Canada
and Bell Nexxia permitted Bell Nexxia to operate on a basis
which did not require the recovery of costs based on tariffed rates, but
instead, costs based on Bell Canada's internal costs. In AT&T Canada's
submission, this provided Bell Nexxia with a competitive advantage.
It also permitted Bell Canada, via Bell Nexxia, to offer
tailored customer services without having to file a tariff. AT&T Canada
submitted that the Commission should investigate, among other things, all
tariffs and arrangements whereby an ILEC provided an in-region ILEC
affiliate with services on an exclusive/discriminatory basis. 81. Call-Net submitted that Bell Nexxia's reliance on Bell Canada
for such an extensive range of services demonstrated that the two
companies were not truly separate and that there were no inherent
efficiencies in the affiliate structure. Instead, in Call-Net's view,
Bell Nexxia was only established because of the opportunity it
provides to circumvent the Commission's competitive safeguards. 82. TELUS argued that price caps eliminated the incentive to
cross-subsidize competitive services with monopoly services. Hence, in
TELUS' view, concerns about Bell Canada subsidizing Bell Nexxia
were misplaced. 83. Bell submitted that various services were provided to Bell Nexxia
by Bell Canada on a cost recovery basis which was acceptable for
regulatory purposes. It further submitted that Bell Canada was
developing improved methodologies for all affiliates that would allow the
company to explicitly identify dedicated resources on Bell Canada's
payroll who provide services to affiliates thereby providing an auditable
tracking methodology to ensure that the costs for such employees were
appropriately assigned. Bell indicated that such a system should be
in place before the end of 2002. Bell argued that it would be wrong
to conclude that the costs of supporting Bell Nexxia were borne in
any way by Bell Canada's Utility Segment, since safeguards were in
place to ensure that costs were assigned to the Utility Segment only when
appropriate. 84. In the Commission's view, the engineering and technical support, help
desk and back-office services provided by Bell Canada to Bell Nexxia
are provided to support the provisioning of telecommunications services
and, as such, may themselves qualify as telecommunications services. In
this regard, the Commission notes that services such as engineering
support, project management, customer information reports, billing and
collection are provided to unaffiliated persons pursuant to approved
tariffs. On its face, there is no reason why Bell Nexxia should not
be required to obtain these types of services on the same basis. 85. To the extent that the services provided by Bell Canada to Bell Nexxia
are telecommunications services, section 25 of the Act requires that they
be provided pursuant to an approved tariff. The evidence indicates
that none of these services are provided to Bell Nexxia pursuant to
a tariff. 86. In order to determine whether or not Bell Canada is compliant
with the Act, the Commission directs Bell Canada to file the
following by 27 January 2003: · a list describing all the services Bell Canada provides, as of
the date of this decision, to Bell Nexxia or any other Bell Canada
affiliate under common control with Bell Canada, separated by
affiliate and by service category (i.e., tariffed services; network
services; engineering and technical support; back-office service; and
other services), with each service identified, with justification, as
either a telecommunications service or a non-telecommunications service; · a list of the applicable tariff items for those services identified
as a telecommunications service, or an explanation as to why Bell Canada
believes a tariff is not required; and · a proposed tariff in those cases where Bell Canada believes a
tariff is required for a service but no tariff currently exists. 87. The Commission is concerned that other ILECs may be providing
telecommunication services to affiliates on a untariffed basis when those
same or similar services would be provided pursuant to a tariff if
provided to an unaffiliated party. The Commission therefore directs
Aliant Telecom, MTS, SaskTel, Télébec, TELUS and TELUS Québec to file
by 27 January 2003: · a list describing all the services the ILEC provides, as of the
date of this decision, to an affiliate under common control with the
ILEC, separated by affiliate and by service category (i.e. tariffed
services; network services; engineering and technical support;
back-office service; and other services), with each service identified,
with justification, as either a telecommunications service or a
non-telecommunications service; · a list of the applicable tariff items for those services identified
as a telecommunications service, or an explanation as to why the ILEC
believes a tariff is not required; and · a proposed tariff in those cases where the ILEC believes a tariff
is required for a service but no tariff currently exists. 88. Once the Commission has received the above material from Bell Canada
and the other large ILECs, it will determine what further action is
required in this matter. 89. The affiliate rule was first established in Resale and sharing of
private line services, Telecom Decision CRTC 90-3,
1 March 1990, and was applicable to all facilities-based
interexchange carriers. In that decision, the Commission concluded that
the resale and sharing rules should be amended to permit the resale of
private lines to provide joint use voice services. However,
facilities-based joint use voice competition was not permitted. In order
to prevent facilities-based carriers from effectively avoiding this
restriction by means of affiliates, and in order to limit uneconomic
entry and contribution avoidance, the Commission prohibited
facilities-based carriers from leasing services to an affiliate for the
provision of voice services on a joint use basis. 90. The affiliate rule was retained, unamended, in Decision 92-12.
The Commission's primary rationale for retaining the rule was to prevent
facilities-based carriers from taking advantage of the lower contribution
rates established for resellers in that decision, by using affiliated
resellers to provide their services. 91. In Affiliate rule, Telecom Decision CRTC 94-6,
4 March 1994 (Decision 94-6), the
Commission concluded that it was no longer necessary to retain the
affiliate rule in order to prevent uneconomic entry. However, the
Commission decided to retain the affiliate rule in order to prevent the
ILECs from using affiliates to provide long distance services on an
unregulated basis and also to prevent contribution avoidance. 92. In Decision 94-6, affiliate was
defined to mean "any person that controls or is controlled by the
company or that is controlled by the same person that controls the
company, and includes a related person". A person is related to
another if (1) either holds, directly or indirectly, at least a 20%
interest in, or any options to acquire at least a 20% interest in, any of
the capital, assets, property, profits, earnings, revenues or royalties
of the other, or (2) any third party holds, directly or indirectly, at
least a 20% interest in, or any options to acquire at least a 20%
interest in, any of the capital, assets, property, profits, earnings,
revenues or royalties of each of the persons. Decision 94-6
defined "control" to include control in fact, whether through
one or more persons. 93. In Public Notice 99-3, the
Commission concluded that the original reasons for the affiliate rule, as
it applied to interexchange services, no longer existed or had been
addressed by other mechanisms established by the Commission. However, the
Commission was of the view that it required further input on whether an
affiliate rule was required in local markets to ensure that the ILECs
would comply with the bundling rules and competitive safeguards. 94. In Order 99-972, the
Commission decided that an affiliate rule was required in the local
market and stated: 38. The Commission considers that it is not necessary to prohibit
affiliates that are Canadian carriers pursuant to the Act from
reselling the applicants' local services. While the Commission has
forborne from exercising some of its powers with respect to some of
these affiliated Canadian carriers, it has retained sufficient powers
to impose conditions on the provisioning of services by these carriers.
39. This will enable the Commission to ensure, if and where
necessary, that these affiliated Canadian carriers comply with the
competitive safeguards.
...
42. The Commission notes that there is competition in the provision
of optional local services, such as voice mail. Accordingly, in the
Commission's view, it is appropriate to restrict application of the
affiliate rule to primary local exchange services.
43. In light of the foregoing, the Commission finds it appropriate
to establish a rule that prohibits the ILECs from providing to
affiliates that are not Canadian carriers local exchange facilities,
such as loops, or local exchange services for resale to provide local
exchange services.
44. However, the affiliate rule will only prohibit resale of primary
local exchange services by affiliates that are not Canadian carriers in
the service territory of an affiliated ILEC. The Commission agrees with
London Telecom that this approach will allow ILECs to compete in each
other's markets on the same basis as other competitors, while not
impeding competition in their own operating markets.
95. In its Part VII application, Group Telecom argued that changes
should be made to the affiliate rule in light of the evidence in the
Public Notice 2001-37
proceeding regarding the activities of Bell Canada and Bell Nexxia. 96. Group Telecom submitted that the affiliate rule appears to permit
a wide range of activities on the part of in-region affiliates that would
not be permitted if conducted through the ILEC. The affiliate rule places
no restrictions whatsoever on in-region carrier affiliates and limits
reseller affiliates only in respect of the provision of local exchange
services. Group Telecom submitted that the Commission needs to be
concerned regarding the potential for an ILEC to use affiliates to act in
the interests of the combined overall corporate entity in ways that the
ILEC itself would not be permitted to act. 97. Group Telecom submitted that ILEC affiliates might appear to
present few regulatory concerns because they might be considered
"separate" from the ILEC and comparable to a new entrant
that was not affiliated with the ILEC or at least in a less dominant
position than the ILEC. 98. Group Telecom submitted that the record of the Public Notice 2001-37
proceeding called into question any implicit assumption that affiliates
were separate from the ILEC in any substantive sense or that they were in
a position similar to that of a new entrant. 99. Group Telecom submitted that the record of the Public Notice 2001-37
proceeding demonstrated that the current affiliate rule permits ILECs to
circumvent regulatory rules such as tariffing requirements and bundling
restrictions. Group Telecom argued that additional safeguards were
necessary to ensure that ILECs could not operate affiliates in a manner
that would threaten the integrity of the current regulatory framework and
undermine the effectiveness of ILEC regulation. 100. To address its concerns, Group Telecom proposed expanding the
existing rules applicable to ILEC affiliates to add the following
additional safeguards: a) a prohibition on ILEC affiliates operating as CLECs in-region; b) extension of the current local affiliate rule to the in-region
operations of carrier affiliates, i.e., the ILECs would be prohibited
from providing to any affiliates local exchange facilities, such as
loops, or local exchange services for resale to provide in-region local
exchange services; c) a section 24 condition imposed on carrier affiliates to the effect
that where ILEC services are resold to provide services which, if
provided by the ILEC, would require a tariff, affiliate prices must
exceed a floor price equal to the sum of tariffed rates for services
purchased from the ILEC and all other causal costs of providing the
service (including prices paid to the ILEC for non-tariffed or forborne
services); d) a rule, as a condition of access to ILEC tariffs, prohibiting
resale by reseller affiliates to provide services, which if provided by
the ILEC would require a tariff, at reseller prices which do not recover
the sum of tariffed rates for services purchased from the ILEC and all
other causal costs of providing the service; e) a requirement that where a carrier affiliate wishes to introduce a
new service (i.e., a service not currently offered by the affiliate
and not comparable to any existing service provided by its affiliated
ILEC) that would not be subject to an existing forbearance order if
provided by its affiliated ILEC, the affiliate must file either
a tariff for approval with the requisite imputation test or a forbearance
application; f) a requirement, imposed directly on carrier affiliates and as a
condition of access to ILEC tariffs for reseller affiliates, that when
(i) a tariffed service of the affiliated ILEC is bundled with affiliate
services, (ii) the tariffed component of the bundle is neither resold by
the affiliate nor marketed by the affiliate as an agent but rather is
provided directly to the customer by the ILEC, and (iii) the
bundling is performed by the affiliate, the bundled arrangement must pass
an imputation test consistent with that required by the Decision 98-4
bundling rules and the imputation test must be filed with the Commission
for information purposes; and g) a requirement, imposed directly on carrier affiliates and as a
condition of access to ILEC tariffs for reseller affiliates, that, where
applicable, affiliates must adhere to the rules proposed in Group Telecom's
Public Notice 2001-37
evidence regarding the use of long term contracts. 101. Group Telecom submitted that its first two safeguards were
designed to eliminate the opportunity for ILECs to provide in-region
local exchange services on an unregulated basis via affiliates. Given the
importance of the competitive safeguards imposed by the Commission in the
local market, Group Telecom submitted that these safeguards were
required, unless the Commission was prepared to subject in-region ILEC
affiliates to direct regulation in a form identical to that applied to
the ILEC. 102. Group Telecom submitted that its proposed safeguards would not
interfere with the ability of the ILECs to provide one-stop shopping
either directly or through affiliates. For example, an affiliate could
provide one-stop shopping by acting as an agent of the ILEC for any
services it was unable to provide on its own (i.e., by means of
self-provision or resale of ILEC tariffed services). Group Telecom
noted that the proposed safeguards would not affect agency arrangements. 103. Group Telecom indicated that its third and fourth proposed
safeguards would only be invoked if the services provided by the
affiliate would require a tariff if provided by the ILEC. Group Telecom
noted that out-of-region services provided directly by an ILEC would not
require a tariff, unless they were bundled with other tariffed services.
Therefore, the third proposed safeguard would not require that
out-of-region operations or services be subject to costing except in
instances in which out-of-region services were bundled with in-region
services that, if provided by the ILEC, would require a tariff. 104. Group Telecom argued that it was important to note the
distinction made in Order 99-972 and previous resale decisions between
"resale of" and "resale to provide". According to
Group Telecom, if a reseller or carrier affiliate were to resell a
tariffed service of its ILEC affiliate to provide a service that would
not require a tariff if provided by the ILEC, then neither safeguard
would apply. Group Telecom also submitted that, as in the case of
out-of-region services, forborne or non-telecommunications services would
only be subject to costing if they were bundled with services which
would require a tariff if provided by the ILEC. 105. In respect of its fifth proposed safeguard, Group Telecom
emphasized its view that Bell Canada and Bell Nexxia were not
separate in any meaningful sense and, therefore, Bell Nexxia's
market position was effectively the same as that of Bell Canada.
Consequently, in Group Telecom's view, there was no basis for the
regulatory flexibility currently accorded to an affiliate like Bell Nexxia.
Group Telecom argued that this implied that an ILEC should not be
permitted to introduce new services via an affiliate and escape a
requirement for either a tariff or a forbearance application. 106. Group Telecom also noted that the requirement under the proposed
safeguard for the affiliate to file either a tariff or a forbearance
application would not apply to all new affiliate services. Rather it
would apply only to those that were not comparable to any existing
service provided by its affiliated ILEC and would not be subject to an
existing forbearance order if provided by its affiliated ILEC. Group Telecom
submitted that given the evidence regarding the degree of integration
between Bell Canada and Bell Nexxia, there was no sound basis
for allowing an ILEC to avoid regulation for a new service simply because
it chose to offer the service through the administrative fiction of a
"separate" affiliate. 107. Group Telecom submitted that its sixth safeguard was intended to
capture those instances of bundling tariffed services not captured by its
third and fourth proposed safeguards or by current regulatory
requirements imposed on ILECs. The purpose of this requirement was to
ensure that bundles involving the provision of ILEC tariffed services to
the end-user directly by the ILEC would be subject to the same economic
test regardless of whether the bundling was performed by the ILEC or by
the affiliate. Otherwise, there would be a powerful economic incentive to
have it performed by the affiliate, thereby evading the requirement for a
bundled service imputation test. 108. Group Telecom noted that the purpose of requiring the filing of
the imputation test for information purposes would be to permit the
Commission to verify that the imputation test had been passed. Group Telecom
submitted that the imputation tests would be filed coincident with the
commencement of service provision rather than on an annual basis. 109. Finally, in respect of long term contracts, Group Telecom
submitted that the overall objective of Group Telecom's application
was to reduce or limit opportunities for ILECs to circumvent and
undermine regulation through the use of in-region affiliates. Consistent
with that objective, if, pursuant to Group Telecom's proposals in
the Public Notice 2001-37 proceeding, new rules were established
regarding the use by ILECs of long term contracts, then affiliates should
be made subject to similar rules. 110. AT&T Canada submitted that, in the case of Bell Nexxia,
the ILEC in-region affiliate was a shell organization that operated using
the ILEC network, systems support and staff. Payments that flowed between
the two entities were accounting attributions not cash payments. AT&T Canada
argued that the affiliate was privy to a number of preferential service
and network arrangements from its ILEC affiliate and from other ILECs,
none of which were available to new entrants. AT&T Canada added
that, therefore, the cost structure of the affiliate was that of the ILEC
which was vastly different from that of a new entrant. In other words,
the in-region affiliate was not an additional competitor, it was merely
the ILEC in disguise. 111. AT&T Canada submitted that the current affiliate rule was not
sufficient to safeguard against anti-competitive behaviour by an ILEC.
AT&T Canada argued that, absent the imposition of a broad
affiliate resale restriction, ILECs would be able to limit the pace and
extent of the rollout of competition. AT&T Canada urged the
Commission to change the affiliate resale restriction as follows: · expand the affiliate resale restriction to include all regulated
services both voice and data to ensure that ILECs could not abuse the
advantage they have by virtue of their ubiquitous networks and regional
monopolies; and · extend this restriction to all affiliates operating within the
ILECs' territory or the territory of an affiliated ILEC. 112. AT&T Canada submitted that neither the changes proposed by
AT&T Canada nor those advocated by Group Telecom required
structural changes. Given that, in AT&T Canada's view, Bell Nexxia
actually operated as a division of Bell Canada and that Bell Canada
was able to offer the same services as Bell Nexxia on a national
basis, broadening the affiliate resale restriction would not represent a
structural change. 113. Call-Net submitted that the proposed safeguards in Group Telecom's
application should be applied to all in-region affiliates, whether such
affiliate was an agent or a reseller of the ILEC parent. Call-Net also
suggested that the Commission establish a new reporting procedure
requiring an ILEC's in-region affiliate to file, in confidence, all of
their contracts with the Commission on a going-forward basis. The
Commission could then conduct a periodic review of the terms and
conditions at which the affiliates were obtaining services from their
ILEC affiliates. 114. Call-Net emphasized that the modifications proposed by Group Telecom
would not prevent the ILECs from offering one-stop shopping. Instead, the
additional safeguards would, in Call-Net's submission, merely ensure that
one-stop shopping took place in a manner which complied with the existing
pricing and bundling safeguards. 115. Call-Net identified six complaints by competitors in the past two
years regarding activities of ILEC affiliates. In Call-Net's submission,
these complaints demonstrated that the current affiliate rule was
undermining the Commission's regulatory regime for local competition. 116. IMCAIP supported Group Telecom's request that the Commission
impose restrictions on ILEC affiliates to ensure the integrity of the
Commission's regulatory framework. IMCAIP did not address any of the
specific proposals advanced by Group Telecom other than to comment
that the Commission should consider the conduct of affiliates and their
impact on competition and the health of competitors. 117. VTL generally supported Group Telecom's proposed changes to the
affiliate rule and specifically urged the Commission to impose imputation
test and bundling restrictions on ILEC affiliates. VTL argued that these
safeguards should apply to all in-region affiliates whether such an
affiliate was an agent or a reseller of the ILEC. 118. ARC et al. supported Group Telecom's application for additional
safeguards on the grounds that in-region affiliates provided a means for
ILECs to circumvent the Commission's regulatory rules. 119. TELUS submitted that the Commission should not grant any of the
general relief requested by Group Telecom as the application
disclosed no basis that would justify a review of the existing regulatory
framework. On the contrary, in TELUS' view, the application confirmed the
utility, relevance and power of that framework. TELUS argued that the
application was precisely the type of case-by-case investigation and
enforcement action contemplated by Order 99-972 and, accordingly, the
mere fact of alleged affiliate non-compliance or anti-competitive abuses
was not a reason to institute additional industry-wide safeguards. 120. TELUS emphasized its view that much of the relief requested in the
application was not supported by any evidence. In this regard, TELUS
submitted that there was no evidence in the application concerning
long-term contracts, yet the application requested the imposition of new
rules on ILEC affiliates concerning the use of long term contracts. TELUS
also submitted that there was no evidence concerning problems with new
services, yet the application requested the imposition of imputation test
and tariff filing requirements on ILEC carrier affiliates in respect of
all new services. TELUS also argued that there was no evidence in the
application concerning abuses by reseller affiliates, yet the application
advocated the imposition of onerous restrictions on ILEC reseller
affiliates. 121. TELUS argued that a number of the affiliate safeguards proposed by
Group Telecom attempted to extend the Commission's jurisdiction over
resellers beyond what was provided for under the Act. For example, TELUS
noted that several of the proposed safeguards would require the
implementation of Phase II costing processes at resellers affiliated to
ILECs. TELUS submitted that these proposals could not be directly
implemented by the Commission, given its jurisdictional limitations. 122. TELUS argued that the Group Telecom proposal was, in substance, a
demand for direct, vigorous and extremely intrusive supervision of ILEC
reseller affiliates. TELUS submitted that the Commission should not be
misled by attempts to "package" the proposal as a form of
indirect regulation that was within its powers. 123. TELUS submitted that Group Telecom's proposed ban on ILEC
affiliates acting as in-region CLECs would interfere with the ability of
ILEC affiliates to provide national customers with a "one-stop"
shopping solution. 124. TELUS argued that an outright ban on the provision to ILEC affiliates
of local exchange facilities or local exchange services for resale to
provide in-region local exchange services could not be reconciled with
the Commission's mandatory policy objectives. TELUS argued that this was
a heavy-handed proposal that would stifle innovation, put in place
inefficient regulation, and undermine competitiveness. 125. TELUS submitted that Group Telecom's third proposed safeguard
would also disadvantage ILEC affiliates that operated nationally, by
subjecting the affiliate's out-of-region operations to Phase II costing
requirements. 126. With respect to Group Telecom's fourth proposed safeguard, TELUS
submitted that it would require a reseller affiliate providing
consulting, network management and hosting services (which happened to
incorporate even a single tariffed service element from the ILEC - like
a non-forborne private line for example) to subject its entire
organization to Phase II costing. This obligation to undertake regulatory
cost studies would exist despite the fact that: (a) the reseller
participated in intensely competitive markets; (b) the reseller was not
subject to direct oversight by the Commission; and (c) the Phase II
methodology would have to be deployed in respect of services and
operations never before subject to regulatory costing requirements. 127. Aliant Telecom and SaskTel both opposed Group Telecom's suggested
changes and argued that Group Telecom had not provided any evidence
that would support a wholesale review of the regulatory regime
established by the Commission in Order 99-972. 128. Bell submitted that in Order 99-972,
the Commission correctly concluded that any restrictions on the
activities of ILEC affiliates in the local market should not be so
pervasive as to insulate CLECs from competition. Bell argued that
the Commission limited the affiliate rule to in-region reseller
affiliates since, under the Act, the Commission had no direct regulatory
jurisdiction over reseller activities. In Bell's view, the Commission's
decision also recognised that carriers offer a wider range of
technologies and innovative products than resellers, who mainly focus on
price discounts. 129. Bell noted that the Commission had not generally used structural
restrictions as a means of regulation. In contrast with the United
States, where structural separation and divestiture had been imposed, the
Commission had, in Bell's view, avoided many of the negative aspects of
structural changes by instead monitoring behaviour on a case-by-case
basis. 130. Bell submitted that broadening affiliate restrictions, as
requested by Group Telecom, would curtail rather than stimulate
competition. Moreover, in Bell's view, structural changes could have
disruptive effects in the marketplace, as customers would be forced to
move their business from an ILEC affiliate to another source or consider
taking certain services from the ILEC and others from the affiliate,
thereby defeating one of the important advantages that large
sophisticated customers seek from one-stop shopping. Bell also
submitted that the Commission had appropriately avoided arbitrary rules
which would have the tendency to restrict the number of players, thereby
limiting the benefits of innovation and choice. 131. Bell also submitted that since the time that the Commission
issued Order 99-972,
competition in the business urban market for local exchange services had
been accelerating. Not only was competition growing, according to Bell,
but affiliated carriers such as Bell Nexxia had provided national
customers with competitive choice in the provision of one-stop shopping
for all of their telecommunications needs. Given these achievements, Bell questioned
why the Commission would now take the regressive step of further
restricting entry into the local exchange market. 132. Bell submitted that restrictions on affiliate activities could
have other negative consequences as well. Most structural restrictions
were, by their nature, of time limited value. In other words, in Bell's
view, they were more of a "stop gap" measure than a permanent
structural change to market conditions. Bell argued that, as
competition evolved, however, there was often debate as to when such
restrictions should be removed. This, in turn, led to unnecessary and
protracted regulatory proceedings and the continuation of structural
restrictions for much longer periods than originally intended. 133. Bell urged the Commission not to regard a broadening of the
affiliate rule as a costless exercise, as it would delay the rollout of
new services and result in less pricing flexibility and responsiveness to
customers' needs. Moreover, in Bell's view, history had demonstrated that
structural changes could become difficult to remove in a timely manner,
thereby creating artificial impediments to free and open competition.
Bell submitted that theoretical possibilities should never be used
as justification for limiting competition. 134. Bell submitted that Bell Canada and Bell Nexxia had
demonstrated a willingness and ability to rectify any situations that the
Commission deemed unacceptable without the need for widespread structural
limitations. Therefore, in Bell's view, widespread changes to the
affiliate rule were not warranted even if the Commission found that there
were issues which needed to be addressed. 135. Bell submitted that Group Telecom had provided no evidence
to support an outright ban on ILEC affiliates acting as in-region CLECs.
Bell noted that, given that none of the ILECs currently had an
affiliated CLEC operating in-region, Group Telecom could not have
made out a case for such a restriction. 136. Similarly, Bell argued that Group Telecom had provided no
justification as to why an additional restriction should be implemented
to prohibit ILECs from providing to any affiliates local exchange
facilities, such as loops, or local exchange services for resale to
provide in-region local exchange services. Bell submitted that such
a restriction would deny customer access to Bell Nexxia's unique set
of services and would result in a loss of efficiencies associated with
"one-stop" shopping for all of the customer's needs. 137. With respect to Group Telecom's third and fourth proposed
safeguards, Bell noted that in the case of Bell Nexxia, such
requirements were unnecessary particularly in light of the principles set
out in Bell Nexxia's internal pricing policy. According to Bell, the
requirements proposed by Group Telecom essentially mirrored the
essence of this pricing policy, which itself was an essential part of
Bell Nexxia's sales governance program. 138. Bell argued that Group Telecom's fifth proposed safeguard
would require the affiliated carrier to submit the in-region portions of
a national services contract for tariff approval or split the customer's
national services contract into regulated and unregulated services
contracts. Bell added that all of these measures were very negative
for the customer and unnecessary since the Commission had the ability to
require the ILEC to offer any new service which it did not offer, but
which was offered by an affiliate, without resorting to regulation of the
non-dominant carrier affiliate. 139. Bell opposed Group Telecom's suggestion that the results of an
imputation test should be filed by the ILEC affiliate with the Commission
for information purposes. In Bell's submission, it was not clear what
purpose such a filing would serve, as the contract and the service would
already have been implemented with the customer. Moreover, in Bell's
view, this could result in the annual filing, in confidence with the
Commission, of hundreds of single source contracts for information
purposes. 140. With respect to AT&T Canada's proposals, Bell submitted
that they were an attempt to either close down or severely restrict the
activities of all in-region affiliates. Bell argued that AT&T Canada's
proposal was, in this respect, similar to the more detailed proposals of
Group Telecom. 141. Bell submitted that AT&T Canada's suggested changes were
designed to remove Bell Nexxia as a single point of contact for
customer needs. Bell argued that a customer would be forced to deal
with another service provider for the access components of the service
and, therefore, would require separate contracts at separate prices for
the access and interexchange portions of various services. 142. Bell expressed concern that AT&T Canada proposed an
affiliate resale restriction on all "regulated" services
without defining what that term means. Bell noted that all
telecommunication services that Bell Canada offers, both tariffed
and forborne, are "regulated" to some degree. Assuming that
AT&T Canada meant "tariffed" services, Bell argued
that this interpretation would preclude the ILECs from providing many
services to in-region affiliates which have little to do with local
competition. Bell also submitted that it would prevent Bell Nexxia
from obtaining Bell Canada's wholesale Internet service, effectively
precluding Bell Nexxia from offering its wholesale Internet service
to smaller, independent Internet service providers (ISPs) not having
sufficient volume requirements to deal directly with Bell Canada. 143. Bell submitted that Call-Net's proposal that all affiliate
contracts be filed with the Commission was onerous and entirely
unwarranted based on the evidence presented. In Bell's view, such a
process would increase the regulatory burden on Bell Nexxia and the
Commission and would open the door to regulatory gaming by competitors.
Bell argued that the Commission had the power to review Bell Nexxia's
contracts, either in detail or in summary form, whenever it wished to do
so and that there was no need to implement the sweeping changes advocated
by Call-Net, Group Telecom, or AT&T Canada. 144. Since its inception, the affiliate rule has been intended to prevent
regulated carriers from avoiding one or more aspects of the regulatory
regime by using affiliates that may not have been regulated to provide
services. In its current form, the affiliate rule is focused solely on
the local market. The Commission has established a regulatory framework
designed to facilitate the transition to a competitive market for local
services. It is essential that this framework not be undermined by means
of contractual or corporate arrangements between ILECs and their
affiliates. 145. In the Commission's view, the evidence in this proceeding demonstrates
that, while ILEC affiliates may exist for legitimate business reasons, an
ILEC could use - and at least one ILEC has used - an affiliate to evade
regulatory rules designed to promote competition. In particular, the
activities of Bell Canada and Bell Nexxia have raised several
serious regulatory concerns which have been addressed, in part, above.
However, the Commission considers it important to also examine the more
general issue raised by Group Telecom's Part VII application;
namely, whether the affiliate rule in its present form is adequate to
address situations arising in the current environment. 146. While the Commission's determinations in this decision with respect to
the agency relationship of Bell Canada and Bell Nexxia address
one form of abuse, the Commission is concerned that, via resale or other
arrangements, an ILEC may still be able to provide tariffed services
through an in-region affiliate at rates, terms and conditions that differ
from those approved by the Commission. This would, in effect, enable an
ILEC to offer tariffed services as if they were forborne, without having
to apply for and obtain forbearance from the Commission. This is clearly
unacceptable. 147. The Commission is also of the view that, in its current form, the
affiliate rule does not ensure that the regulatory safeguards associated
with the bundling of tariffed services achieve their intended purpose.
The Commission considers it essential that these safeguards be given full
effect in order to protect the integrity of the Commission's framework
for competition. 148. The Commission notes TELUS' submission that the current affiliate rule
and the findings in Order 99-972
provide sufficient regulatory oversight on affiliates and that Group Telecom's
application is the type of case-by-case investigation and enforcement
action contemplated by Order 99-972
and is evidence that the current framework is working. The Commission
considers that the case-by-case approach advocated by TELUS may be
suitable to address certain individual acts of non-compliance, but that
it does not adequately deal with the potential cumulative
anti-competitive impact of those acts. Consequently, it does not
adequately safeguard against ongoing anti-competitive behaviour by the
ILECs and their affiliates. Moreover, an after the fact complaint process
cannot provide an adequate remedy for certain types of harm which may
result from either isolated or multiple acts of non-compliance (e.g. loss
of business, loss of reputation, loss of financial viability). 149. The Commission also notes Bell's suggestion that it would be
inappropriate for the Commission to extend the affiliate rule, given that
the Commission has the authority under section 35 of the Act to require
that services be offered directly by an ILEC, instead of by its
affiliate. The Commission considers it unnecessary to exercise its powers
under section 35, at this time. However, the Commission notes that should
the regulatory changes proposed below be considered inappropriate or
prove insufficiently effective, the Commission may conclude that it has
no choice but to impose more stringent measures either pursuant to
section 35 or by restricting access to tariffed services by ILEC
affiliates. 150. With respect to the individual safeguards proposed in this proceeding,
the Commission does not consider any single proposal appropriate. In the
Commission's view, Call-Net's suggestion that all affiliate contracts be
filed with the Commission would not adequately address the overriding
regulatory concern that an ILEC could, through an affiliate, engage in a
course of anti-competitive behaviour which would otherwise be prohibited
by the Commission's rules. In particular, the process proposed by
Call-Net would examine contracts after the fact, and, therefore, suffers
from the same deficiencies as the case-by-case approach advocated by
TELUS. 151. On the other hand, the Commission considers AT&T Canada's
proposal unduly restrictive. AT&T Canada's proposed safeguards
would prevent an in-region affiliate from providing, in its own right,
any tariffed services or any service that includes a tariffed service
element. The affiliate could only act as the ILEC's agent in respect of
tariffed services. In the Commission's view, such an approach would
restrict the structural flexibility of an ILEC's corporate family in a
manner that would not appear to be necessary at this time. 152. The Commission considers Group Telecom's proposed safeguards less
restrictive than AT&T Canada's, at least as they relate to the
activities of carrier affiliates when providing forborne services that
include an underlying tariffed service element. For example, under Group Telecom's
approach, Bell Nexxia would still be able to provide its own
wholesale Internet service to smaller independent ISPs. However, Group Telecom's
proposal entails multiple restrictions which, in the Commission's view,
are detailed and complex without being fully effective. In particular,
several of Group Telecom's proposed safeguards would operate on an
after the fact basis and, hence, suffer from the same defect identified
in connection with Call-Net's proposal. 153. In the Commission's view, the primary opportunity for abusive
behaviour in the provision of ILEC tariffed services arises when an
entity is subject to common control with an ILEC. The record of this
proceeding demonstrates that, from a regulatory perspective, in
situations of common control there is no meaningful distinction between
the actions of the affiliate and the actions of the ILEC since the
actions of both entities are ultimately subject to control by a single
person. 154. It is important to emphasize that this conclusion holds irrespective
of whether, in any particular instance, the activity in question involves
an agency relationship, a resale situation, a case of joint marketing,
joint venture or other co-ordinated activity. In the Commission's view,
it would be artificial to attempt to apply different rules to these
superficially distinct situations when the underlying reality remains the
same. If the affiliate and the ILEC are subject to common control, the
activities of the affiliate are, from a regulatory perspective,
equivalent to activities of the ILEC. Consequently, the affiliate's
activities should be subject to the same rules as are applicable to
activities of the ILEC. 155. The Commission notes that ILEC affiliates may be either resellers or
Canadian carriers and that, in the latter case, they fall within the
scope of section 25 of the Act. Given this fact, the Commission is of the
view that the most direct way to ensure that, in cases of common control,
the activities of ILEC affiliates are subject to the same rules as are
applicable to an ILEC, is by means of a modification of the affiliate
rule, together with a review of the Commission's approach to the
regulation of Canadian carrier affiliates under the Act. 156. Under the Act, resellers are not subject to direct regulation, except
in certain limited circumstances related to the provision of
international services. However, the Commission does have the authority
pursuant to section 24 of the Act to impose conditions on the provision
of ILEC tariffed services to resellers. The Commission has exercised this
authority on numerous occasions in the past in order to implement
specific policy objectives. In some cases, the Commission has imposed an
outright prohibition on resale. In other cases, resale has been
permitted, conditional on the reseller complying with certain
requirements. 157. For example, in order to permit a limited form of local competition
the Commission decided in Resale to provide primary exchange voice
services, Telecom Decision CRTC 87-1,
12 February 1987, to allow the resale of local exchange services in
multi-unit buildings, conditional on the reseller ensuring that the ILEC
had reasonable access to individual tenants. On the other hand, in
Decision 94-6 the Commission imposed a
complete prohibition on the resale of certain services by ILEC affiliates
in order to ensure the integrity of its regulatory regime for
interexchange competition. Similarly, in Order 99-972
the Commission established a prohibition on resale of local exchange
services by ILEC affiliates who are not Canadian carriers in order to
prevent ILECs from circumventing the regulation of their local services
by offering these same services via a reseller affiliate. 158. Based on the record of this proceeding, the Commission has concluded
that it is appropriate to remove the prohibition on the resale of ILEC
local exchange services by ILEC affiliates who are not Canadian carriers.
In place of this outright prohibition, the Commission is imposing
conditions on access to all ILEC tariffed services by ILEC affiliates who
are not Canadian carriers and who are under common control with the ILEC.
The Commission is therefore modifying the affiliate rule as follows: · The definition of "affiliate" is revised to eliminate the
reference to "related persons". Instead, an affiliate is
defined as a person who is not a Canadian carrier and who controls or is
controlled by the ILEC or who is controlled by a person who also controls
the ILEC. In all cases, control means control in any manner that results
in control in fact, whether directly through the ownership of securities
or indirectly through a trust, agreement or arrangement, the ownership of
any body corporate or otherwise. · All existing rules regarding the provision of tariffed services to
affiliates are replaced with the following: The provision of a
non-forborne service by an ILEC to an affiliate which the affiliate uses
to provide telecommunications services to the public is conditional on
the ILEC obtaining prior Commission approval of a tariff which specifies
the rates, terms and conditions under which the relevant
telecommunications services are provided by the affiliate to the public.
Those rates, terms and conditions must be identical to the rates, terms
and conditions which would apply if the telecommunications services in
question were provided to the public by the ILEC, instead of by the
affiliate. If the Commission has forborne from regulating the
telecommunications services in question when provided by the ILEC, then
the above condition does not apply. 159. The Commission notes that this change does not preclude ILECs from
providing one-stop shopping and total telecommunications solutions,
either directly or via affiliates. It merely ensures that, in such cases,
ILEC tariffed services are provided to the public in a manner that is in
full compliance with the Commission's regulatory rules, including with
respect to bundling and the application of imputation tests. 160. The Commission notes that the ILECs must file tariffs for Commission
approval in order to implement these modifications to the affiliate rule.
The Commission directs Aliant Telecom, Bell Canada, MTS, SaskTel, Télébec,
TELUS and TELUS Québec to file by 27 January 2003, proposed
revisions to their tariffs specifying the revised affiliate rule. The
Commission further directs these same ILECs to file by 12 March
2003, any other proposed tariffs as may be required to ensure full
compliance with the revised affiliate rule. Finally, the Commission notes
that some ILECs may have an affiliate (as defined in the revised
affiliate rule) which resells the ILEC's asymmetric digital subscriber
line (ADSL) access service to competing ISPs. With respect to such resale
activity, the Commission suspends the requirement that the rates, terms
and conditions of the affiliates service be identical to the rates, terms
and conditions that would apply if the service were offered by the ILEC. 161. In order to determine the appropriate way to deal with Canadian
carriers who are under common control with an ILEC, it is necessary to
first consider their obligations under the Act. The starting point for
this inquiry is section 25 of the Actwhich prohibits a Canadian
carrier from providing a telecommunications service except in accordance
with a tariff filed with and approved by the Commission. This obligation
applies to every telecommunications service provided by every Canadian
carrier, including a Canadian carrier that is affiliated with an ILEC,
unless: (a) the Canadian carrier is within a class of carriers that has
been exempted from the application of the Act pursuant to section 9 of
the Act; or (b) the Commission has made a determination pursuant to
section 34 of the Act to refrain from exercising its powers under section
25 in respect of the relevant telecommunications service and Canadian
carrier. 162. The Commission has not exempted any class of Canadian carriers from
the application of the Act. In addition, the Commission has never made an
express determination to forbear with respect to a telecommunications
service offered by a Canadian carrier under common control with an ILEC,
other than certain wireless services. However, the Commission has issued
several forbearance decisions which have been interpreted as applying to
a Canadian carrier under common control with an ILEC. In order to assess
which, if any, of these decisions should apply to these Canadian
carriers, and under what circumstances, it is necessary to examine the
wording of section 34 of the Act, as well as the decisions in question. 163. Section 34 provides as follows: (1) The Commission may make a determination to refrain, in whole or
in part and conditionally or unconditionally, from the exercise of any
power or the performance of any duty under sections 24, 25, 27, 29 and
31 in relation to a telecommunications service or class of services
provided by a Canadian carrier, where the Commission finds as a
question of fact that to refrain would be consistent with the Canadian
telecommunications policy objectives.
(2) Where the Commission finds as a question of fact that a
telecommunications service or class of services provided by a Canadian
carrier is or will be subject to competition sufficient to protect the
interests of users, the Commission shall make a determination to
refrain, to the extent that it considers appropriate, conditionally or
unconditionally, from the exercise of any power or the performance of
any duty under sections 24, 25, 27, 29 and 31 in relation to the
service or class of services.
(3) The Commission shall not make a determination to refrain under
this section in relation to a telecommunications service or class of
services if the Commission finds as a question of fact that to refrain
would be likely to impair unduly the establishment or continuance of a
competitive market for that service or class of services.
(4) The Commission shall declare that sections 24, 25, 27, 29 and 31
do not apply to a Canadian carrier to the extent that those sections
are inconsistent with a determination of the Commission under this
section.
164. Section 34 permits the Commission to forbear from regulating one or
more telecommunications services of a Canadian carrier on either of the
two grounds identified in subsections 34(1) and (2), respectively. In
both cases, subsection 34(3) precludes the Commission from forbearing if,
to do so, would, as a question of fact, be likely to impair unduly the
establishment or continuance of a competitive market. 165. In order to forbear under subsection 34(1), the Commission must first
make a finding of fact that to so refrain would be consistent with the
Canadian telecommunications policy objectives. Given the Commission's
finding that, from a regulatory perspective, there is no meaningful
distinction between the activities of an ILEC and a Canadian carrier
under common control, it is the Commission's view that forbearance under
subsection 34(1) would be justified for a telecommunications service
of a Canadian carrier subject to common control with an ILEC, if and
only if, it would also be justified if the service were provided by the
ILEC. 166. Subsection 34(2) provides that the Commission shall forbear with
respect to a telecommunications service provided by a Canadian carrier if
the Commission finds, as a question of fact, that the service, as
provided by that Canadian carrier, is or will be subject to a degree of
competition sufficient to protect the interests of users. The mandatory
nature of subsection 34(2) is, of course, subject to the exception
established by subsection 34(3). 167. The record of this proceeding indicates that Bell Canada and Bell Nexxia
do not compete against each other. In the Commission's view, there would
appear to be no business or economic reason for any other ILEC to compete
with an affiliated Canadian carrier under common control. Accordingly,
the Commission is of the preliminary view that, if a service offered by
an ILEC were not entitled to forbearance under subsection 34(2), then the
same service offered by a Canadian carrier under common control with the
ILEC would not be entitled to forbearance under subsection 34(2). This
follows from the fact that the services in question would be subject to
the same degree of competition since the ILEC and the Canadian carrier
would not compete against each other. 168. This type of reasoning also applies to the reverse situation (i.e.,
where an ILEC is entitled to forbearance). If a service offered by an
ILEC were subject to sufficient competition to justify forbearance for
the ILEC, then forbearance would also be justified in respect of the same
service offered by a Canadian carrier under common control with the ILEC.
Once again, this follows from the fact that the Canadian carrier and the
ILEC would not compete with each other and would face the same degree of
competition from other carriers. 169. The Commission notes that these preliminary conclusions regarding the
application of subsection 34(2) are consistent with the Commission's
conclusion regarding the application of subsection 34(1). In both cases,
a service provided by a Canadian carrier under common control with an
ILEC would be entitled to forbearance if and only if forbearance would be
appropriate in respect of the same service offered by the ILEC. 170. It is now appropriate to look at the Commission's past forbearance
decisions in light of the record of this proceeding and keeping in mind
the conclusions derived above regarding the application of subsections
34(1) and (2). 171. Any Commission decisions that forbear with respect to services
provided by an ILEC do not, on their face, apply to Canadian carriers
affiliated with the ILEC, even if they are under common control. However,
the record of this proceeding suggests that an ILEC and a Canadian
carrier under common control do not compete with each other and that
there is no meaningful distinction between their activities, from a
regulatory perspective. Consequently, consistent with the above
interpretation of subsections 34(1) and (2), the Commission is of the
preliminary view that where a Canadian carrier is subject to common
control with an ILEC, that Canadian carrier should be granted forbearance
in respect of the same services and on the same conditions as have been
applied to the ILEC in past Commission decisions. In addition to the
forbearance decisions applicable to ILECs, there are three forbearance
decisions relating to Canadian carriers, other than the ILECs, that also
require examination in order to complete this analysis. 172. In Forbearance - Services provided by non-dominant Canadian
carriers, Telecom Decision CRTC 95-19,
8 September 1995 (Decision 95-19), the
Commission forbore from the exercise of certain of its powers under the
Act in respect of certain services provided by Canadian carriers who were
entering the market as competitors to the incumbents. The Commission
identified the relevant carriers in the following terms: The Commission does not share the view that the current
circumstances warrant that it apply the same regulatory treatment to
all Canadian carriers providing similar services. In the opinion of the
Commission, Canadian carriers that provide, or that traditionally have
provided, public switched local telephone service on a monopoly basis
(hereafter referred to as the telephone companies) are in a position to
exercise a significant degree of market power. With regard to the
Stentor companies in particular, Stentor has not, in the Commission's
view, demonstrated that a review of the Commission's findings in Review
of Regulatory Framework, Telecom Decision CRTC 94-19,
16 September 1994 (Decision 94-19),
is necessary or appropriate at this time. Specifically, the Commission
finds that a degree of forbearance for the Stentor companies greater
than that contemplated in Decision 94-19
would be likely, at this time, to impair unduly the continuance of a
competitive market.
.
Other Canadian carriers are entering the market and competing with
the telephone companies as a result of various Commission rulings, in
particular, Decision 92-12. Such
carriers include, among others, fONOROLA, Rogers Network Services (a
division of RCTV), Sprint, Unitel, VTL and Westel Network Services Ltd.
The Commission finds no evidence that any advantages that such carriers
may currently have, relating either to existing affiliations or to
market position, are sufficient to permit them to sustain predatory
prices or, with limited exceptions (addressed below), to deny access to
bottleneck facilities or to otherwise exercise market power. In
particular, the Commission rejects Westel's argument that Unitel can
exercise market power in some private line or data markets.
Accordingly, the Commission finds it appropriate to forbear from
regulating the bulk of the services provided by Canadian carriers other
than the telephone companies, Teleglobe and Telesat (referred to
hereafter as competing carriers).
173. In the Commission's view, the discussion and determinations cited
above from Decision 95-19,
including the reference to carriers who are "entering the market and
competing with the telephone companies", as well as the use of the
term "competing carriers" to characterize the relevant
carriers, indicate that Decision 95-19
should apply to services provided by certain Canadian carriers who
compete with an incumbent carrier in the markets it serves. In this
regard, a Canadian carrier under common control with an ILEC would likely
qualify as a competing carrier when it provides services in the territory
of an unaffiliated ILEC. However, as noted above, the record of this
proceeding suggests that such a Canadian carrier does not compete with
its affiliated ILEC in the territory served by that ILEC. Consequently,
the Commission is of the preliminary view that a Canadian carrier that is subject
to common control with an ILEC, should not come within the scope of
Decision 95-19 with respect to
services provided by the Canadian carrier in the territory of the
ILEC. 174. Similarly, in Decision 97-8, the
Commission concluded that it was appropriate to refrain from exercising
some of its powers in respect of certain services offered by CLECs. The
context of that decision and, in particular, the use of the word
"competitive" in the term "competitive local exchange
carrier", indicates that the Commission's decision to forbear should
apply to services provided by Canadian carriers competing with an ILEC in
the serving territory of that ILEC. However, if a Canadian carrier is not
competing with the ILEC, but instead is operating in co-operation with
the ILEC, then that Canadian carrier should not be entitled to
forbearance under Decision 97-8 in
respect of services offered in the territory of that ILEC. 175. In light of the record of this proceeding, the Commission is of the
preliminary view that a Canadian carrier that is subject to common
control with an ILEC would likely come within the scope of the
forbearance order in Decision 97-8 with
respect to services provided by the Canadian carrier in the territory of
an unaffiliated ILEC. However, it is the Commission's preliminary view
that such a Canadian carrier should not come within the scope of the
forbearance order in Decision 97-8 with
respect to services provided by the Canadian carrier in the territory of
an affiliated ILEC. 176. Finally, in Local pay telephone competition, Telecom Decision
CRTC 98-8, 30 June 1998 (Decision 98-8),
the Commission forbore from regulating the rates of pay telephone
services provided by CLECs since they would face sufficient competition
from the local ILEC to protect the interests of users. However, the
Commission did not forbear from regulating these services when provided
by an ILEC within its own serving territory. Consequently, the Commission
is of the view that the same reasoning as set out above in respect of
Decision 97-8 should apply. That
is, the Commission is of the preliminary view that a Canadian carrier
that is subject to common control with an ILEC should likely come within
the scope of the forbearance order in Decision 98-8
when offering pay telephone services in the territory of an unaffiliated
ILEC. However, such a Canadian carrier should not come within the scope
of the forbearance order in Decision 98-8
with respect to pay telephone services provided by the Canadian carrier
in the territory of an affiliated ILEC. 177. The Commission notes that its preliminary views regarding Decisions 95-19,
97-8 and 98-8
are in harmony with the analysis set out above regarding the application
of section 34 to a Canadian carrier under common control with an ILEC. In
summary, based on the record of this proceeding, the Commission's
analysis of the application of section 34 and its analysis of its
previous forbearance decisions, the Commission is of the preliminary view
that a Canadian carrier subject to common control with an ILEC should be
required to comply with section 25 and other applicable provisions of the
Act whenever the affiliated ILEC would be required to do so. In
accordance with this preliminary view and consistent with its revisions
to the affiliate rule, the Commission would apply the same criteria when
examining a proposed tariff filed by such a Canadian carrier as it would
apply if the tariff were filed by the affiliated ILEC. In particular,
proposed tariffs would be required to comply with the Commission's
bundling rules and imputation test requirements. 178. The Commission directs Aliant Telecom, Bell Canada, MTS, SaskTel,
Télébec, TELUS and TELUS Québec by 27 January 2003, to: a) identify any and all Canadian carriers with which they are under
common control; and b) show cause why the Commission's proposed approach to the regulation
of such Canadian carriers should not be implemented. 179. The ILECs' submissions should be filed with the Commission and copies
served on interested parties to this proceeding by the date specified.
Interested parties may file comments on the ILECs' submissions by 10 February
2003, serving copies on the ILECs and all other interested parties.
The ILECs may file reply comments by 17 February 2003,
serving copies on all interested parties who filed comments. All
submissions are to be received, not merely sent, by the dates indicated. 180. In light of the concerns discussed above, the Commission considers it
necessary to implement an interim regime with respect to Canadian
carriers who are subject to common control with an ILEC. The Commission
has already indicated that it considers AT&T Canada's proposal
that all ILEC affiliates be prohibited from reselling ILEC regulated
services to be unduly restrictive and unnecessary at this time. However,
as an interim measure until the Commission renders a decision in the
follow-up process identified in the preceding paragraphs, a Canadian
carrier that is subject to common control with an ILEC may not resell any
tariffed service offered by that ILEC, except pursuant to a tariff filed
by the Canadian carrier and approved by the Commission. The Commission
notes that this prohibition does not prevent such a Canadian carrier from
acting as the agent of the ILEC in respect of the ILEC's tariffed
services. 181. The Commission notes that Bell Nexxia currently resells Bell Canada's
ADSL service (Bell Canada General Tariff item 5400) to competing
ISPs. The Commission hereby suspends the prohibition set out in the
preceding paragraph in respect of this resale activity by Bell Nexxia,
as well as in respect of any comparable resale activity by any other
Canadian carrier under common control with an ILEC. Any such Canadian
carrier, other than Bell Nexxia, providing such services to ISPs is
directed to notify the Commission of this fact by 19 December
2002. Secretary General This document is available in alternative format upon request and
may also be examined at the following Internet site: http://www.crtc.gc.ca Date Modified: 2002-12-12
Telecom Decision CRTC 2002-76
Regulatory safeguards with respect to incumbent affiliates,
bundling by Bell Canada and related matters
Table of contents
Paragraph
Summary
I Introduction
II The nature and scope of the proceeding
III Issues specific to Bell Canada and Bell Nexxia
The location of Bell Canada's CSG
Commission determinations: Location of the CSG
The sales and marketing activities of Bell Canada
and Bell Nexxia
Commission determinations: Bell Canada's and
Bell Nexxia's sales and marketing activities
Services provided to Bell Nexxia by Bell Canada
Commission determinations: Services provided by
Bell Canada to Bell Nexxia
IV The adequacy of the affiliate rule in the present
environment
Commission determinations: Adequacy of the affiliate
rule
Modifications to the affiliate rule
Regulation of Canadian carriers under common control
with an ILEC
Further process
Interim regime for affiliated Canadian carriers
Appendix A
Appendix B
II The nature and scope of the proceeding
III Issues specific to Bell Canada and Bell Nexxia
The location of Bell Canada's CSG
Background
Positions of parties
Commission determinations: Location of the CSG
The sales and marketing activities of Bell Canada and Bell Nexxia
Background
Evidence from the Public Notice 2001-37
proceeding
Regulatory decisions
Positions of parties
Commission determinations: Bell Canada's and Bell Nexxia's
sales and marketing activities
Services provided to Bell Nexxia by Bell Canada
Background
Positions of parties
Commission determinations: Services provided by Bell Canada
to Bell Nexxia
IV The adequacy of the affiliate rule in the present environment
Background
Positions of parties
Group Telecom
AT&T Canada
Other competitors
ARC et al.
TELUS
Aliant Telecom and SaskTel
Bell
Commission determinations: Adequacy of the affiliate rule
Modifications to the affiliate rule
Regulation of Canadian carriers under common control with an ILEC
Further process
Interim regime for affiliated Canadian carriers