ARCHIVED - Telecom Decision CRTC 2002-78

Telecom Decision CRTC 2002-78

Ottawa, 23 December 2002

Interim Competitor Digital Network Access service

Reference: 8661-C25-05/02, 8638-C12-61/02 and 8661-C12-10/02

In part I of this decision, the Commission approves, on an interim basis, reduced rates for the access and link components of the major incumbent local exchange carriers' (ILECs') Competitor Digital Network Access (CDNA) service, effective 1 June 2002. These rates are based on the ILECs' cost studies filed on 13 September 2002 in the proceeding initiated by Competitor Digital Network Access service proceeding, Telecom Public Notice CRTC 2002-4, 9 August 2002 (the CDNA proceeding).

In this decision, the Commission concludes that ILECs and competitors are to retain records that will allow them to account, if necessary, for the use of the ILECs' CDNA service, Digital Network Access (DNA) service and digital inter-exchange service, when the Commission makes its final determination in the CDNA proceeding.

The Commission confirms that competitors may use components of the CDNA service in conjunction with any other ILEC service at current tariff rates, any service that they self-supply, or any service acquired from a third party.

In part II of this decision, the Commission also addresses issues raised by parties in response to the interim CDNA tariffs issued by the ILECs pursuant to Regulatory framework for second price cap period, Telecom Decision CRTC 2002-34, 30 May 2002.

Background

1.

In Regulatory framework for second price cap period, Telecom Decision CRTC 2002-34, 30 May 2002 (Decision 2002-34), the Commission determined that there was a need to introduce a Competitor Digital Network Access (CDNA) service to foster facilities-based competition. The Commission therefore directed Aliant Telecom Inc. (Aliant Telecom), Bell Canada, MTS Communications Inc. (MTS), Saskatchewan Telecommunications (SaskTel) and TELUS Communications Inc. (TELUS) (collectively, the incumbent local exchange carriers or the ILECs) to issue interim CDNA tariffs, effective 1 June 2002, in accordance with specified terms and conditions. In particular, the Commission set out, in paragraph 192, the terms and conditions under which the access and link components of the ILECs' Digital Network Access (DNA) service would be incorporated into the interim CDNA tariffs (the CDNA terms and conditions). The Commission also specified that the interim rates for the access component of the CDNA service were to be set at the rate levels approved for the access component of the DNA service when it was provided under a five-year contract. The interim rates for the link component of the CDNA service were to be set at the rate levels approved for the link component of the DNA service, less 40%.

2.

In Decision 2002-34, the Commission also directed the ILECs to file, by 13 September 2002, proposed final CDNA tariffs that incorporated rates based on Phase II costs, plus a mark-up of 15%, with supporting cost studies.

3.

On 14 June 2002, the ILECs issued interim CDNA tariffs setting out, among other things, reduced rates for the access and link components as directed in Decision 2002-34 (the interim rates).

4.

In Competitor Digital Network Access service proceeding, Telecom Public Notice CRTC 2002-4, 9 August 2002 (Public Notice 2002-4), the Commission revised the procedure established in Decision 2002-34 in connection with the CDNA service, and initiated the current CDNA proceeding (the CDNA proceeding). The Commission determined that it would be appropriate to address policy issues relating to the CDNA service before the ILECs filed final CDNA tariffs. The ILECs were, therefore, not required to file proposed final CDNA tariffs on 13 September 2002. However, the Commission maintained 13 September 2002 as the date by which the ILECs were to submit cost studies for the CDNA service. The parties were also invited to file comments on CDNA - related policy issues by that date.

5.

The ILECs filed their cost studies on 13 September 2002 (the ILECs' cost studies). Bell Canada on behalf of itself, Aliant Telecom, MTS and SaskTel (Bell Canada et al.) also filed comments in the policy portion of the CDNA proceeding on 13 September 2002, in accordance with the procedure set out in Public Notice 2002-4.

6.

The procedure established in Public Notice 2002-4 was amended by letters dated 17 and 20 September 2002 and 8 November 2002 (Public Notice 2002-4, as amended).

Part I - Call-Net's application

7.

On 25 September 2002, Call-Net Enterprises Inc. (Call-Net) filed an application requesting that the Commission issue orders:

i) approving, effective 1 June 2002 and on an interim basis, the rates for the access and link components of the CDNA service based on Phase II costs, as filed in the ILECs' cost studies, plus a mark-up of 15% (the cost study rates);

ii) amending the interim CDNA tariffs to permit the use of the access and link components of the CDNA service in conjunction with other ILEC services, at current tariff rates, including the channelizing feature and intra-exchange channels of the DNA service, as well as digital inter-exchange channels; and

iii) requiring the ILECs, and competing Canadian carriers and resellers (the competitors) that use the services at issue, to enter into an accounting at such time as the rates and terms of the CDNA service are approved on a final basis, such that these rates and terms may be applied on a retroactive basis as of 1 June 2002.

8.

In its application, Call-Net also requested that the Commission modify the directions on procedure for the CDNA proceeding, set out in the letters of 17 and 20 September 2002. However, the procedure established in Public Notice 2002-4, as amended, was confirmed by letter dated 4 October 2002.

9.

On 3 October 2002, the Commission received comments from AT&T Canada Corp. and AT&T Canada Telecom Services Company (AT&T Canada), Futureway Communications Inc. (Futureway), Microcell Telecommunications Inc. (Microcell), Primus Telecommunications Canada Inc. (Primus Canada), and TELUS. On 7 October 2002, Call-Net and TELUS submitted reply comments.

Revised interim rates for the CDNA service

Position of parties

10.

In support of its request that the Commission approve the cost study rates, Call-Net submitted that the ILECs' cost studies demonstrated that the costs of providing the access and link components of the CDNA service were significantly lower than the interim rates. In this regard, Call-Net submitted that competitors were paying a mark-up of 388% over the costs set out in the ILECs' cost studies.

11.

Call-Net also submitted that, given the volume of DNA circuits identified in the ILECs' cost studies, competitors were required to pay, on an annualized basis, millions of dollars in excess of what they would pay if the cost study rates were in effect. Call-Net further submitted that the funds required to pay the interim rates would cause competitors to divert financial resources from capital projects that would have otherwise increased the level of competition in the Canadian telecommunications market.

12.

In Call-Net's view, if the Commission approved the cost study rates retroactive to 1 June 2002, the ILECs would be fully compensated, since the cost study rates were based on their Phase II costs, plus a mark-up of 15%, as specified in Decision 2002-34. Call-Net submitted that there was little risk that the final rates for the CDNA service would be higher than the cost study rates.

13.

Call-Net argued that this was a prima facie case for relief: the balance of convenience clearly favoured the competitors obtaining relief immediately, as the delayed investment in the competitors' networks would never be compensated, and the Commission's policy objectives may be jeopardized.

14.

AT&T Canada, Futureway, Primus Canada and Microcell supported Call-Net's request.

15.

TELUS submitted that the interim rates had provided Call-Net with an immediate and significant financial benefit, and that further benefits were not appropriate at this time. In TELUS' view, the cost study rates should not be given interim approval until such time as they had been tested in a public process. TELUS submitted that approval of rates that could eventually be too low would damage its investments and competitive position in eastern Canada as a facilities-based entrant.

16.

In reply, Call-Net submitted it was unlikely that the final rates would be higher than the cost study rates since there was no evidence on the record that the ILECs had understated their costs. Call-Net argued that the interim rates had not provided a significant financial benefit to competitors given that, for the most part, competitors had already subscribed to the ILECs' DNA service at the five-year contract rate.

Commission determination

17.

The Commission notes that the interim rates were set with reference to rates for the DNA service, without the benefit of cost studies specific to the CDNA service. The Commission further notes that in Decision 2002-34, it determined that the final rates for the access and link components of the CDNA service would be based on Phase II costs, plus a mark-up of 15%. The ILECs' cost studies indicate that the interim rates exceed the estimated Phase II costs by significantly more than 15%.

18.

The Commission, therefore, concludes that the interim rates for the access and link components of the CDNA service should be replaced, on an interim basis, by the cost study rates. The Commission also determines that these cost study rates are to be effective from 1 June 2002, the date on which the interim rates first came into effect.

19.

The Commission notes that, while Bell Canada, Aliant Telecom, MTS and SaskTel identified the costs of providing each of the access and link components of the CDNA service separately in their cost studies, they proposed a single rate for these two service components. However, consistent with its directions in Decision 2002-34, the Commission considers that the interim rates for the access and link components must be set out separately in the interim CDNA tariffs.

20.

The Commission notes that, in their cost studies, the ILECs proposed service charges that would apply upon initiation of the CDNA service (the cost study service charges). The Commission further notes that certain service charges set out in the interim CDNA tariffs (the interim service charges) are higher than the comparable cost study service charges. In the Commission's view, all interim service charges that are higher than the comparable cost study service charges should, on an interim basis, be replaced by the lower cost study service charges.

21.

Accordingly, the Commission directs each ILEC to issue, forthwith, revised interim CDNA tariff pages reflecting, effective 1 June 2002:

Use of other services with the CDNA service

Position of parties

22.

In support of its request that the Commission permit the use of other ILEC services with the CDNA service components, Call-Net noted Bell Canada et al.'s position in their 13 September 2002 comments filed in the CDNA proceeding. In particular, Call-Net noted that Bell Canada et al. had stated that there would be very limited demand for the CDNA service without the channelizing feature. Call-Net further noted that Bell Canada et al. had agreed that competitors should be permitted to use the ILECs' channelizing feature, at approved rates, in conjunction with the CDNA service. Further, Call-Net noted that Bell Canada et al. were not opposed to allowing competitors to use the CDNA service with other elements obtained from Bell Canada et al.'s service offerings, at current tariff rates, such as intra-exchange and digital inter-exchange channels, or with elements of their own supply at co-location spaces within company wire centres.

23.

AT&T Canada, Microcell, Primus Canada and TELUS agreed that competitors should be permitted to use other components of the DNA service and other ILEC services in conjunction with the CDNA service at current tariff rates for those services.

Commission determination

24.

The Commission notes that the ILECs' interim CDNA tariffs contain no restrictions with respect to the use of the CDNA service in conjunction with other ILEC service offerings, including the channelizing feature. The Commission further notes that its determinations in Decision 2002-34 did not include such a restriction.

25.

The Commission confirms that competitors may use components of the CDNA service in conjunction with other ILEC services or service components at current tariff rates, with any service that they self-supply, or with any service acquired from a third party.

Call-Net's request for an accounting

Position of parties

26.

Call-Net's request that the Commission require the ILECs and competitors to enter into an accounting at such time as the final rates and terms of the CDNA service are determined, was supported by AT&T Canada, Futureway and Microcell. Microcell further requested that the Commission make an explicit statement that the final rates, terms and conditions of the CDNA service would be applied retroactively to 1 June 2002.

27.

TELUS submitted that Call-Net's request for an accounting was justified only in respect of the access and link components of the interim CDNA tariffs. In this regard, TELUS submitted that, while retroactive adjustments of the interim rates for the access and link components were possible, any other changes should operate only on a prospective basis, as of the date of the Commission's ruling in the CDNA proceeding.

28.

In reply, Call-Net argued that as the Commission had, in Decision 2002-34, made all ILEC rates interim as of 1 June 2002, it would be lawful for the Commission to approve the final rates on a retroactive basis.

Commission determination

29.

The Commission will determine in its final decision in the CDNA proceeding whether any rate reductions it may make in that decision will apply retroactively. The Commission will also determine at that time whether an accounting is necessary. However, as the Commission may determine that some or all of the rates will apply retroactively, the Commission considers that ILECs and competitors must be in a position to enter into an accounting.

30.

Accordingly, the Commission directs each ILEC:

Part II - Other matters

31.

A number of matters relating to the interim CDNA tariffs were raised in a letter filed by Call-Net dated 17 June 2002, and in comments filed by AT&T Canada, Call-Net, GT Group Telecom Services Corp. (Group Telecom), Microcell, Primus Canada and Rogers Wireless Inc. (RWI) on 5 July 2002. On 17 July 2002, Bell Canada et al. and TELUS filed reply comments. These matters related to the migration of service from the DNA tariff to the CDNA tariff, the appropriateness of certain charges and other proposed amendments.

Service migration

Position of parties

32.

Parties noted that Bell Canada et al. and TELUS had stated, in their letters accompanying their respective interim CDNA tariffs, that existing contracted DNA services could be migrated to the CDNA tariff, upon receipt of notification from competitors requesting such a migration. Parties also noted that Bell Canada et al. and TELUS had also stated that competitors that wished to migrate their service from the DNA to the CDNA tariff would need to give due consideration to the applicable contracted DNA termination charges and CDNA service charges.

33.

In AT&T Canada's view, the application of the CDNA tariff was not contingent upon providing notification to the ILECs and the interim rates should apply as of 1 June 2002. Microcell submitted that the ILECs should not require competitors to re-submit the material filed with their original orders for DNA service, when requesting that their service be migrated to the CDNA tariff.

34.

Call-Net requested that the Commission amend the interim CDNA tariffs such that termination charges would not apply upon service migration. AT&T Canada submitted that termination charges should not apply, even in cases where a competitor modified an existing DNA service arrangement to conform to the CDNA terms and conditions. Futureway submitted that paying termination charges would eliminate the cost savings associated with migrating to the CDNA tariff. In RWI's view, a competitor migrating its service from the DNA to the CDNA tariff was not vacating facilities but, rather, was merely migrating to a different rating scheme, using the same facilities.

35.

AT&T Canada argued that the ILECs should not apply service charges when a competitor transferred a service from the DNA to the CDNA tariff, or modified an existing DNA service arrangement in order to meet the CDNA terms and conditions.

37.

In addition, Bell Canada et al. and TELUS submitted that it was appropriate to apply termination charges when migrating DNA service arrangements to the CDNA tariff, since the competitors receiving DNA service under long-term contracts had agreed to pay such charges upon terminating these contracts. They also argued that the application of service charges was appropriate to recover the costs associated with the migration of services.

Commission determination

38.

The Commission notes that the interim CDNA tariff only applies to those DNA components that meet the CDNA terms and conditions. The Commission, therefore, considers it reasonable to require competitors that wish to benefit from the lower rates under the CDNA tariff, to identify, by way of notification to the ILECs, those access and link arrangements that were provided under the DNA tariff as of 1 June 2002 and that, in their view, meet the CDNA terms and conditions. The Commission confirms that, regardless of the date of notification, the reduced rates apply to any DNA component that met the CDNA terms and conditions on or after 1 June 2002. The Commission does not, however, consider it reasonable for an ILEC to require competitors to re-submit the material filed with their original order for DNA service.

39.

The Commission considers that it is not appropriate to apply termination charges when competitors choose to migrate DNA components that meet the CDNA terms and conditions to the CDNA tariff. In the Commission's view, these competitors are not terminating their contracted DNA service in the ordinary course of business but, rather, are availing themselves of a new service mandated by the Commission with a view to fostering facilities-based competition. Similarly, the Commission considers that the migration of DNA components to the CDNA tariff should not be contingent on the payment of service charges, if those arrangements conform to the CDNA terms and conditions.

40.

The Commission does, however, consider it reasonable for the ILECs to apply the termination and service charges when a competitor modifies its service arrangements to meet the CDNA terms and conditions.

41.

Accordingly, the Commission directs each ILEC:

Other tariff amendments

Position of parties

42.

Call-Net and AT&T Canada objected to the provision in the ILECs' interim CDNA tariffs that would permit them to charge additional amounts if the ILECs installed special equipment or incurred unusual expenses to establish service. In AT&T Canada's view, this provision was discretionary, with little opportunity for recourse. In reply, Bell Canada et al. noted that this provision was in the DNA tariff and submitted that it was appropriate to include such a provision in the CDNA tariff to permit them to recover all costs.

43.

Call-Net noted that the ILECs' tariffs included cross-references to the DNA tariff. Call-Net submitted that it would be appropriate to amend these cross-references to include references to the CDNA tariff.

44.

Call-Net requested that the interim CDNA tariff be amended to replace the reference to competitor "switch" with "point of presence".

45.

Microcell submitted that the Commission should permit CDNA service to terminate on competitor equipment generally, not just on competitor switches or co-located equipment. Microcell requested that all references to "end-customer premise" in the interim CDNA tariff be replaced with a more generic reference to "end-customer premise, competitor premise or competitor equipment".

46.

TELUS objected to these proposals, arguing that the CDNA proceeding was a more appropriate forum to propose, test and comment on changes to the terms, conditions and restrictions for the CDNA service.

Commission determination

47.

The Commission considers that Bell Canada et al. did not demonstrate that charges for installation of special equipment and for unusual expenses were necessary in the context of the CDNA service. The Commission, therefore, determines that this provision should be removed from the interim CDNA tariffs.

48.

The Commission agrees that revisions should be made to the ILECs' tariffs to incorporate appropriate references to the CDNA tariff. The Commission considers that this can be achieved if each ILEC were to revise the relevant items in the DNA tariff to refer to the CDNA tariff.

49.

The Commission considers that the CDNA proceeding is the appropriate forum to address the amendments proposed by Call-Net and Microcell, as described above in paragraphs 44 and 45. Therefore, the Commission will consider such matters in the context of that proceeding.

50.

Accordingly, the Commission directs each ILEC to issue, forthwith:

Secretary General

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