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Telecom Decision CRTC 2003-28

Ottawa, 7 May 2003

Microcell Telecommunications Inc. - Application to review and vary Telecom Decision CRTC 2002-56

Reference: 8662-M16-03/02

In this decision, the Commission permits competitive local exchange carriers to opt out, on a one-time basis, from both collecting and contributing funds associated with the compensation plan designed to compensate long distance service providers for foregone toll revenue resulting from the expansion of a local calling area.

Background

1. In Framework for the expansion of local calling areas, Telecom Decision CRTC 2002-56, 12 September 2002 (Decision 2002-56), the Commission established a new framework for expanding local calling areas (LCAs) that would treat all affected entities fairly. As part of the new framework, the Commission established a compensation plan designed to compensate all long distance service providers (toll providers) for foregone toll revenue resulting from the expansion of a LCA. The Commission concluded that subscribers within the expanded LCA would pay the costs associated with foregone toll revenues through a temporary monthly surcharge collected by both incumbent local exchange carriers (ILECs) and competitive local exchange carriers (CLECs). While CLECs will be assumed to be billing their local service customers the temporary surcharge, the amount of compensation to be paid to an affected CLEC that is also a toll provider within any of the affected exchanges will be reduced to take into account the amount of revenues that are deemed to have been earned by the toll provider through the collection of temporary surcharges.

The application

2. On 10 October 2002, Microcell Telecommunications Inc. (Microcell) filed an application pursuant to section 62 of the Telecommunications Act (the Act) and Part VII of the CRTC Telecommunications Rules of Procedure, requesting that the Commission review and vary Decision 2002-56.

3. Microcell submitted that there was substantial doubt as to the correctness of Decision 2002-56 as it related to participation of a CLEC, such as Microcell, that was also a wireless service provider (WSP), in the funding of LCA expansion. Microcell argued that the Commission committed errors in fact in Decision 2002-56, as it was incorrect to assume that:

Relief requested

4. In its application, Microcell requested the following relief:

Process

5. The Commission received comments from AT&T Canada Corp. on behalf of itself and AT&T Canada Telecom Services Company (collectively, AT&T Canada); Aliant Telecom Inc., Bell Canada, MTS Communications Inc., Saskatchewan Telecommunications, Société en commandite Télébec and NorthernTel Limited Partnership (collectively, the Companies); City of Ottawa (Ottawa); and TELUS Communications Inc. (TELUS). Microcell filed reply comments on 13 November 2002.

Positions of parties

Comments

6. Microcell submitted that the three assumptions stated above presumed that CLECs existed for little other purpose than to mimic ILECs. In Microcell's view, this was a disconcerting vision of local competition, one that was far removed from the innovation embracing, multi-technology vision the Commission pronounced in its 1997 local competition decision. Microcell expressed concern about the administrative and regulatory burden that new subsidy schemes such as the compensation plan would impose on the industry. According to Microcell, the compensation plan established by the Commission did not function on a non-discriminatory basis.

7. Microcell stated that, in Decision 2002-56, the Commission assumed that CLECs would be charging their local service customers the same temporary surcharge that the ILECs would be charging their local service customers. Microcell submitted that in making this assumption, the Commission subscribed to an invalid theory of local service pricing dynamics. According to Microcell, the theory under which CLECs automatically matched ILEC local rate increases, including a temporary surcharge, did not stand up to empirical scrutiny. Microcell submitted that an ILEC's temporary surcharge in a particular geographic location would not impact on Microcell's rate setting decisions.

8. Microcell further submitted that there were practical barriers to WSP's matching an ILEC's temporary surcharge. Microcell stated that in its case, its rate plans were set on a nation-wide basis. It was not sure how an ILEC temporary surcharge of $0.50 per month in a particular location would be converted to a per-minute temporary surcharge for its customers. Microcell stated that if it could not charge a temporary surcharge, Microcell's contribution to the compensation plan would have to be funded without the benefit of recovering its contribution from its subscribers. Microcell submitted that this was wholly inappropriate and unjustifiable.

9. Microcell submitted that long distance service providers were expected to measure their foregone toll revenues attributable to the expansion of the ILEC's local calling area. Microcell further submitted that while this would be simple for a wireline carrier where the wireline terminals do not move, it was not the same for a WSP. For wireline carriers, the calculation of foregone toll revenue was based on a one-to-one correspondence between telephone numbers and telephone exchanges. For WSPs, whether a call was long distance, or not, depended on the location of the mobile terminal at the time a call was originated or terminated. According to Microcell, as a result, the wireless subscriber's telephone number would not be a valid indicator of the subscriber's location at the time of a call and, therefore could not determine whether a call was long distance or local. Microcell further submitted that an entirely different indicator, relying on something other than telephone numbers, would need to be constructed.

10. Microcell noted the Commission's statement in Decision 2002-56 that subscribers who benefited from an expanded LCA should bear the costs associated with foregone toll revenues. Microcell indicated that in most of its serving locations across Canada, as a WSP, its LCA was larger than the ILEC's LCA. Microcell submitted that as a result, there would be no benefit to its subscribers resulting from an expanded ILEC LCA, and therefore, Microcell should not be required to contribute to any compensation plan required for the expansion of a LCA.

11. Microcell submitted that to the extent the Commission may be concerned about a CLEC, that is also a toll provider, benefiting from the LCA expansion compensation plan without contributing to it, one possible solution would be to create an opt-in-to-both/opt-out-to-both model. According to Microcell, CLECs would be required to state their choice to the ILEC's Carrier Service Group (CSG) at the very first stage of the LCA expansion process.

12. AT&T Canada agreed with many of the concerns raised by Microcell, particularly the assumption that a CLEC would automatically expand its LCA to mirror that of the ILEC, and would charge a temporary surcharge to match the ILEC's. According to AT&T Canada, if a CLEC chose not to expand its LCA, or already offered service to a broader LCA, its local customers would not benefit from the ILEC expanding its LCA. Therefore, these customers should not be penalized for exercising competitive choice. In AT&T Canada's view, the assumption made by the Commission provided a disincentive for CLECs to expand their LCA in advance of an ILEC doing so, or to differentiate their local offering.

13. AT&T Canada indicated that even for a wireline-based CLEC/interexchange carrier (IXC), the calculation of foregone toll would be administratively burdensome, as well as competitively problematic, in that a CLEC/IXC would be forced to disclose competitive information to the ILECs.

14. AT&T Canada agreed with Microcell that many of these concerns could be addressed through an approach that allowed CLECs the choice of expanding their LCA and by taking part in the compensation plan, or conversely, choosing not to expand its LCA, not to charge the temporary surcharge, and not to contribute to the plan.

15. The Companies submitted that there was no requirement in Decision 2002-56 to limit the payment of the temporary surcharge only to those customers who would directly benefit from a LCA expansion. For instance, where the demand for LCA expansion followed the creation of a large amalgamated city, all subscribers within the new municipality would pay the temporary surcharge, regardless of whether they received any additional local calling capability. In the Companies' view, although customers located in the core exchange already had local calling throughout the LCA, they would still profit from the LCA expansion through indirect benefits which would arguably flow to the local economy.

16. The Companies submitted that Microcell's proposed opt-in/opt-out model was inappropriate. In the Companies' view, any CLEC that would be a net contributor to the compensation fund would be likely to opt out, leaving the funding burden on any ILEC and on any CLEC that would expect to financially benefit from the compensation regime. According to the Companies, this would be inconsistent with the Commission's objective of creating a regime that treated all entities fairly.

17. Ottawa supported Microcell's application in principle. According to Ottawa, the Commission concluded in Decision 2002-56 that compensation should be paid to ILECs and to competitors for foregone toll revenue. Ottawa submitted that since this compensation process was open to interpretation, and could be potentially cumbersome, the Commission should vary Decision 2002-56 such that CLECs would not be required to participate in the compensation plan, and ILECs and competitors wanting to be compensated for foregone toll revenues would optinto the compensation plan. As part of the opt-in process, Ottawa suggested that the Commission institute timeframes on ILECs and competitors for the provision of information required as part of the framework for expanded LCAs.

18. Ottawa stated that as Decision 2002-56 stood, it would require a number of CLECs to participate for a relatively short period of time in an administratively burdensome process. Ottawa submitted that at a conceptual level, their participation should reduce the amount of the surcharge that would otherwise be payable by ILEC subscribers. However, at a practical level, Ottawa expressed concern that there would be administrative and procedural delays to the implementation of any requests for expanded LCAs that would far outweigh any benefit that CLEC contributions could make to the surcharge rate.

19. Ottawa submitted that Microcell, as the only WSP that is also a CLEC, would be the only WSP affected by Decision 2002-56. In its view, compliance could place Microcell at a competitive disadvantage compared to other WSPs.

20. According to Ottawa, the low level of interest shown by CLECs during the process that led to Decision 2002-56 suggested that non-ILECs were not particularly troubled at the prospect of not participating in a compensation plan.

21. According to TELUS, there was substantial doubt as to the correctness of the CLEC surcharge obligation. TELUS submitted that, specifically, the CLEC surcharge obligation was detrimental to the development of local competition. TELUS agreed with Microcell that in the case of the CLEC surcharge obligation, there were serious policy repercussions, which adversely affected not just CLEC/WSPs such as Microcell, but all other CLECs, including TELUS, when it was operating outside of Alberta and British Columbia.

22. TELUS agreed with Microcell that the CLEC surcharge obligation reflected, and indeed created, a disconcerting vision of local competition, one seriously at odds with a framework that should enable CLECs to deploy new technologies, experiment with attractive marketing and billing models, and create their own innovative service areas and concepts.

23. TELUS submitted that a WSP that is also a CLEC, such as Microcell, would effectively be disadvantaged in the WSP market if it had to include the temporary surcharge in its service rates, while other WSPs were not required to do so. As well, imposing the CLEC surcharge obligation only on CLECs that were non-WSPs would in turn prejudice such CLECs relative to CLEC/WSPs. Such an approach would also be contrary to basic tenets of fairness.

24. TELUS submitted that if Decision 2002-56 had stayed within the limits of previous Commission decisions allowing ILECs the flexibility to reflect their own foregone toll revenues in their revised LCA service rates, the temporary surcharge would have remained strictly an ILEC obligation. In TELUS' view, this would be consistent with the principle set out in Decision 2002-56 that "subscribers who benefit from an expanded LCA should bear the costs associated with foregone toll revenues."

25. TELUS submitted that rather than making certain services more affordable, that portion of the temporary surcharge used to compensate toll competitors would in fact cause local service rates in an LCA expansion to be higher than they otherwise would be. TELUS further submitted that this was contrary to the objective found in the Act, to render reliable and affordable telecommunications services accessible to Canadians.

26. TELUS further submitted that allowing CLECs to opt-in or opt-out of being liable for a portion of the LCA surcharge would constitute a half-measure that would not provide meaningful relief from the errors and deficiencies discussed above. Accordingly, TELUS stated that the Commission should, of its own motion, also review and rescind that portion of the temporary surcharge that is applicable to toll competitors.

Reply comments

27. Microcell stated that AT&T Canada, Ottawa and TELUS each put forward explicit statements in support of some or all of the errors in fact that Microcell had identified in Decision 2002-56.

28. Microcell submitted that although administrative issues were not the principal focus of its application, Ottawa's views in this regard were particularly relevant. Microcell further submitted that Ottawa's comments should be kept in mind when considering the appropriate remedy to the inequities identified by Microcell. Microcell indicated that it would not have any difficulties with Ottawa's proposal whereby any ILEC and any competitor wishing to participate in the receipt of foregone toll revenue payments would be required to opt-in to the compensation plan by notifying the Commission.

29. Microcell concluded by stating that it was not wedded to the opt-in-to-both/opt-out-to-both model that it proposed. In its view, the Commission could have other models in mind that would also address the equity issue raised by Microcell.

Commission analysis and determination

30. In regard to CLEC rate changes matching those of ILECs, the Commission notes that as a CLEC/WSP, Microcell's pricing decisions are based on national considerations, as opposed to being based on specific geographic locations, as is the case for ILECs. The Commission considers that in view of this distinction, a CLEC/WSP may be discouraged from introducing a temporary surcharge to its subscribers. At the same time, under Decision 2002-56, the CLEC/WSP is expected to contribute to the compensation of foregone toll revenues for other telecommunications entities. This would result in a CLEC/WSP being required to fund a plan without the benefit of collecting a temporary surcharge from its subscribers. Accordingly, the Commission considers that the assumption made in Decision 2002-56 that all CLECs could collect a temporary surcharge if they chose to is not necessarily correct, at least not in the case of a CLEC/WSP.

31. The Commission notes that in Decision 2002-56, it took the view that foregone toll revenues could be calculated by having affected competitors provide the previous year's long distance billing, as well as the current network access service (NAS) count, in the affected exchanges. In this regard, however, in the case of a CLEC/WSP that is eligible to receive foregone toll revenue, the Commission considers that it would be difficult to calculate such revenue. For example, the rules established in Decision 2002-56 do not consider how an ILEC temporary monthly surcharge per NAS can be converted into a per-minute charge, relevant to a WSP. In the Commission's view, a different mechanism to measure foregone toll revenue would be required for CLEC/WSPs. Accordingly, the Commission considers that the mechanism established in Decision 2002-56 to determine the amount of foregone toll revenues and the temporary surcharge is inappropriate for a CLEC/WSP.

32. The Commission acknowledges that one of the principles underlying the determinations made in Decision 2002-56 was the notion that customers that benefit from LCA expansion should pay the surcharge associated with the expansion. The Commission considers that due to the nature of a CLEC/WSP's serving locations, in that its LCAs are larger than the ILEC's, the CLEC/WSP's customers would not benefit, directly or indirectly, from ILECs expanding their LCAs. Similarly, CLEC/WSPs would not be eligible to receive compensation since, in most cases, there would be no lost toll revenue resulting from an expanded LCA. Accordingly, the Commission considers that its view in Decision 2002-56 that subscribers who benefit from an expanded LCA should bear the costs associated with foregone toll revenues does not apply in the case of CLEC/WSPs.

33. In view of the above, the Commission considers that it did not take into account the effects the determinations made in Decision 2002-56 would have on a CLEC that is also a WSP. Accordingly, the Commission is of the view that there is substantial doubt as to the correctness of Decision 2002-56 in this regard.

34. The Commission notes that AT&T Canada expressed concern over the administrative complexity for a wireline-based CLEC/IXC to calculate its foregone toll revenue, and over the effect of providing competitively sensitive information to the ILECs. Ottawa also expressed concern over the administrative process and possible procedural problems that would delay implementation of expanded LCAs. The Commission further notes the concerns raised by TELUS in regard to any CLEC surcharge obligation and the adverse effect it would have on the development of local competition. In the Commission's view, if the administrative burden of the compensation plan outweighs any benefit of the plan, based on their own analysis, CLECs should be permitted to opt out of both receiving compensation for foregone toll revenue and contributing money to the compensation process.

35. As noted in Decision 2002-56, the intent of the Commission in establishing a new framework for compensating toll providers for foregone toll revenue resulting from expanded LCAs was to treat all entities fairly. In the Commission's view, this intent will not be accomplished by leaving the foregone toll compensation plan created in Decision 2002-56 in place. In light of the above, the Commission finds that Decision 2002-56 should be varied in this regard. Accordingly, the Commission varies Decision 2002-56 to permit all CLECs to opt out of the compensation plan to both collect the temporary surcharge and to collect compensation for foregone toll revenues.

Mechanism to opt out of the compensation plan

36. The Commission considers that giving all CLECs including those that CLECs who also act as toll providers the option to opt out of the compensation plan, to both collect the temporary surcharge and to receive compensation for foregone toll revenues, raises the issue of the appropriate mechanism for doing so.

37. The Commission considers that in order to minimize gaming of the compensation framework, CLECs should be permitted to opt out on a one-time basis only. Accordingly, the Commission finds as follows:

38. The Commission makes the following two qualifications with respect to its findings above:

39. The Commission directs any CLEC that decides to opt out of the compensation plan to notify the Commission, in writing, of its decision to do so prior to the CLEC participating in any compensation plan.

40. The Commission notes that Ottawa expressed concern over administrative delays in obtaining expanded LCAs. It suggested that the Commission institute timeframes on telecommunications entities to provide information required as part of the compensation framework for expanded LCA.

41. The Commission is of the view that CLECs and toll providers have an obligation to provide the requested information, as required pursuant to Decision 2002-56, to the appropriate ILEC CSG within a reasonable timeframe.

42. The Commission finds that 60 days is an appropriate timeframe for telecommunications entities to provide information. Accordingly, the Commission directs ILECs and affected CLECs and toll providers to provide the required information within 60 days, unless the CLEC in question has previously notified the Commission, or within the 60-day period, notifies the Commission of its decision to opt out of any compensation plan.

Secretary General

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


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