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Telecom Decision CRTC 2004-4

  Ottawa, 27 January 2004
 

Call-Net Part VII Application - Promotion of local residential competition

  Reference: 8622-C25-200306789
  In this Decision, the Commission disposes of the 29 May 2003 application filed by Call-Net Enterprises Inc. (Call-Net) pursuant to Part VII of the CRTC Telecommunications Rules of Procedure. In its application, Call-Net sought both interim and final modifications to the local competition regime on the grounds that there existed a number of barriers to entry and that the loop provisioning procedures followed by the incumbent local exchange carriers (ILECs) discriminated against competitive local exchange carriers (CLECs).
  The Commission grants, with modifications, Call-Net's request for an education program to inform the public of the availability and terms of local competition. The Commission also grants Call-Net's request for an extension from three months to 12 months of the no-contact restriction under the winback rules. The Commission directs the CRTC Interconnection Steering Committee to report on certain matters which may improve the loop provisioning process. The Commission also directs the large ILECs not to require field visits for CLEC customers, except in circumstances where they would require such visits for their own customers.
  The Commission denies Call-Net's request that the Commission establish new service standards for residential loop provisioning and that the Commission require rate changes to the rates charged by the ILECs for local loops and loop-related services.
  The Commission denies Call-Net's request for interim relief.
 

Background

1.

On 29 May 2003, Call-Net Enterprises Inc. (Call-Net) filed an application pursuant to Part VII of the CRTC Telecommunications Rules of Procedure seeking modifications, on both an interim and a final basis, to the regulatory regime established by Local competition, Telecom Decision CRTC 97-8, 1 May 1997 (Decision 97-8) and subsequent CRTC Interconnection Steering Committee (CISC) processes.

2.

Call-Net argued that its proposed modifications were required because local competition had failed to develop to the extent envisaged by the Commission in Decision 97-8. Call-Net stated that while local competition in both the business and residential markets was very weak, it had focused its request for relief on the residential market since it believed that competition would not develop at all in that market without significant regulatory change.

3.

Call-Net requested final relief in four main areas:
 
  • customer education;
 
  • the provisioning and maintenance of unbundled local loops;
 
  • an extension of the winback restrictions; and
 
  • a reduction of the unbundled loop rates.

4.

Specifically, Call-Net asked the Commission to grant the following final relief:
 

Customer education

 
  • Initiate a public education program to explain to residential customers how local competition works;
 

Loop provisioning

 
  • Initiate a public process to reform the cut-over processes for local residential customers;
 
  • Order the incumbent local exchange carriers (ILECs) to cease discriminating against competitive local exchange carrier (CLEC) residential customers by providing them with inferior service on cut-over and restoration of local loops;
 
  • Establish new service standards and procedures in respect of service provisioning to residential customers;
 
  • Order the ILECs to file tariffs reducing their loop-related service charges by 50%;
 

Winback

 
  • Extend the no-contact period with respect to customers who have switched to a new entrant's local exchange service to a period of 12 months after they have left the ILEC;
 

Loop rates

 
  • Order the ILECs to bill CLECs for 50% of the ILECs' approved rate for unbundled local loops used to provide local residential service.

5.

Call-Net also requested interim relief in the form of a 50% reduction in service charges for the installation of unbundled local loops and a 50% reduction in the rates charged for residential unbundled local loops. In the alternative, Call-Net proposed that the Commission make the rates for local loops and loop-related services interim so that retrospective adjustments could be made once the Commission made a final decision on Call-Net's application. Call-Net proposed that this interim relief remain in place until the Commission rendered a decision in respect of Call-Net's requested final relief.

6.

Aliant Telecom Inc. (Aliant Telecom) and TELUS Communications Inc. (TELUS) each filed answers to Call-Net's application on 30 June 2003. In addition, Aliant Telecom, Bell Canada, MTS Communications Inc. (MTS) and Saskatchewan Telecommunications (SaskTel; collectively, the Companies) filed a joint answer to Call-Net's application on 30 June 2003. The City of Calgary (Calgary), FCI Broadband, a division of Futureway Communications Inc. and Microcell Telecommunications Inc. (Microcell) each filed interventions on 30 June 2003 commenting on Call-Net's application. Call-Net provided reply comments to the answers and interventions on 11 July 2003. The Companies filed additional material on 24 July 2003. Call-Net replied to the Companies' 24 July 2003 filing on 31 July 2003.
 

The state of local competition

7.

The underlying basis of Call-Net's application was the state of local competition in the residential market, as well as the prospects for increased competition in that market in the near future. The parties to the proceeding took a variety of views on both issues.
 

Positions of parties

 

Call-Net

8.

Call-Net submitted that it was widely recognized that local competition had not developed as originally envisaged by the Commission. In support of this claim, Call-Net cited statements by the former Industry Minister Allan Rock and by the Chairman of the Commission, as well as the conclusions of the House of Commons Standing Committee on Industry, Science and Technology in its April 2003 report, Opening Canadian Communications to the World.

9.

Call-Net submitted that, since 1997 when Decision 97-8 was released, a number of competitors had attempted to enter the local residential market using a variety of business models. According to Call-Net, those competitors included wireline carriers, cable television companies and a wireless carrier. Call-Net stated that after six years, only one national carrier and two regional carriers remained in the residential market. Call-Net submitted that most new entrants had left the market and, with the exception of EastLink, an affiliate of Bragg Communications Inc. serving parts of Nova Scotia and Prince Edward Island, all of the cable television companies had vacated the residential market.

10.

Call-Net noted that the Commission's December 2002 Report to the Governor in Council: Status of Competition in Canadian Telecommunications Markets (the GIC Report) indicated that competitors had captured 4.7% of local business lines and 7.8% of local revenues. Call-Net also noted that the GIC Report indicated that only 0.6% of residential subscribers obtained local service from CLECs. Call-Net estimated that since the date of the Commission's survey for the GIC Report, the CLECs' share of the local residential market had risen to 1%. Call-Net submitted that even in Atlantic Canada, where EastLink was commonly cited as a successful new entrant, EastLink had obtained only a 4% share of the residential local market in Aliant Telecom territory.

11.

Call-Net argued that these statistics demonstrated that the local competition regime established by Decision 97-8 was not working, especially in regard to the residential market. Call-Net stated that the average annual growth rate for CLECs' share of the residential market over the last six years was 0.17%. Call-Net argued that this growth was too slow to permit competitors to sustain their businesses on a long term basis. In particular, Call-Net stated that it would take 60 years to acquire a 10% share of the national market at such a growth rate. Call-Net submitted that no competitor could sustain losses for that long.

12.

Call-Net submitted that the Commission could not rely on new technologies to provide a solution. Call-Net stated that competitors had not made significant gains in the local market by means of either fixed wireless or cable-based IP telephony, despite predictions that these technologies would provide the basis for successful new entry. Call-Net argued that even if a new technology were to become commercially viable, the ILECs would likely be able to nullify the advantages of the new technology either by reducing prices or by themselves deploying the new technology on at least as widespread a basis as the new entrants.

13.

Call-Net submitted that, while recent regulatory changes introduced by the Commission had improved the prospects for the development of local competition in the business market, the same was not true for the residential market. Call-Net argued that, absent significant modifications to the framework applicable to the residential market, there was little or no reason to expect the situation to improve.
 

Comments of other parties

14.

Aliant Telecom stated that Call-Net was not a registered CLEC in Aliant Telecom's territory and was either unaware of the market conditions in that territory or chose to ignore them. Aliant Telecom stated that the major shortcoming of the GIC Report, cited by Call-Net, was that it did not separately measure competitive conditions in urban markets where CLECs had chosen to compete.

15.

Aliant Telecom argued that the local residential market in Nova Scotia and Prince Edward Island was subject to vigorous competitive activity as a result of the entry of EastLink into that market in 1999. Aliant Telecom estimated that EastLink had rolled out its residential local telephony option to 75% of its cable subscribers. Aliant Telecom noted comments of EastLink executives in April 2002 indicating that EastLink had achieved nearly 30% market penetration in major markets, as well as further comments in May 2003 that EastLink's local telephone service was expected to become profitable by May 2004. Aliant Telecom argued that this evidence demonstrated that local residential competition was firmly rooted in Atlantic Canada, contrary to the fundamental premise of Call-Net's application.

16.

The Companies submitted that while local competition in traditional wireline residential service may have developed at a slower pace than some had anticipated, competition was developing in certain customer and geographic segments at a reasonable pace. The Companies estimated that competitors had captured 15% to 20% of the local business market in urban areas. The Companies argued that this higher penetration in the business market was, in part, attributable to the higher margins available in that market, as compared to the residential market. The Companies also submitted that EastLink had been very successful at capturing significant residential market share in the Maritimes.

17.

The Companies submitted that traditional statistics did not take account of the competitors' addressable market (i.e., those areas where competitors offered services). According to the Companies, if this approach were adopted, then Call-Net's market share, while still modest, would be three times larger than otherwise reported.

18.

The Companies also argued that wireless services and other technologies should be taken into consideration when assessing the state of competition. The Companies submitted that more than 50% of households in Quebec and 64% in Ontario had at least one wireless phone and that more than 6 million emergency calls were placed by Canadians from their mobile phones each year. According to the Companies, Canadians were migrating to wireless technology for local and long distance and for voice and data. The Companies submitted that the local wireline voice access business was in the decline stage of its life cycle and this shift towards other access technologies required a broader "demand-side" view when assessing the state of competition.

19.

FCI Broadband stated that it had installed its own local network in a number of residential subdivisions in and around Toronto and that it had also installed network facilities in multi-dwelling units in these same areas. FCI Broadband indicated that it did not enter into existing neighbourhoods but, instead, restricted its network construction to new subdivisions. FCI Broadband stated that it had recently entered into an agreement with Primus Telecommunications Canada Inc. (Primus) whereby Primus would offer its long distance customers resold local voice service via local loops leased by FCI Broadband.

20.

Microcell submitted that wireless services were increasingly being considered an alternative to wireline service. However, Microcell also agreed with Call-Net that the Commission's objectives for local competition had not been achieved over the past six years and that modifications to the existing regime were required.

21.

TELUS argued there were no barriers to entry in the local market and that the arguments of Call-Net were a recasting of the arguments it submitted in the proceeding leading to Decision 97-8. TELUS submitted that the Commission should reject Call-Net's arguments, as it had done in Decision 97-8.
 

Commission findings and determinations

22.

The GIC Report indicated that local competition in the residential market was very weak as of the end of 2001, with the ILECs retaining a 99.4% market share of residential local lines in Canada. No party to the present proceeding suggested that the situation had changed significantly since the release of that report. The Commission notes in passing that the November 2003 Report to the Governor in Council: Status of Competition in Canadian Telecommunications Markets, which was released after the parties' filings were complete, indicates that, as of the end of 2002, the ILECs retained over 98.6% of residential local lines.

23.

The Commission notes that, as pointed out in the GIC Report and by several parties to this proceeding, EastLink has gained a moderate share of the residential local market in some locations in Nova Scotia and Prince Edward Island. However, the Commission also notes that EastLink's share of the total residential local market in Aliant Telecom territory is still very small. The Commission also notes that no other facilities-based competitor has made comparable gains in Aliant Telecom territory or elsewhere in Canada.

24.

The Commission recognizes that future technologies may enhance the ability of competitors to provide local exchange service. However, the Commission notes that those same technologies may also be available to the ILECs, so that the ability of competitors to differentiate their service offerings may be limited. The Commission considers that the potential for competitive alternatives does not alleviate concerns regarding the current state of local competition.
 

Final relief requested by Call-Net

25.

As noted above, Call-Net asked the Commission to grant seven forms of final relief, which can be grouped into four categories:
 
  • customer education;
 
  • the provisioning and maintenance of unbundled local loops;
 
  • an extension of the winback restrictions; and
 
  • a reduction of the unbundled loop rates.
  Each of these categories of relief is considered, in turn, below.
 

Customer education

 

Positions of parties

 

Call-Net

26.

Call-Net submitted that there was significant customer inertia in the residential local market as customers were concerned about the implications of switching carriers and how the new service would be provisioned. Call-Net argued that residential customers were not familiar with local number portability, with the ability of competitors to make use of existing local loops, or the availability of 9-1-1 service from competitors. Call-Net submitted that potential CLEC customers were also concerned with time lags involved in switching to a competitor's local service and the uncertainty of where local service would come from in the event a CLEC ceased operations.

27.

Call-Net noted that with the introduction of long distance competition in 1992, the Commission directed the ILECs to include a billing insert produced by the Commission to educate the public on their ability to select an alternate long distance service provider.

28.

Call-Net submitted that rate of return regulation had guaranteed that the ILECs would receive funding to market and educate the public about their own local service offerings. According to Call-Net, CLECs had no guaranteed funding to carry out this education process and, moreover, faced ILECs who had a 100% market share when local competition was introduced by Decision 97-8. Call-Net argued that the Commission should provide consumers with as much unbiased information as possible about local competition and should attempt to dispel any misconceptions that may be adding to customer inertia.

29.

Call-Net proposed that ILECs be required to send their customers a billing insert which identified CLECs operating in their area and explained how local competition works. Call-Net suggested that the billing inserts be included with ILEC bills, on a postal code basis, in areas where CLECs provide service and in other areas when a CLEC advises the Commission of service initiation in those areas. Call-Net also proposed that the Commission undertake a public education process by producing pamphlets, public service announcements and radio and television advertising to educate residential customers on how local competition works.
 

Comments of other parties

30.

Aliant Telecom opposed Call-Net's proposal on the grounds that a public information program was not needed in Atlantic Canada. Aliant Telecom submitted that customers in Atlantic Canada were well aware of EastLink as a local service provider as a result of EastLink's marketing promotions and advertisements for its bundle of services which included residential local exchange service.

31.

The Companies submitted that Call-Net did not provide any evidence that there was a lack of residential customer awareness of local competition. The Companies submitted that the success of EastLink in the residential market in the Maritimes and of Cox Communications in the U.S. demonstrated that customer inertia was not causing the lack of CLEC penetration of the residential market.

32.

The Companies argued that the responsibility for informing customers of competitive alternatives should lie principally with new entrants as they would know how and when they intended to serve particular markets. The Companies submitted that the Commission recognized this responsibility when it rejected the request by Unitel Communications Inc. for a customer ballot in Customer balloting to select a long distance service provider, Telecom Decision CRTC 95-12, 8 June 1995.

33.

The Companies argued that there were important differences between the situation that faced entrants at the onset of long distance competition and the situation facing entrants in the local market. The Companies submitted that long distance service was rolled-out by competitors more or less ubiquitously, within a relatively short time frame. In contrast, according to the Companies, the roll-out of local competition was far from ubiquitous or uniform among CLECs. The Companies also argued that all competitors who had entered the local market to date had other relationships with customers they could build on, which was not the case when long distance competition was introduced.

34.

The Companies submitted that any customer education program would have to be carefully crafted and managed in order to ensure that customers were not misled as to the availability of competitive alternatives in their respective area. The Companies submitted that building customer awareness of competitive alternatives was best left to those competitors who were actually in the market.

35.

The Companies submitted that including a billing insert on a postal code basis, as suggested by Call-Net, would be administratively complex and burdensome. The Companies stated that current billing systems did not have the ability to target billing inserts based on customers' postal codes and that this capability would have to be developed at considerable expense. The Companies submitted that even if billing systems were modified to differentiate customers on a postal code basis, a CLEC's serving area might cover only a portion of a postal code area. In such a situation, customers might be informed that a competitive local service alternative was available to them, when in fact this was not the case. The Companies submitted that, in addition, given the slow and targeted rollout of competitive alternatives, the process of notifying customers would have to be repeated any time a new entrant began to offer local service in an area to ensure equitable access to all competitors.

36.

FCI Broadband supported the idea of a public education program targeted at the local residential market. FCI Broadband submitted that a Commission sponsored campaign would greatly assist in the education of the public. FCI Broadband also suggested that the Commission set up a web site that included identification of all CLECs and links to their respective web sites as a reference tool for all residential customers in Canada.

37.

Microcell supported Call-Net's public education proposal and added that any billing insert or Commission sponsored web site should include all options for local service, including wireless options. Microcell submitted that a public education campaign would teach customers that the ILECs had a role in the migration of a customer to a CLEC and that the CLECs were not always responsible for problems that occurred in the migration of local service.

38.

TELUS argued that Call-Net had provided no evidence in support of its claim that the alleged customer inertia resulted from a lack of customer awareness of local competition issues. TELUS submitted that it was hard to see how a lack of awareness of local number portability or unbundled local loops would discourage residential customers from taking a competing local access service. TELUS further submitted that, in any event, it was the responsibility of competitors to educate prospective customers. TELUS argued that the ILECs had to educate their customers about their services and that this education process was not a barrier to entry but a normal cost of entry into the market.
 

Commission findings and determinations

39.

In order for any competitive market to operate efficiently, it is essential that customers have available to them the information necessary to make informed decisions. Given the state of competition in the residential local market, the Commission considers that there is some merit in increasing awareness of the public to competitive alternatives available to it.

40.

As to the appropriateness of billing inserts for this purpose, the Commission notes that CLECs do not offer local residential service in every exchange throughout Canada, and that the identity and number of CLECs serving a particular area can vary significantly across the country.

41.

While the Commission notes Call-Net's suggestion that billing inserts could be differentiated by postal codes in order to provide accurate information regarding the CLECs serving a given locality, it also notes the Companies' statement that their present billing systems are incapable of such differentiation, and that modification of their systems could be difficult and expensive. The Commission agrees with the Companies' further objection that, since CLECs control the roll-out of their services, they are in the best position to directly address their prospective customers.

42.

In light of the above, the Commission does not consider it appropriate to require ILECs to include billing inserts identifying the CLECs who may be offering service in their areas.

43.

The Commission notes that Call-Net, FCI Broadband and Microcell supported the idea of providing information on local competition by more general means, such as pamphlets, radio or television advertising or Internet web sites.

44.

Of the options noted above, the Commission considers a web site the most practical since it would be continuously available across the entire country, be relatively easy to keep current, and be less expensive to develop and maintain than providing comparable coverage by means of other media.

45.

In light of the above, the Commission directs the CISC to develop a proposal for specific content and wording to be included in a new section of the CRTC web site dedicated to information on local competition. The CRTC local competition page should include information on how local competition works, including number portability, the availability of emergency 9-1-1 service from CLECs, a description of what facilities are being used by competitors to provide local service, the required steps to switch local service providers, how customers would be protected in the case of a local exchange carrier (LEC) failure, and any other information that could be of value to consumers and could increase local competition. CISC is directed to submit its proposal, including any non-consensus reports, to the Commission by 28 April 2004.

46.

In addition, in order to publicize the CRTC local competition site, the Commission directs Aliant Telecom, Bell Canada, MTS, SaskTel, TELUS, TELUS Communications (Québec) Inc. (TELUS Québec) and Société en commandite Télébec (Télébec) to include a prominent reference to the CRTC local competition site on their customer bills for a period of one year after the launch of the local competition site and to include a direct link to that web site in a prominent location on their company web sites. The reference to the CRTC local competition site on their customer bills and the direct link on their company web sites should include the words: "For information about the provision of competitive local telecommunications services in Canada, please refer to the CRTC web site at [insert the CRTC local competition site address, in the case of a customer bill, or a direct link to the CRTC local competition site, in the case of the ILEC's web site]."
 

Provisioning and maintenance of unbundled local loops

 

Background

47.

The Canadian Local Ordering Guidelines (C-LOG) describes the approved method for the exchange of information between LECs for interconnection, local loops and local number portability. Under C-LOG, when a CLEC orders unbundled loops from an ILEC, it does so through a local service request (LSR). Currently, for an LSR requesting the migration of a customer, the ILEC must return a local service confirmation (LSC) by midnight of the same working day if the LSR is received before noon, otherwise, the ILEC has until noon of the next working day to return an LSC. For an LSR requesting new loops, the ILEC has two working days to return the LSC. Following the LSR/LSC process, the ILEC has two working days to provide migrated local loops and five working days to provide new local loops.

48.

In its 29 May 2003 application, Call-Net argued that the provisioning and cut-over processes for unbundled local loops were not consumer-friendly and were responsible for a large number of residential consumers deciding either not to switch to a competitor or to switch back to an ILEC either before service was initiated or shortly thereafter. Call-Net asked the Commission to grant four forms of relief in respect of the alleged loop service problems:
 
  • Initiate a public process to reform the cut-over processes for local residential customers by streamlining the process and making it more consumer-friendly;
 
  • Order the ILECs to cease discriminating against CLEC residential customers;
 
  • Establish new service standards and procedures in respect of service provisioning to residential customers; and
 
  • Order the ILECs to file tariffs reducing their loop-related service charges by 50%.

49.

The Commission has identified three principal issues raised by Call-Net with respect to loop provisioning and maintenance:
 

a) The requirement for field visits when migrating a customer from an ILEC to a CLEC;

 

b) The scheduling of service calls to CLEC customers; and

 

c) The time taken to cut-over a CLEC customer from ILEC service.

  Call-Net's request for relief in respect of loop service issues is examined below in the context of these alleged problem areas.
 

a) The requirement for field visits

 

Positions of parties

 

Call-Net

50.

Call-Net stated that when provisioning a local loop for a CLEC customer, the ILECs often required fieldwork in circumstances where such work would not ordinarily be required for their own residential customers. Call-Net argued that where an existing ILEC residential customer switches to a CLEC without change of address, an on-site visit should not be required. Call-Net submitted that if the loop worked properly for the ILEC, the same loop should work properly for the CLEC.

51.

Call-Net stated that an LSR took, on average, seven days to complete, but that when a technician's visit was required, an LSR could take from 15 to 18 days to complete. Call-Net stated that it typically promised to provide service to its residential customers within 10 days of the order date, in order to ensure that customers had local service when promised.

52.

Call-Net submitted that ILECs typically provided service to their own residential customers within two days of a service request, if no on-site visit was required, and in a three to seven day time frame when an on-site visit was required. Call-Net submitted that customers had difficulty understanding why it would take CLECs longer to initiate service than ILECs. Call-Net submitted that this differential reflected badly on the CLECs, discouraged customers from switching and caused customer frustration and inconvenience.

53.

Call-Net stated that if the ILEC determined a site visit was necessary, then it was also necessary to co-ordinate visits by both the ILEC's technician and the CLEC's technician since the ILEC's technician would only test the loop to the demarcation point at the customer's residence. According to Call-Net, if the CLEC technician tested the inside wire before the ILEC technician's arrival, the ILEC technician would leave the wiring disconnected at the demarcation point, resulting in the need for another visit by the CLEC technician. Call-Net stated that if the customer could not be at home for these visits due to unforeseen circumstances, the scheduling process would re-start, thereby creating delays in the migration process.

54.

Call-Net argued that on-site service calls should be restricted to situations where they were required and, when they were required, consideration should be given to simplifying and improving the efficiency of the procedures. Call-Net argued that it would be simpler for the ILEC technician to perform both the ILEC and CLEC functions on a single visit and to be compensated for any incremental work done on behalf of the CLEC.
 

Comments of other parties

55.

The Companies stated that the "double dispatch" issue (i.e., two technicians attending at the same location) had been discussed at CISC and that, at the meeting held on 14-15 April 2003, Call-Net agreed that the issue could be closed and re-opened sometime in the future should the issue become significant. The Companies stated that Call-Net sought to revive the double dispatch issue at CISC with a contribution to the Business Process Working Group (BPWG) on 10 June 2003.

56.

The Companies submitted that, aside from the fact that the issue was currently active at CISC, Call-Net's proposal that a single technician complete fieldwork on behalf of both the ILEC and the CLEC raised a variety of operational and potential labour issues. The Companies submitted that such arrangements would necessitate changes to the existing business model and procedures to address items such as the ordering of services and parts for inside wiring, testing and the billing of charges. The Companies also submitted that such an approach would require a review of certain quality of service indicators if a single technician were to perform a set of tasks on behalf of both the ILEC and a CLEC. The Companies were of the view that CISC was the appropriate forum for discussion of this subject.

57.

The Companies indicated that they were optimistic that Bell Canada's field trials in Montréal, which were aimed at reducing the number of unnecessary service calls, would provide the necessary experience and form the basis for process modifications where dedicated plant exists. The Companies also indicated that Bell Canada had recently introduced a dedicated field work force in Ontario for unbundled loops. The Companies expected that this group's experience and familiarity with provisioning unbundled loops to CLECs would improve service to Call-Net.

58.

TELUS denied that ILECs insisted on dispatching a service call to CLEC customers even when a dedicated loop was in place. TELUS stated that it would defy logic for ILECs to waste field resources by instituting a practice of dispatching a technician unnecessarily every time a dedicated loop was migrated.
 

Commission findings and determinations

59.

In the Commission's view, field visits should be undertaken only when necessary given the expense and potential delays associated with such visits. The Commission also considers it a fundamental principle of its competitive framework for local competition that ILEC and CLEC customers should be treated in an equivalent manner by an ILEC with respect to service initiation or transfer. Consequently, on those occasions when a field visit is required in respect of an ILEC's unbundled local loop, the process should ensure that CLEC customers receive service that is equivalent to the service received by ILEC customers.

60.

The Commission notes that the Companies did not deny that they may require a field visit for a CLEC customer where a dedicated local loop is in place. Rather, the Companies stated that they were attempting to resolve this issue.

61.

Based on the record of this proceeding, there would appear to be no justification for a field visit when an ILEC's residential customer, who is served by dedicated copper facilities, is transferred to a CLEC who intends to serve that customer by means of an unbundled local loop provided by the ILEC. Accordingly, the Commission directs Aliant Telecom, Bell Canada, MTS, SaskTel, Télébec, TELUS and TELUS Québec not to require field visits in connection with the transfer of a dedicated local copper loop to a CLEC except in circumstances where a field visit would be required if the loop were being transferred to an ILEC customer.

62.

The Commission also considers that part of the obligation of the ILEC when it provides an unbundled local loop to a CLEC, is to ensure that the loop is capable of providing end-to-end service to the migrating local customer. If an ILEC technician were to leave the loop wires disconnected at the network interface device, then the migrating customer would not be connected to the network when the loop is transferred to the CLEC. In such a case, the ILEC would not be satisfying the requirement to provide a working loop to the CLEC.

63.

The Commission is of the view that it would improve the efficiency of the provisioning of unbundled local loops if an ILEC were to perform certain field visit tasks on behalf of the CLEC. Given that the double dispatch issue was raised at the CISC BPWG by Call-Net in June 2003, the Commission directs the BPWG to investigate and report to the Commission by 29 March 2004 on what work ILEC technicians could and should perform on behalf of the CLECs, including procedures for how this could be accomplished and implemented as soon as possible. Any non-consensus items should be submitted to the Commission, by the same date, in a separate non-consensus report.

64.

Finally, since the Commission considers that the functions performed by an ILEC technician on behalf of the CLEC would form part of the loop provisioning process, the Commission is of the view that any field visit services provided would be considered Category I Competitor Services.
 

b) Scheduling of service calls to CLEC customers

 

Positions of parties

 

Call-Net

65.

Call-Net argued that the service scheduling the ILECs provided to CLEC residential customers was inferior to what they offered their own residential customers. According to Call-Net, the ILECs offered their own residential customers morning or afternoon service windows, but only gave CLEC customers full day service windows. Call-Net also submitted that the ILECs offered their own customers service installation calls on Saturdays, but would not generally extend this option to CLEC customers. According to Call-Net, in those instances where an ILEC agreed to provide a CLEC customer with service installation on a Saturday, it charged the CLEC the overtime rate for the service call, whereas the ILEC did not charge its own customers extra in such circumstances. Finally, Call-Net submitted that, in case of service outages after cut-over, the ILECs would respond to their own residential customers by the next day regardless if the next day was a weekend day or a holiday, but for CLEC customers, the ILECs would not provide similar response times.
 

Comments of other parties

66.

The Companies stated that their installation and repair systems did not make a distinction between local loops provisioned for a residential customer and those provisioned for a business customer. Consequently, the installation and repair service for unbundled local loops provided to CLEC residential customers was on par with that provided to CLEC business customers. The Companies indicated that they were willing to consider providing weekend service for CLEC residential customers, but submitted that such changes could have a significant operational impact on both ILECs and CLECs. The Companies submitted that these issues would be better addressed in CISC.

67.

TELUS stated that it generally offered retail customers service only during normal working hours, Monday to Friday. TELUS indicated that when it provided Saturday service, customers were advised of and billed for overtime. TELUS stated that it did not offer customers a choice between morning or afternoon service calls but that it would attempt to accommodate a request for such scheduling. TELUS noted that in such a case, it did not guarantee that the service call would occur during the requested period. TELUS submitted that with regard to service outages, service calls were provided to its own and CLEC customers on a 24 hours per day/7 days per week (24/7) basis, if the outages were deemed to be business affecting. TELUS added that neither its own residential customers nor CLEC residential customers were guaranteed 24/7 service.
 

Commission findings and determinations

68.

The Commission considers that residential customers of CLECs who rely on ILEC unbundled local loops should receive the same level of service for scheduling of installation and repair appointments, under the same terms and conditions as the ILECs provide to their own residential customers. For example, if ILEC residential customers have access to morning or afternoon service appointments, then CLEC residential customers using an ILEC unbundled local loop should have the same service available to them. In the Commission's view, a failure to provide comparable treatment would constitute unjust discrimination, contrary to subsection 27(2) of the Telecommunications Act (the Act).
 

c) Time taken to cut-over a CLEC customer from ILEC service

 

Positions of parties

 

Call-Net

69.

Call-Net submitted that the ILECs' cut-over time for their own residential customers ranged from two days (where no service visit was required) to three to seven days, while the cut-over time for CLEC residential customers using ILEC unbundled local loops was a minimum of seven days, a maximum of 15 to 21 days, and typically, 10 to 14 days.

70.

Call-Net submitted that one cause of the difference in service times was the ordering process. Call-Net stated that once a CLEC submitted an LSR to an ILEC, the current Commission approved process gave the ILECs up to two days to issue an LSC. If the ILEC required more information from the CLEC, it advised the CLEC who resubmitted a corrected LSR and the two-day period started running over again. Call-Net stated that based on its experience, it took an average of over five days for an LSC to be issued.

71.

Call-Net stated that LSRs were often rejected because the information provided by a CLEC customer did not exactly match the information in the ILEC's database. Call-Net submitted that access to the ILECs' Operational Support Systems (OSS) would lessen this problem, although Call-Net was of the view that the ILECs' legacy OSS were ill-suited to the cut-over procedures necessary in a competitive environment. Call-Net submitted that the Commission should establish incentives for the ILECs to develop new OSS practices that would be adapted to the requirements of competitive supply.

72.

Call-Net stated that TELUS was rejecting the due dates requested by Call-Net approximately 20% of the time and setting a new due date that was convenient to TELUS. According to Call-Net, in May 2003 Call-Net submitted 76 LSRs to TELUS with two or five day intervals, but TELUS confirmed only 57% of these orders with the requested due dates. The other 43% were changed to a new due date more convenient to TELUS. Call-Net submitted that, because of the high level of LSR rejections by TELUS, Call-Net could not take proper advantage of either the two day or five day intervals mandated by the Commission.

73.

Call-Net stated that, rather than run the risk of disappointing and inconveniencing a customer by rescheduling an installation appointment, Call-Net was forced to offer a much longer lead time for provisioning its residential customers. Call-Net stated that it no longer offered service in certain communities in TELUS territory because the customer experience was so bad as to be damaging to Call-Net's reputation.

74.

Call-Net noted that under the quality of service obligations imposed by the Commission, the ILECs were mandated to turn up a loop in the required service interval 90% of the time. Call-Net submitted that for the one in 10 customers whose service was not turned up on time, there was no process to deal with the unsuccessful cut-over. Call-Net submitted that without a process to quickly resolve unsuccessful cut-overs, the aggravation of being without service contributed to customers wanting to switch back to ILECs' local service.

75.

Call-Net asked the Commission to determine that the ILECs' existing service practices unjustly discriminate against CLECs and their customers and confer an undue or unreasonable advantage on the ILECs and their customers in contravention of subsection 27(2) of the Act.

76.

Call-Net proposed that a new set of service standards and penalties be established, tailored to the residential local market so that the ILECs would be incented to offer CLECs service intervals, service hours, service windows, response times and restoration times, comparable to those offered by the ILECs to their own customers.

77.

Call-Net noted that ILECs charge CLECs a variety of service charges for provisioning unbundled local loops. Call-Net submitted that unlike a commercial agreement where a customer has recourse for poor service, a CLEC must pay the full service order charge even though it receives less than satisfactory service.

78.

Call-Net argued that CLECs should be compensated for the inferior level of service that CLEC residential customers received. Call-Net proposed that CLECs be compensated in the manner of a 50% reduction in the service charge for residential local loops until a new provisioning process was approved and put into force. Call-Net submitted that such a rate reduction would act as an economic incentive for the ILECs to move forward with the reform process in a timely manner.
 

Comments of other parties

79.

The Companies submitted that significant time and effort had been invested by all industry representatives, including Call-Net, in developing procedures for the transfer of customers between service providers and for the provisioning of local loops. The Companies noted that the C-LOG differentiated between residential and business customers, in certain respects. The Companies were of the view that CISC was the appropriate forum to deal with any changes Call-Net wished to propose. The Companies submitted that, in this way, the impacts of any proposed changes on all industry participants could be appropriately assessed.

80.

The Companies submitted that Call-Net mischaracterized the LSR process as complex and as enabling the ILEC to drag out the customer transfer and loop provisioning process. The Companies stated that, with regard to the confirmation of an LSR, Bell Canada had confirmed the majority of Call-Net's LSRs on the day they were received, and that a significant percentage of responses were returned within one business day.

81.

The Companies submitted that, with regard to the number of attempts it took to process an LSR, the submission of a valid LSR was entirely within Call-Net's control. The Companies stated that LSR validation rules were standardized and that the rejection of an LSR was not, as Call-Net suggested, the result of faulty or unnecessarily complex processes or ILEC non-compliance with industry rules.

82.

The Companies indicated that, as a result of this application, Bell Canada undertook a survey of Call-Net rejected LSRs. According to the Companies, out of 825 rejected LSRs, more than half had not been resubmitted to Bell Canada four to five days later. The Companies submitted that the fact that Call-Net took up to seven to 10 days to transfer a customer or install a loop was the result of Call-Net's own internal operations.

83.

The Companies stated that Bell Canada took an active role in working with Call-Net to reduce the number of LSRs that were rejected. According to the Companies, as a result of meetings between Call-Net and Bell Canada, the LSR rejection rate for Call-Net was reduced from 19% in January 2003 to 11.6% in Ontario and 12.2% in Quebec for May 2003.

84.

The Companies submitted that it was unnecessary to create a new set of service standards and penalties, such as the proposed 50% reduction in service charges, tailored to the residential local market. The Companies noted that the Quality of Service regime currently included a rate adjustment plan that provided for compensation to a CLEC if an ILEC did not meet its competitive Quality of Service indicator standards. The Companies stated that they expected the Commission to issue a public notice in the near future regarding the rate adjustment regime. The Companies anticipated that that proceeding would, among other things, review the objectives of the regime, the appropriateness and reasonableness of the complete set of competitive indicators, and their interrelationships. The Companies submitted that Call-Net's comments should be addressed within the context of the forthcoming public notice.

85.

FCI Broadband supported Call-Net's proposals. FCI Broadband submitted that improved response times and lower rates for ILEC services would strengthen competitive forces in the residential market.

86.

TELUS submitted that Call-Net provided no evidence that CLEC customers did not receive at least the same level of service in a comparable time interval as ILEC residential customers. TELUS argued that Call-Net's claim that customers had a less positive experience initiating residential local service on a CLEC's network than initiating residential local service on an ILEC's network was based on evidence that was factually incorrect. TELUS stated that, contrary to Call-Net's claim, TELUS retail customers were offered service only on a "next available date" basis (i.e., they were offered service dates based on the volume of work in the field at the time of the request). TELUS submitted that CLEC service work was scheduled without consideration of the volume of work in the field at the time of the request and as such, CLEC customers received better service than TELUS provided its own customers.

87.

TELUS submitted that the time to cut-over customers to a CLEC included the time for the CLEC to correctly fill out an LSR. TELUS also submitted that a CLEC's requested delivery date could extend beyond the standard service interval. TELUS argued that there was no evidence that CLEC customers were being discriminated against.

88.

TELUS submitted Call-Net's request for a 50% reduction in service charges should be denied given the existence of the Quality of Service rate adjustment plan for competitor services.
 

Commission findings and determinations

89.

The evidence in this proceeding indicates that delays in processing LSRs arise, in part, from the fact that CLECs have difficulty getting information from prospective customers that matches perfectly the customer information in the ILEC's databases.

90.

The Commission considers that the number of LSRs that are filled out improperly might be reduced if CLECs were to have access to the customer information contained in the ILECs' databases. In this regard, the Commission notes that in Service intervals for the provision of unbundled loops, Telecom Decision CRTC 2002-68, 1 November 2002, the Commission directed CISC to study the issue of CLEC access to ILEC OSS functions on the grounds that such access could help CLECs provide local service to customers in a timely manner. The Operational Support Systems Working Group (OSWG), formed by CISC to deal with CLEC access to ILEC OSS, reported to the Commission on 1 May 2003. This matter remains under consideration by the Commission.

91.

As noted above, currently, an ILEC must provide a CLEC with an unbundled local loop within two days for a customer switching local service providers and within five days for a new customer. From the record of this proceeding, it appears that the 10 to 14 day cut-over time identified by Call-Net includes time that Call-Net requires to provision its portion of the service before it can accept delivery of the loop from the ILEC.

92.

With regard to service standards, the Commission notes that Call-Net did not propose specific service intervals or new quality of service indicators. The Commission also notes that it recently issued Finalization of the Quality of Service rate adjustment plan for competitors, Telecom Public Notice CRTC 2003-9, 30 October 2003, which calls for comments on the competition-related rate adjustment plan, including possible new quality of service indicators and standards. The Commission does not consider that a further or additional process is required.

93.

On the question of Call-Net's proposed 50% reduction in loop-related service charges, the Commission is of the view that the rate adjustment plan for competition-related quality of service indicators is the appropriate mechanism for compensating competitors in respect of quality of service problems.

94.

In light of the above, the Commission
 

a) denies Call-Net's request for a 50% reduction in the service charges for residential local loops;

 

b) denies Call-Net's request to establish new service standards and procedures in respect of service provisioning to residential customers; and

 

c) directs Aliant Telecom, Bell Canada, MTS, SaskTel, Télébec, TELUS and TELUS Québec to report on initiatives to improve the loop provisioning process, starting in their next quarterly Quality of Service reports for competition-related indicators.

 

Extension of the winback restrictions

 

Background

95.

The Commission established local exchange winback restrictions in a letter decision entitled Commission Decision Regarding CRTC Interconnection Steering Committee Dispute on Competitive Winback Guidelines, 16 April 1998 (the Winback Letter Decision). Pursuant to the Winback Letter Decision, an ILEC was prohibited from communicating with a former customer for the purpose of winning back that customer for primary exchange service, for a period of three months.

96.

In Application of the winback rules with respect to primary exchange service, Telecom Decision CRTC 2002-1, 10 January 2002 (Decision 2002-1), the Commission amended the winback rule by expanding the type of residential services that were subject to the restriction. ILECs were directed to refrain from attempting to win back a residential customer, either for primary exchange or any other service, for a period of three months after the customer's primary local exchange service had been completely transferred to a CLEC.

97.

In Call-Net Enterprises Inc. v. Bell Canada - Compliance with winback rules, Telecom Decision CRTC 2002-73, 4 December 2002, the Commission clarified that the winback rule applies from the time the customer's decision to change service providers is communicated in an LSR.

98.

In Review of winback promotions, Telecom Public Notice CRTC 2003-1, 15 January 2003 (Public Notice 2003-1), as amended by Review of promotions, Telecom Public Notice CRTC 2003-1-1, 13 March 2003, the Commission suspended consideration of applications for winback promotions and other promotions that would have the effect of targeting customers of competitors in the local wireline market.

99.

In its 29 May 2003 application, Call-Net asked that the no-contact period under the winback rule be extended from three months to 12 months.
 

Positions of parties

 

Call-Net

100.

Call-Net submitted that the current prohibition on winbacks did not give customers an adequate opportunity to become confident and comfortable with the new entrants' service offerings. Call-Net stated that, based on data it collected on its customers, customers that had taken service from Call-Net for more than one year were much less likely to switch to another local service provider and more likely to form part of a sustainable and stable customer base.

101.

Call-Net stated that it had greater success encouraging existing long distance customers to switch local exchange suppliers, than it did encouraging first time customers to switch. Call-Net submitted that, as a result, the ILECs' efforts to win back long distance customers had an adverse impact on the ability of CLECs to up-sell local services. Call-Net also argued that churn prevented new entrants from attaining the scale of operations necessary to compete with the ILECs on an economically sustainable basis in the residential market.

102.

Call-Net submitted that a 90-day moratorium on winbacks was not sufficient. Call-Net also submitted that it was not sufficient to restrict winback activity to primary exchange service. Call-Net proposed that the current no-contact period for residential customers be extended to 12 months. Call-Net submitted that the 12-month no-contact period was based on evidence that showed that its residential customer churn dropped dramatically after 12 months of local service. Call-Net argued that the longer no-contact period would be beneficial to the development of a stable and sustainable customer base, thereby contributing to CLECs' achievement of economies of scale.

103.

Call-Net stated that the survey performed by POLLARA Inc. for Bell Canada (the POLLARA survey), submitted by the Companies in this proceeding, was inconsistent with its own evidence gathered from focus groups, involving over 600 former Sprint Canada Inc. (Sprint Canada) customers, conducted in the first four months of 2003. Call-Net submitted that its study revealed that, depending on the month, between 8% and 34% of respondents had left Sprint Canada as a result of phone calls from Bell Canada. Call-Net argued that the variance in monthly percentages of customers that left Sprint Canada correlated to the level of Bell Canada's winback activity. Whenever Bell Canada increased its winback activities, a larger percentage of Sprint Canada customers returned to Bell Canada's local service.

104.

Call-Net stated that, according to its study, churn increased by approximately 25% when ILECs were allowed to contact former customers. Call-Net also stated that after one year, churn dropped to about 17% of the level experienced in the first 30 days after a customer switched to Sprint Canada.

105.

Call-Net submitted that if the POLLARA survey were correct that only 3% of customers returned to Bell Canada as a result of promotions or winback campaigns, one would not expect Bell Canada to actively engage in this type of activity to the extent it did; nor would one expect Bell Canada to oppose any restrictions on this type of activity.
 

Comments of other parties

106.

Aliant Telecom submitted that the situation in Nova Scotia and Prince Edward Island warranted the elimination of the winback no-contact period. Aliant Telecom stated that EastLink had rolled out its local telephony option to 75% of its cable subscribers and had forecast full roll-out by the third quarter of 2004. Aliant Telecom cited statements by EastLink executives to the effect that EastLink had achieved market share of up to 30% in major market areas. Aliant Telecom also noted that EastLink had announced rate increases in mid 2003. According to Aliant Telecom, this was a sign that EastLink was moving along the path from acquisition of customers to growing and sustaining its business.

107.

Aliant Telecom argued that in the Winback Letter Decision, the Commission stated that the 90-day no-contact rule should be put in place for a specific period of time to facilitate CLEC entry into the local market. Aliant Telecom submitted that the condition for removing the local winback rule had been satisfied in the local residential marketplace in Nova Scotia and Prince Edward Island and, therefore, the no-contact period should be eliminated.

108.

The Companies submitted that winbacks were an essential part of a dynamic competitive process and that the relief sought by Call-Net would be harmful to consumers. The Companies argued that the Federal Communications Commission (FCC) in the United States had concluded that restrictions on winback activity would deprive customers of the benefits of a competitive market. The Companies submitted that the Commission should give considerable weight to the FCC position on winbacks when deliberating on whether to extend the winback restrictions on ILECs.

109.

The Companies noted that the POLLARA survey involved 600 former CLEC customers (90% of which were former Call-Net customers) who returned to Bell Canada for residential local service. The Companies submitted that, according to the POLLARA survey, the majority of customers who left Call-Net did so during the 90-day period when Bell Canada was not allowed to contact Call-Net's new customers. The Companies stated that 91% of customers that left indicated that they returned to Bell Canada of their own accord and only 6% stated that they returned to Bell Canada as a result of a Bell Canada call or other Bell Canada promotion. According to the Companies, of that 6%, 46% stated that they would have returned to Bell Canada anyway, even if Bell Canada had not contacted them. The Companies argued that this survey data suggested that Bell Canada's promotions did not play a role in influencing former CLEC customers to return to Bell Canada.

110.

The Companies indicated that when survey participants were asked what they liked least about their former local service provider, 26% cited poor customer service, 12% said that the cost/price was high, another 9% indicated that they did not like the Internet options available and 7% cited a lack of required services/products. According to the Companies, other issues cited by survey participants included misinformation, billing problems, separate bills, and long distance problems.

111.

The Companies argued that, overall, the POLLARA survey results indicated that winbacks were not the source of Call-Net's problems. Instead, the survey evidence suggested that Call-Net should look into its own services and activities to find the cause of its customer churn. The Companies submitted that, in light of this evidence, there was no basis to extend the current winback restrictions as requested by Call-Net.

112.

FCI Broadband supported Call-Net's request that the no-contact period be extended from 90 days to 12 months. FCI Broadband submitted that this prohibition should also cover Sympatico, ExpressVu, Mobility and ILEC toll services.

113.

Microcell supported Call-Net's proposed extension of the winback rule. Microcell also suggested that a mechanism be established to deal with complaints by customers and CLECs regarding any breaches of the winback restrictions. Microcell submitted that without penalties for abuses of the winback rules, the ILEC would have nothing to lose.

114.

TELUS argued that neither promotions nor winback campaigns were, by their nature, anti-competitive. Rather, according to TELUS, they were part of the normal functioning of a competitive market. TELUS submitted that the issue of winbacks was being examined in the proceeding initiated by Public Notice 2003-1 and as such, Call-Net's additional pleadings in this application should be dismissed.
 

Commission findings and determinations

115.

As noted above, in the proceeding initiated by Public Notice 2003-1, the Commission is considering the appropriateness of continuing to approve ILEC winback promotions and other promotions that have the effect of targeting customers of competitors. While the Public Notice 2003-1 proceeding deals with winback promotions, it does not expressly deal with the winback rule which prohibits an ILEC, for a period of time, from communicating on an individual basis with former local residential customers in an attempt to win them back. Accordingly, the Commission considers it appropriate to examine, in this proceeding, whether the no-contact period under the winback rule should be extended, as requested by Call-Net.

116.

The Commission notes Aliant Telecom's argument that the winback restrictions should be eliminated in Aliant Telecom territory. The Commission also notes that while EastLink has had some success in the residential local exchange market, its residential market share in Aliant Telecom territory is still small. In addition, based on Aliant Telecom's submission and the CLEC registrations filed with the Commission, the sole CLEC competing against Aliant Telecom in the residential market is EastLink. Finally, the Commission notes that Aliant Telecom's request is made in the context of its answer to an application by Call-Net seeking significantly different relief. In these circumstances, the Commission does not consider it appropriate to eliminate the winback restrictions in Aliant Telecom territory.

117.

As indicated above, the Companies and TELUS both argued that winbacks are part of competitive markets. The Commission agrees that winback activity can be a feature of mature competitive markets. However, the residential local market is not a mature competitive market. As noted above, at the end of 2001, the ILECs had 99.4% of all residential customers in Canada and at the end of 2002 their market share had dropped only slightly to 98.6%. Given that competition in the residential local market has not developed as expected in the five years since the winback restrictions were first imposed, it is reasonable to consider whether a longer no-contact period, as suggested by Call-Net, would be appropriate.

118.

In the Winback Letter Decision, the Commission concluded that asymmetrical winback guidelines should be put in place for a specific period of time to facilitate CLEC entry into the local market. The winback rule would thereby promote local competition and foster increased reliance on market forces, consistent with the telecommunications policy objectives, in particular subsections 7(c) and 7(f) of the Act.

119.

The Commission agrees with Call-Net's argument that sustainable competition can only be achieved if CLECs have the opportunity to develop a stable customer base. The Commission also notes that, according to the POLLARA survey, more than half of the residential customers who left Bell Canada did so because the CLEC offered a better price or rate. While price may be a key method for a CLEC to win customers, the Commission considers that if a CLEC is to retain customers and build a stable customer base, it must have a reasonable opportunity to demonstrate the quality and reliability of its services.

120.

The Commission notes that the vast majority, if not all of a CLECs customers will be former ILEC customers. As a result, an ILEC will have knowledge of the customer's telecommunications needs, preferences and calling patterns. That knowledge would give the ILEC an advantage when targeting winback activity to that customer. Given the predominance of the ILECs in the residential local market, the Commission considers that this enhanced ability to target former customers constitutes an undue or unfair advantage during the period CLECs require to establish a stable relationship with their customers.

121.

The Commission also considers that targeted winback activities increase churn and administrative costs for all LECs. Increased churn is likely to be especially detrimental to CLECs as they do not have a large stable base of customers capable of funding the CLEC's ongoing operations. In this regard, the Commission accepts Call-Net's evidence that customer churn decreased significantly after a customer had received service from Sprint Canada for a year or more.

122.

The Commission notes that extending the no-contact period to 12 months would not prevent a CLEC customer from switching back to an ILEC if the customer was dissatisfied with the service provided by the CLEC. The winback rule is narrow in scope and merely prevents the ILEC from contact with customers who have decided to switch their local residential service to win them back. The winback rule does not prevent ILECs from attempting to win back customers who call to advise them that they intend to change local service providers.

123.

The Commission also notes that the winback rule does not prevent an ILEC from marketing its retail residential local services and other services through media advertising or other general means. Finally, the Commission notes the submission by the Companies that winback activity does not have a significant influence on the decisions of CLEC residential customers to return to the ILEC. If the Companies were correct, then the ILECs would incur little harm from an extension to the no-contact period.

124.

Under the circumstances, the Commission considers that extending the winback rule to 12 months will not unduly constrain the marketing efforts of the ILECs.

125.

As regards the argument that former ILEC customers may be harmed because they will not benefit from winback communications for the extended period by the ILEC, the Commission considers that this potential harm would be outweighed by the overall benefit to all customers of an increased competitive market. Further, the Commission is of the view that the potential benefits to the CLECs of extending the no-contact period outweighs any negative impact that this measure could have on the ILECs.

126.

In light of the above, the Commission concludes that it is appropriate to extend the winback no-contact period from three to 12 months.
 

Reduction of unbundled local loop rates

 

Positions of parties

 

Call-Net

127.

In its application, Call-Net requested the Commission to require the ILECs to temporarily reduce by 50% the rates they charge CLECs for unbundled local loops. Call-Net requested that this rate reduction be implemented for a period of two years. In order to prevent revenue loss to the ILECs, Call-Net suggested that the difference between the current loop rates and the reduced rates be made up by means of a draw down on the ILECs' deferral accounts.

128.

Call-Net submitted that this step was justified given the failure of local competition to develop in the residential market. Call-Net submitted that new entrants must grow their businesses to a size where they can benefit from the economies of scale that are inherent in larger operations. Call-Net argued that because of the mass market characteristics of the residential market, including customer density and lower revenue/margin per customer, the impact of scale was greater in the case of residential local service. Call-Net submitted that reducing loop rates by 50% would improve the margin available to new entrants to finance service expansion and reduce one-time costs associated with initiation of residential customer service.

129.

Call-Net submitted that drawing on the ILECs' deferral accounts to off-set the reduction in the loop rates would ensure that the ILECs would be fully compensated for the use of the local loop. Call-Net argued that the use of the deferral account to overcome barriers to competition in the residential local exchange market would be consistent with the principles enunciated in Regulatory framework for second price cap period, Telecom Decision CRTC 2002-34, 30 May 2002 (Decision 2002-34), and would benefit the very subscribers who were generating the funds. Call-Net added that in the event the deferral account was not sufficient to fund its proposal, it would be consistent with the approach adopted in regard to the recovery of local number portability costs, if the reduced loop rate revenues were off-set by means of an exogenous adjustment under the price cap formula.
 

Comments of other parties

130.

Calgary opposed any use of the deferral account to compensate the ILECs for Call-Net's proposed reduction in loop rates. Calgary argued that the deferral account should be used for the benefit of consumers. Calgary urged the Commission not to make a decision about using the deferral account until the issue was explored through a comprehensive public process.

131.

The Companies submitted that Call-Net's proposal for a loop rate subsidy should be rejected. The Companies argued that the Commission had denied a similar, but less extreme proposal by Call-Net in Decision 2002-34 on the grounds that it would put downward pressure on retail rates, undermine the wholesale market, discourage the construction of new facilities and impair the development of facilities-based competition. The Companies submitted that Call-Net's current loop proposal would magnify these effects.

132.

The Companies submitted that economic efficiency was promoted when services were priced in a way sufficient to recover their incremental costs and make a contribution to common costs. The Companies argued that Call-Net's proposal would promote uneconomic entry and risk stranding investment when prices were re-set to cover their costs.

133.

The Companies also stated that under current unbundled loop rates, it takes 11 years for Bell Canada to recover the cost of a loop. According to the Companies, if Call-Net's proposal were accepted, the rates would never recover the costs.

134.

FCI Broadband agreed with the principles behind Call-Net's request for a 50% reduction in local loop rates and service charges. However, FCI Broadband argued that Call-Net had taken six years and huge expenditures to acquire its current residential customer base. FCI Broadband submitted that any other competitor for residential customers would require at least the same amount of time to achieve the economies of scale referred to by Call-Net in its application. FCI Broadband was therefore of the view that reduced loop rates should be made available for a period of at least 10 years. FCI Broadband submitted that, at the end of that 10-year period, the competitive situation should be reviewed by the Commission and if the ILECs' respective market shares were above 60% in areas where competitors were offering their services, the rating approach should be extended for an additional period of time.

135.

TELUS submitted that loop costs were not a barrier to entry since, properly defined, a barrier to entry must involve a cost that an entrant must bear which the incumbent did not have to bear. TELUS submitted that Call-Net's proposal was comparable to the proposal Call-Net had submitted in the proceeding leading up to Decision 2002-34. TELUS argued that Call-Net's current proposal should be rejected for the same reasons the Commission rejected the earlier proposal: namely, that it would introduce disincentives for the construction of facilities, undermine the development of a wholesale market and likely lead to significant distortions in the retail market.
 

Commission findings and determinations

136.

The Commission notes that Call-Net's proposal would have the effect of reducing the prices of unbundled loops to levels that would be below ILEC costs.

137.

In Decision 2002-34, the Commission determined that reducing prices for Competitor Services, including unbundled local loops, to cost or to levels below cost would give rise to at least four concerns.

138.

First, it would result in artificially low input prices for competitors, which would encourage uneconomic entry and place artificial downward pressure on ILEC retail prices thereby distorting the retail market.

139.

Second, it would virtually eliminate the possibility of competition in the wholesale market since it would be unlikely that any wholesale competitor could match ILEC prices.

140.

Third, it would deny ILECs the ability to recover their appropriate service costs and to provide an appropriate contribution to recover common costs.

141.

Fourth, it would introduce a significant disincentive to the construction of new facilities and thereby impair the development of facilities-based competition.

142.

The Commission considers that these concerns remain valid, and does not consider that Call-Net's proposal would be appropriate, even as a temporary measure. The Commission therefore denies Call-Net's request for a 50% reduction in the rates for unbundled local loops.
 

Interim relief

 

Positions of parties

 

Call-Net

143.

Call-Net submitted that in order to ensure that competitors do not lose the foothold they have gained in the residential local market, the Commission should grant the following interim relief, pending completion of its public process and deliberations:
 
  • Order the ILECs to file tariffs reducing their loop-related service charges by 50% until such time as CLEC customers receive the same level of service in a comparable time frame to ILEC residential customers; and
 
  • Order the ILECs to bill CLECs for 50% of the ILEC's approved rate for unbundled local loops used to provide local exchange service to residential subscribers and direct the ILECs to recover the other 50% of these charges from their deferral accounts.

144.

Call-Net also submitted that, in the alternative, if the Commission did not see fit to grant the two forms of interim relief identified above, the Commission should make the rates for unbundled local loops and loop-related service charges interim pending the conclusion of its public process. This would permit the Commission to make retrospective adjustments to these rates.
 

Comments of other parties

145.

The Companies and Calgary opposed Call-Net's requested interim relief.
 

Commission findings and determinations

146.

Given that the Commission is rendering its final decision in this matter, the question of interim relief is moot. Accordingly, the Commission denies Call-Net's request for interim relief.
  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

Date Modified: 2004-01-27

Date modified: