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Telecom Decision CRTC 2005-33

Ottawa, 10 June 2005

Application of Decision 2003-45 to the Coalition of Hydro Telecom Service Providers

Reference: 8644-T89-200313859

In this Decision, the Commission extends the access guidelines established in Provision of telecommunications services to customers in multi-dwelling units, Telecom Decision CRTC 2003-45, 30 June 2003 to include members of the Coalition of Hydro Telecom Service Providers (the Coalition). The Commission also extends the obligations currently imposed on local exchange carriers regarding the multi-dwelling unit (MDU) access condition and the disclosure of the MDU access agreements to include Coalition members that provide services to end-users in MDUs, whether they provide services directly, or indirectly as a wholesaler.

The Commission denies the Coalition's request to impose specific limitations on building owners with respect to the negotiations of certain fees and its request to extend the access guidelines retroactively to 30 June 2003.

Introduction

1. On 1 October 2003, Toronto Hydro Telecom Inc. (Toronto Hydro), on behalf of the Coalition of Hydro Telecom Service Providers (the Coalition), filed an application under Part VII of the CRTC Telecommunications Rules of Procedure (the Rules) with the Commission, pursuant to sections 32, 37, 42, 48, 55, 58, and 62 of the Telecommunications Act (the Act). The Coalition requested that the Commission extend the access guidelines established in Provision of telecommunications services to customers in multi-dwelling units, Telecom Decision CRTC 2003-45, 30 June 2003 (Decision 2003-45) to Coalition members.

2. Furthermore, the Coalition requested that the Commission issue an order stating that:

3. The Coalition submitted that this application was not an application to review and vary Decision 2003-45 since there was no prima facie error of law or fact, no fundamental change of circumstances, no failure to consider a basic principle, and no new principle.

Background

4. In Decision 2003-45, the Commission concluded that obstacles to access to customers in MDUs could have a significant negative impact on local exchange carriers (LECs). The Commission considered that the resolution of access issues related to MDUs was of central importance to the development of local competition and, in particular, facilities-based competition and the achievement of end-user choice.

5. Accordingly, in Decision 2003-45, the Commission considered that it was appropriate to establish guidelines as to conditions that might be considered just and expedient, in order to assist building owners and LECs in concluding arrangements regarding access to MDUs. The Commission considered that the following guidelines, among others, were appropriate:

6. In Decision 2003-45, the Commission established the MDU access condition, whereby the provision of telecommunication service by a LEC in an MDU is subject to the condition that all LECs wishing to serve end-users in an MDU must be able to access end-users in that MDU on a timely basis, by means of resale, leased facilities, or their own facilities, at their choice, under reasonable terms and conditions.

7. The Commission also noted that in cases where access negotiations could not be concluded on a timely basis, and where, following a process under Part VII of the Rules, it determined that access to an MDU had not been, or was not likely to be, provided on a reasonable basis, it would take such further action as was appropriate, depending on the circumstances of each case, to ensure that all LECs were able to provide telecommunication services to end-users in MDUs, in accordance with the MDU access condition.

Process

8. The Commission received comments from the Canadian Institute of Public and Private Real Estate Companies and the Building Owners and Managers Association (collectively, CIPPREC/BOMA), and from Microcell Solutions Inc. (Microcell), dated 30 October 2003; and from Allstream Corp., now MTS Allstream Inc. (MTS Allstream), and FCI Broadband, a division of Futureway Communications Inc. (FCI Broadband), dated 31 October 2003. The Commission received reply comments from the Coalition, dated 14 November 2003; and further information from the Coalition, dated 27 November 2004 and 3 December 2004, including copies of MDU access agreements, in response to a Commission letter dated 29 October 2004.

The application

9. The Coalition submitted that in Decision 2003-45 parties had cited a number of abuses by building owners and property managers, including instances of obstruction of access to MDUs by owners, and imposition of onerous or unreasonable terms and conditions, including costs, upon competitive LECs (CLECs) and other Canadian carriers, including Coalition members. The Coalition alleged that building owners had imposed identical oppressive entry conditions upon its members before and after Decision 2003-45.

10. The Coalition submitted that building owners believed that there was no expectation that they had to negotiate fairly with non-dominant carriers since this class of carrier had not been specifically referenced in Decision 2003-45. The Coalition submitted that it was clear that building owners did not intend to adhere to the equitable access guidelines established in Decision 2003-45 with respect to providing access to its members, unless the Commission amended Decision 2003-45 to accord its members the benefits of the access provisions expressed in the Decision.

11. The Coalition submitted that businesses located in MDUs used vastly different telecommunication services currently than they did when the Commission established a framework for the implementation of local competition. The Coalition submitted a number of examples to demonstrate the change from primarily voice networks to extensive data networks.

12. The Coalition submitted that many of its members were registered with the Commission as non-dominant Canadian carriers who did not provide local exchange service, but rather provided a range of retail and wholesale services via their own facilities. The Coalition submitted that, in addition to providing facilities to incumbent LECs (ILECs) and CLECs, its members provided service to end-users and, in particular, to municipalities, universities, schools, and health care facilities. The Coalition noted that its members had invested tens of millions of dollars in network infrastructure.

13. The Coalition also submitted that its members did not, and could not, function as CLECs, nor could its members transform themselves into CLECs rationally, or at a reasonable cost, in order to gain equitable access to MDUs pursuant to the guidelines set out in Decision 2003-45.

14. The Coalition submitted that the conduct of building owners had affected its members' ability to provide service, citing examples of building owner conduct with regards to fees, liability, and prolonged negotiations.

15. The Coalition submitted that many building owners had imposed onerous access fees for entry into their buildings. As an example, the Coalition submitted that many building owners had imposed fee escalator clauses in their MDU access agreements, which required payment of access fees based upon the GLA of the buildings, multiplied by a factor unrelated to either the consumer price index or to the economic activity of carriers operating in the buildings. Additionally, many building owners required Coalition members to pay fees based on all of the buildings in the building owner's portfolio, regardless of whether the Coalition member had installed facilities or provided service to subscribers in each building. According to the Coalition, negotiators for building owners readily acknowledged that they did not impose these onerous entry conditions or fees upon ILECs.

16. The Coalition submitted that the effect of these rate structures upon non-dominant carriers was devastating. For some carriers, access fees represented more than 15 percent of their total MDU revenues and were escalating faster than revenues and other costs. As an example, the Coalition submitted that Toronto Hydro was required to pay GLA-based fees in 38 buildings, in excess of $300,000 per year, to two building owners, despite the fact that it did not have a physical presence or a customer in 20 of the 38 buildings. The Coalition submitted that within the Toronto area, building owners continued to impose annual GLA-based fees on its members that amounted to over $1.2 million per year.

17. The Coalition further submitted that MDU owners had imposed inequitable contractual terms on Canadian carriers other than LECs with respect to terms of liability and indemnity. The Coalition submitted that building owners were unwilling to accept MEARIE1 insurance policy coverage with respect to the low-risk installation of dark fibre services, yet the same MDU owners had accepted identical MEARIE insurance coverage for the electrical utilities with respect to the risk inherent in the installation of high-voltage lines and electrical distribution equipment, which often occupied the same space as the telecommunications fibre.

18. In addition, the Coalition submitted that Decision 2003-45 had resulted in further impediments to timely building access that were unforeseen by the Commission. The Coalition noted that some building owners had ceased negotiations with Coalition members after the release of Decision 2003-45 pending a review of the Decision, an appeal by CIPPREC, and/or the release of a new CIPPREC MDU access agreement. It submitted that this had resulted in a denial of telecommunications services to tenants of the affected buildings. The Coalition also noted that several building owners had refused to negotiate access terms unless Coalition members committed to paying their lawyers' fees. The Coalition submitted that even after the CIPPREC New Standard Agreement was published on 15 August 2003, its members were unable to conclude negotiations in a timely manner because fees had not yet been determined by building owners.

19. The Coalition submitted that its members' ability to gain access to MDUs on reasonable terms and conditions within a relatively short period of time was of paramount importance to both CLECs and their telecommunications end-user subscribers. The Coalition submitted that CLECs and ILECs often contracted Coalition members to provide wholesale fibre data services from a building to their data or switching centre. Some Coalition members reported that up to 50 percent of their business was derived from providing services to the CLECs and ILECs in the form of the "physical" connection to the LECs' subscribers. The Coalition submitted, therefore, that its members, and not the CLECs, must be able to negotiate MDU access agreements with building owners. The Coalition stated that obtaining access to building premises and installing point-of-presence equipment was the Coalition members' critical role.

20. The Coalition submitted that there would be harm to consumers of telecommunications services and other service providers, including CLECs who depended upon non-dominant carriers for interconnecting services, if the Commission condoned the building owners' gatekeeper role against non-dominant carriers. The Coalition submitted that if the Commission failed to extend MDU access agreement guidelines to its members, then CLECs would need to install their own physical facilities in all MDUs in order to provide service on an equitable basis.

21. The Coalition also submitted that the fact that its members had been barred from accessing their customers and the customers of CLECs and ILECs in some buildings warranted action by the Commission.

22. The Coalition submitted, further, that the fact that its members were denied access on an equitable basis and were required by building owners to pay negotiating fees, rental fees based on GLA, or other fees, was inconsistent with the Canadian telecommunications policy objectives set out in the Act.

23. The Coalition indicated that its members were prepared to comply with the provisions of Decision 2003-45 regarding the disclosure of the terms of MDU access agreements. It argued, however, that the disclosure provisions should apply only in cases where Coalition members provided voice services directly to subscribers in MDUs and not in circumstances where Coaltion members provided dark fibre or other services to CLECs, ILECs, or other carriers, where such traffic originated or ended in MDUs.

Parties' comments

24. MTS Allstream and Microcell supported the Coalition's application. MTS Allstream noted that some CLECs continued to obtain fibre services from non-dominant carriers, such as the Coalition members, in order to serve their customers. MTS Allstream submitted that its ability to gain equitable and timely access to MDUs was therefore contingent on the ability of the non-dominant carriers to negotiate reasonable MDU access terms.

25. Microcell noted that competitors such as itself relied heavily on ILECs for the provision of digital network transport services and submitted that the Coalition members represented one of the few avenues available that could introduce greater competitive supply of such services on a meaningful scale. Microcell noted that on at least one occasion, it had been impeded from obtaining digital network transport services from a Coalition member due to the unreasonable access terms imposed on the Coalition member by the building owner.

26. Microcell also submitted that the Commission should be concerned that this avenue of competitive supply was being blocked by building owner practices that the Commission had already determined to be unjustifiable when imposed on LECs.

27. FCI Broadband and CIPPREC/BOMA opposed the Coalition's application. They submitted that if the Coalition members wanted to benefit from the regime established to promote local exchange competition, the Coalition members must be willing to abide by that regime and register as CLECs. FCI Broadband noted that in Local competition, Telecom Decision CRTC 97-8, 1 May 1997 (Decision 97-8) and in Decision 2003-45, the Commission considered the issue of MDU access only in the context of local exchange competition. CIPPREC/BOMA submitted that there was insufficient information to evaluate why non-dominant carriers, including the Coalition members, could not obtain CLEC status. CIPPREC/BOMA added that a custom regime was inappropriate and that Decision 2003-45 adequately addressed the relief sought by the Coalition if its members became CLECs.

28. CIPPREC/BOMA submitted that the Coalition's application raised matters outside the ambit of the deregulation of local exchange services represented by Decision 97-8; Location of Demarcation Point for Inside Wire in Multi-Dwelling Units and Associated Issues, Telecom Decision CRTC 99-10, 6 August 1999; and Decision 2003-45. CIPPREC/BOMA submitted that a broad policy review was required and submitted that:

29. CIPPREC/BOMA submitted that Commission intervention was not required. They submitted that downtown Toronto MDU buildings were among the most competitive and that business tenants who required data services could exert pressure on building owners to allow access to their preferred supplier, without Commission intervention. CIPPREC/BOMA also submitted that MDU access agreements were negotiated as they always had been in the private market, giving the Coalition members adequate opportunity to make changes to the documents or to choose to provide service elsewhere.

30. CIPPREC/BOMA submitted that the Coalition members had not attempted to work co-operatively through the CRTC Interconnection Steering Committee (CISC) or with industry representatives on any of the Coalition members' issues. CIPPREC/BOMA also submitted that there should be some onus on the Coalition members to work with the industry before invoking the regulatory process.

31. CIPPREC/BOMA submitted several additional concerns regarding the application. First, they submitted that the application looked to Decision 2003-45 for factual support and that the LECs' statements in written submissions seemed to have been taken at face value. CIPPREC/BOMA submitted that although public notice proceedings were a useful information-gathering tool, no findings of fact could have been reliably made. As an example, CIPPREC/BOMA noted that it was not allowed to see key evidence, nor was cross-examination allowed during public notice proceedings. Second, CIPPREC/BOMA indicated that ILECs did pay MDU access fees in various locations, contrary to the Coalition's statement. Third, CIPPREC/BOMA argued that the Coalition had presented only one side of the picture. They noted, for example, that the Coalition had not disclosed revenues earned in the 18 buildings that the Coalition had referenced and that without this information it was difficult to assess the relationship between the costs and the revenue. Fourth, CIPPREC/BOMA submitted that non-dominant carriers did have bargaining power, contrary to the Coalition's statements. CIPPREC/BOMA submitted that if tenants wanted service from a non-dominant carrier, then the tenants would cause the building owner to allow the non-dominant carrier into the building.

32. CIPPREC/BOMA commented that the terms of liability and indemnity were a common problem post-Decision 2003-45. They submitted that building owners had been unwilling to accept the risk of a lawsuit in negligence or pure economic loss since they were relegated to recovering only their costs post-Decision 2003-45. CIPPREC/BOMA suggested that a custom insurance product might resolve the issue over time.

33. FCI Broadband and CIPPREC/BOMA submitted that the Coalition members should be required to disclose all of their MDU access agreements if they wished to be treated as CLECs, contrary to the Coalition's proposal. FCI Broadband argued that the Coalition was asking to be given preferential treatment regarding a key component of the existing regime. CIPPREC/BOMA submitted that the fact that Coalition members did not provide voice services can not be significant in one context but insignificant in others.

The Coalition's reply comments

34. The Coalition acknowledged that the Commission's previous decisions dealt specifically with access to switched voice services. The Coalition submitted, however, that new services, including data services, had been continuously developed in recent years. It also submitted that consumers must have choice of carriers for all of their telecommunications services.

35. The Coalition submitted that tenants in affected buildings could not exert sufficient influence to bring negotiations to fruition and thereby ensure their right to end-user choice, contrary to CIPPREC/BOMA's submission. The Coalition submitted that tenants had little or no leverage in negotiations between building owners and non-dominant carriers.

36. The Coalition submitted that its members had attempted to work with the industry before invoking the regulatory process. It noted that its members had contacted building owners and property managers to discuss the implementation of Decision 2003-45 and submitted that there was clearly an impasse. Additionally, the Coalition submitted that it did not appear that CISC had any power to persuade CIPPREC/BOMA members to extend the terms and conditions of the CIPPREC Standard Telecommunications License Agreement to non-dominant carriers.

37. The Coalition submitted that it did not say that ILECs, under all circumstances, did not pay access fees. It submitted, rather, that its members were forced to bear a disproportionate cost for their far more modest installations.

38. The Coalition submitted that CIPPREC/BOMA's suggestion concerning a customized insurance product reflected a lack of understanding regarding the Canadian insurance industry and the nature of the risk that insurers would bear. It submitted that the Commission fully appreciated the problem of insurance and risk in Decision 2003-45.

39. In response to CIPPREC/BOMA's and FCI Broadband's comments regarding the requirement to disclose the terms of the MDU access agreements, the Coalition, contrary to their original position, submitted that it saw no difficulty in complying with the requirement to disclose the MDU access agreements if the Commission extended the access guidelines to non-dominant carriers.

Commission's analysis and determination

40. The Commission notes that none of the interested parties disagreed with the Coalition's statement that its application was not an application to review and vary Decision 2003-45. Since this application does not question the original correctness of Decision 2003-45, but instead requests an extension of the MDU access agreement guidelines, the Commission considers that this application is not a review and vary application pursuant to section 62 of the Act.

41. The Commission notes that it developed regulatory frameworks to promote the development of competition in the telecommunications market, with a view to implementing the Canadian telecommunications policy objectives set out in section 7 of the Act. Section 7(c) of the Act states that one of the objectives of Canadian telecommunications policy is to enhance the efficiency and competitiveness of Canadian telecommunications at the national and international level.

42. In Decision 2003-45, the Commission noted that it had determined that the full benefits of local competition, including high-quality affordable service, innovation, and service differentiation, would best be realized through facilities-based competition, and that facilities-based competition would, in the long run, be the most effective and sustainable form of competition to achieve the policy objectives set out in section 7 of the Act.

43. The Commission noted, further, that in fostering the development of competition it sought to ensure that service providers could access and serve subscribers in a number of ways, including through reselling services, leasing facilities, and installing and operating their own facilities. It noted that in numerous decisions, it had sought to remove the obstacles limiting the ability of service providers to serve end-users by any of these means.

44. In Decision 2003-45, the Commission also examined the importance of the MDU market. It considered that both the local residential and business MDU markets were significant and noted that their annual revenues were approximately $1.15 billion and $3 billion, respectively. The Commission considered, further, that the high concentration of MDUs in urban areas also provided LECs with the opportunity to acquire a critical mass of geographically concentrated customers, which would allow them to achieve a scale of operations that would not be feasible with a smaller pool of dispersed customers.

45. Accordingly, the Commission considered that the resolution of access issues related to MDUs was of central importance to the development of local competition, and, in particular, to the development of facilities-based competition and to the achievement of end-user choice.

46. The Commission notes that the Coalition submitted that many of its members have invested tens of millions of dollars in network infrastructure and are registered with the Commission as non-dominant Canadian carriers who provide a range of telecommunication services through their own facilities.

47. The Commission notes that "utility telcos," which includes Coalition members, are tracked as a separate category in the Report to the Governor in Council: Status of Competition in Canadian Telecommunications Markets - Deployment/Accessibility of Advanced Telecommunications Infrastructure and Services, 25November 2004. The report indicates that, although the utility telcos represented a small fraction of total telecommunications revenues (less than 1 percent of total telecommunications services revenues and approximately 1.6 percent of the competitors' share of total telecommunications services revenues in 2003), they experienced a 26 percent growth rate from 2002 to 2003.

48. In view of the above, the Commission considers that the Coalition members are a small, but growing, set of facilities-based competitors. The Commission notes that CIPPREC/BOMA did not argue that the Coalition members are not facilities-based competitors. Rather, CIPPREC/BOMA submitted that the application raised matters outside the ambit of local competition decisions since it extended beyond voice services into the discussion of a facilities-based competition model for data and wholesale services.

49. The Commission agrees with the Coalition that the range of services provided to end-users has changed significantly since the local competition decisions, reflecting a convergence of voice and data services. Accordingly, the Commission considers that, even though the services provided by the Coalition members are not local voice services at this time, the Coalition members are important to the development of local competition, and, in particular, to the development of facilities-based competition and to the achievement of end-user choice.

50. In Decision 2003-45, the Commission noted various barriers to entry to MDUs. In addition to outright bans on their entry into MDUs, CLECs described situations where they had been prevented from serving their customers on a timely basis and had lost potential customers as a result of unreasonable delays in attempting to negotiate acceptable MDU access agreements with building owners. CLECs also described situations where the terms and conditions, including fees, sought by building owners were so onerous that the CLECs were compelled to refuse to serve customers in the MDUs. The CLECs also noted that there were situations where, in order to serve their customers, they had capitulated to the building owners' demands or had signed MDU access agreements under circumstances that, in their view, amounted to duress.

51. The Commission found that the evidence on the record of the proceeding that led to Decision 2003-45 demonstrated that a variety of barriers to entry into MDUs existed that prevented LECs from providing service to end-users in MDUs.

52. The Commission notes that the Coalition submitted that the building owners had imposed identical entry conditions on its members.

53. Following a review of the samples of MDU access agreements filed by the Coalition in confidence, the Commission notes that building owners charged a wide range of occupancy fees. The Commission notes, in particular, that some of these fees were based on factors that appear unrelated to the space used by the facilities, such as the square footage of the buildings. Additionally, the Commission notes that in some cases the MDU access agreements contain additional charges, including entry fees and mark-ups on additional services.

54. The Commission also notes that in some instances, a Coalition member had determined that the imposition of fees by a building owner had made the provision of services non-viable. Accordingly, the Coalition member declined to enter into an MDU access agreement to serve these buildings.

55. In addition, the Commission notes that Microcell indicated that on at least one occasion it had been impeded from obtaining digital network transport services from a Coalition member due to the unreasonable access terms imposed on the Coalition member by the building owner in question.

56. In light of the above, the Commission considers that the evidence demonstrates that Coalition members face entry barriers to MDUs that are preventing them from providing services to end-users in MDUs, whether they provide the services directly, or indirectly as a wholesaler. The Commission also considers that, as had occurred in the case of LECs, these entry barriers restrict end-user choice and impair the ability of the Coalition members to effectively compete in the local telecommunications market. The Commission considers, generally, that removing barriers that restrict end-user choice and impair the development of local competition and, in particular, facilities-based competition, is of central importance to implementation of the Canadian telecommunications policy objectives set out in the Act.

57. Accordingly, the Commission determines that in order to assist Coalition members and building owners in concluding arrangements regarding access to MDUs:

58. The Commission notes that the Coalition also requested that the Commission impose specific limitations on building owners with respect to the negotiation of certain fees, and that the Commission extend the guidelines retroactively to 30 June 2003. The Commission considers that extending the access guidelines above to include MDU access agreements between the Coalition members and building owners is sufficient to assist building owners and Coalition members to negotiate just and expedient conditions of access to MDUs. Accordingly, the Commission denies this portion of the Coalition's request.

59. The Commission's determinations above take effect as of the date of this Decision.

Secretary General

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

Footnotes

[1] The MEARIE group provides Financial and Insurance products to the energy industry in Ontario.

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