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Telecom Decision CRTC 2006-56
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Ottawa, 8 September 2006
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Part VII application by Canada Payphone Corporation and FCT Communications Inc. regarding incumbent local exchange carrier tariffs for payphone access lines
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Reference: 8650-C66-200602012
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The Commission denies the request made by Canada Payphone Corporation and FCT Communications Inc. (collectively, the Competitive Providers) to freeze the current payphone access line (PAL) rates, to maintain PAL rates in effect at the start of the current price cap period, and to refund the PAL rates the incumbent local exchange carriers (ILECs) collected in excess of what is required. The Commission approves the Competitive Providers' request for the same contract term and volume discounts available to individual business line customers, and directs the ILECs to issue tariff pages allowing the same contract terms for PAL subscribers.
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The application
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1.
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The Commission received an application dated 27 February 2006 from Canada Payphone Corporation and FCT Communications Inc. (collectively, the Competitive Providers), filed under Part VII of the CRTC Telecommunications Rules of Procedure, seeking an order from the Commission applicable to Bell Aliant Regional Communications, Limited Partnership (Bell Aliant),1 Bell Canada; TELUS Communications Company (TCC);2 MTS Allstream Inc. (MTS Allstream); and Saskatchewan Telecommunications (SaskTel) (collectively, the incumbent local exchange carriers (ILECs)) that would:
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i) direct the ILECs, on an interim basis, to freeze payphone access line (PAL) rates at the rates in effect as of 27 February 2006; the Competitive Providers argued that this would ensure that Bell Canada's individual business line (IBL) rate increases, approved by the Commission in Telecom Order CRTC 2006-19, 23 January 2006, were not flowed through to PAL rates until the matters raised by this application were resolved;
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ii) reaffirm the obligations of the ILECs to maintain rates for PALs at the rates in effect at the start of the current price cap period, pursuant to the capped rate treatment (0 percent increase) prescribed in Regulatory framework for second price cap period, Telecom Decision CRTC 2002-34, 30 May 2002, as amended by Telecom Decision CRTC 2002-34-1 dated 15 July 2002 (Decision 2002-34);
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iii) direct the ILECs to refund any amounts they collected for PALs that were in excess of the amounts permitted in Decision 2002-34; and
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iv) direct the ILECs, on an interim basis, to file revised tariffs to make the contract term, volume, and primary interexchange carrier (PIC) discounts, applicable to IBL services available to the competitive pay telephone service providers (CPTSPs) in combination with the existing PAL discount, subject to the constraint that the addition of discounts for term, volume, and PIC selection (to the extent they are applied) do not result in PALs being provided at rates below their Phase II cost plus a 15 percent mark-up.
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Background
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2.
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In Local pay telephone competition, Telecom Decision CRTC 98-8, 30 June 1998 (Decision 98-8), the Commission found that it was appropriate to allow competition in the local pay telephone market. In that Decision, the Commission directed the Stentor-member companies3 to file proposed pay telephone access tariffs.
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3.
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In CRTC sets final rates for payphone access lines, Order CRTC 2000-858, 15 September 2000 (Order 2000-858), the Commission set final rates for basic PAL service at 75 percent of the tariffed rate for an IBL. In that Order, the Commission noted that the parties to that proceeding agreed that it would be appropriate to base the tariff rates for PAL service on the IBL tariff. The Commission concluded that the PAL service provided by the ILECs was a lower grade of business line service and that it was therefore appropriate to require the ILECs to provide PAL service at a 25 percent discount from the tariffed IBL rate. The Commission also considered that the lower rate compensated the CPTSPs for the reduced repair service in the basic PAL service relative to that provided with IBL service.4
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4.
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In Decision 2002-34, the Commission classified PAL service as a Category II competitor service. In that Decision, the Commission capped the rates for Category II competitor services at existing rates.
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5.
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In Follow-up to Regulatory framework for second price cap period, Telecom Decision CRTC 2002-34- Service basket assignment, Telecom Decision CRTC 2003-11, 18 March 2003, as amended by Telecom Decision CRTC 2003-11-1, 23 May 2003 (Decision 2003-11), the Commission assigned competitor services to Category I or II and, in Appendix 1, outlined whether particular Category I competitor services were exempt from the mark-up reduction and the inflation (I) minus productivity offset (X) pricing constraint (the I-X constraint). The Commission set out the classification of other tariffed services in the various service baskets in Appendix 2 to that Decision.
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6.
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In Decision 2003-11, the Commission also ruled on SaskTel's request that the Commission clarify which price cap constraint applied where a tariff item in one service basket cross-referenced another tariff item in a different service basket. The Commission confirmed at paragraph 164 of that Decision that ".where a tariff specifically references another tariff item, the pricing constraints that are identified in Appendix 1 or Appendix 2 for the cross-referenced item are applicable to that item."
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7.
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The Commission received comments in response to the application from Bell Canada, on behalf of itself, SaskTel, and Bell Aliant (collectively, the Companies); TCC; and MTS Allstream, all dated 29 March 2006. The Competitive Providers filed reply comments dated 10 April 2006.
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Issues
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8.
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The Commission considers that there are two key issues arising from this application, which are discussed in this Decision in the following sections:
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A. Which price cap constraint applies to PAL service?
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B. Should PAL service providers be eligible for contract term, volume, and PIC discounts offered on IBL service?
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A - Which price cap constraint applies to PAL service?
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Positions of parties
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The Competitive Providers
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9.
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The Competitive Providers argued thattwo different price cap constraints could apply to the setting of PAL rates: one applicable to IBL rates and one applicable to PAL rates. The Competitive Providers submitted that the Commission dealt with this issue in Decisions 2002-34 and 2003-11.
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10.
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The Competitive Providers submitted that the extent to which a competitor service element should be held to the specified price cap constraint for a retail element must depend on the circumstances, including:
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i) the extent to which the competitor service element use was different from the retail element use; this addresses concerns of arbitrage and negative pricing pressures on the retail element;
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ii) the differences between the competitor service element price cap constraint and the pricing flexibility afforded to the cross-referenced retail element; and
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iii) whether an increase in the price of a competitor service element as a result of an increase in the price of a retail element was consistent with "just and reasonable" pricing, and with the objectives set out in section 7 of the Telecommunications Act (the Act).
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11.
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The Competitive Providers argued that PALs were used to provide a very different service from the retail service, and that lowering PAL rates would not create arbitrage opportunities for the resale of IBL service at lower rates.
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12.
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The Competitive Providers argued further that the Commission clearly intended to freeze PAL rates, and that it would not be appropriate to specify a rate cap of 0 percent for PALs only to have the ILECs increase PAL rates by as much as 35 percent over the current price cap period.
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13.
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The Competitive Providers submitted that, given the importance from a public policy perspective of pay telephone service, their interpretation of the interrelationship between price cap constraints involving competitor service elements and cross-referenced retail elements in the context of PALs was consistent with the objectives set out in section 7 of the Act, including paragraphs 7(a), 7(b), 7(c), and 7(h).
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The Companies, TCC, and MTS Allstream
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14.
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The Companies, TCC, and MTS Allstream argued that the Commission did not set two possible price cap constraints applicable to PALs and IBLs in Decisions 2002-34 and 2003-11.
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15.
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The Companies argued that these Decisions set only one possible constraint for each rate element that was subject to tariff, and that Decision 2003-11 made it clear that where a rate element, such as the rate for PALs, cross-referenced the rate for another service, such as the rate for IBL service, the constraint applicable to the latter rate element was also applicable to the former service. The Companies argued further that the Commission's guidelines in this regard provided a clear and sensible basis for managing a common and long-standing characteristic of ILEC tariffs in light of differences in the price cap constraints applicable to different service baskets.
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16.
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TCC argued that the rates charged to the Competitive Providers corresponded to the rate treatment of PAL service set out by the Commission in Decisions 2002-34 and 2003-11. TCC submitted that the Competitive Providers' interpretation of conflicting price cap constraints ignored the dynamic nature of the price cap mechanism, and that the Competitive Providers had failed to present any compelling measurement method.
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17.
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MTS Allstream argued that Decision 2002-34 stated, in the tables of Appendix 1, that no rate adjustment to the existing rates for PAL service was required either as a mark-up reduction or as an I-X constraint. MTS Allstream further argued that this meant that the rates for PAL service provided by the ILECs had been set at the levels in effect on the date of the price cap decision, and were to remain at the same levels for the duration of the current price cap period.
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18.
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The Companies argued that the Commission did not intend to freeze PAL rates in Decision 2002-34, and that any rate change approved for IBL service thus flowed through to the rate charged for PAL service. The Companies submitted that had it been the Commission's intention in Decision 2002-34 to freeze PAL rates, the Commission would have set PAL rates at a specific value in each ILEC territory instead of making the rate a percentage of the IBL rate.
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19.
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TCC argued that the Competitive Providers had failed to provide any compelling evidence that would substantiate their request to freeze the PAL rates.
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Commission's analysis and determinations
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20.
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The Commission notes that in Appendix 1 to Decisions 2002-34 and 2003-11, PAL service was classified as a Category II competitor service and capped at existing rate levels. The Commission further notes that in Appendix 2 to Decision 2003-11, IBL service was classified as a capped service and, as such, the pricing constraints allowed for an annual increase of up to 10 percent, along with an overall I-X constraint at the basket level.
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21.
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The Commission finds that it is clear that the Commission intended that where a tariff specifically references another tariff item, the pricing constraints that were identified for the cross-referenced tariff item are applicable to that item, as set out in paragraph 164 of Decision 2003-11.
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22.
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The Commission therefore considers that if individual rates for IBL service were increased or decreased, these rate changes would flow through to the PAL service rates.
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23.
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The Commission finds therefore that the interpretation of the PAL rate price cap constraint proposed by the Competitive Providers is incorrect, and denies the Competitive Providers' request for an order confirming that interpretation.
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24.
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The Commission notes that the Competitive Providers' other requests for interim and retroactive rate adjustments, which are also based on its proposed interpretation of the current PAL rates, would necessarily fail.
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Positions of parties
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The Competitive Providers
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25.
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The Competitive Providers requested that the Commission direct the ILECs to file revised tariffs to make the contract term, volume, and PIC discounts for IBL services available to CPTSPs in combination with the existing PAL discount, subject to the constraint that the rate resulting from combining and applying the 25 percent discount on IBL rates and term and volume commitment discounts should not fall below the PAL Phase II cost plus a 15 percent mark-up.
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26.
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The Competitive Providers submitted that Bell Canada offered term and PIC commitment discounts on IBL rates, and TCC offered term, volume, and PIC commitment discounts on IBL rates. The Competitive Providers submitted that the PAL tariffs were filed by the ILECs well before the introduction of contracted term IBL service rates.
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27.
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The Competitive Providers argued that Bell Canada and TCC had refused to offer them contract option discounts in conjunction with the IBL used to provision PALs, notwithstanding the fact that the Competitive Providers were prepared to make the required term and applicable volume commitments. The Competitive Providers further argued that this was unfair, as the parties participating in the proceeding leading to Order 2000-858 did not have a chance to comment on whether the IBL contract options should be considered part of the IBL rate when the PAL rate is determined.
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The Companies, TCC, and MTS Allstream
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28.
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The Companies, TCC, and MTS Allstream submitted that the Competitive Providers' request for term, volume, and PIC discounts should be denied.
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29.
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The Companies argued that they had received no request for such discounts from the Competitive Providers. The Companies further argued that Contract pricing for business lines, Order CRTC 2000-346, 27 April 2000 (Order 2000-346), which approved term and PIC discounts for Bell Canada's IBL services, was issued well before Order 2000-858 was published on 15 September 2000, and that nothing prevented the Competitive Providers from seeking such discounts for PALs at any time during the proceeding that led to Order 2000-858. The Companies submitted that as the Competitive Providers already received a significant discount for the IBL service, the Companies had no obligation to offer additional discounts, and that to request additional discounts was inappropriate.
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30.
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The Companies argued that it was inappropriate for the Competitive Providers to claim that they should now be granted additional discounts on the basis of the allegation that they could, or should, have received additional discounts for term, volume, and PIC commitments. The Companies submitted that the Competitive Providers' contention that there was inherent unfairness in the PAL proceeding was untrue. Finally, the Companies argued that given the substantial instability and consolidation in the payphone business market, they were justified in not offering term and volume discounts.
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31.
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The Companies noted that neither Aliant Telecom Inc. (now part of Bell Aliant) nor SaskTel offered term, volume, or PIC discounts for IBL services.
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32.
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TCC submitted that the Competitive Providers' failure to participate in the proceeding that established rates for PAL service and the corresponding "unfairness" was entirely irrelevant, and that the Competitive Providers had failed to provide any compelling evidence to suggest that such discounts should be extended to a service that was already substantially discounted.
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33.
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MTS Allstream argued that a request for discounts offered to end-users for loyalty associated with PIC commitments would have no application for PAL service, as the end-users choosing the PIC and the customers using the PAL service were not the same.
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Commission's analysis and determinations
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34.
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The Commission acknowledges that while the Competitive Providers could have participated in the proceeding leading to Order 2000-346 or could have brought up the issue in the proceeding leading to Order 2000-858, they did not. However, in the Commission's view, the fact that the request for discounts was not made earlier is irrelevant as to whether it would be appropriate to grant the Competitive Providers access to them at this time.
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35.
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The Commission also considers it irrelevant that the Competitive Providers already receive a substantial discount on the IBL rate. As noted above, the 25 percent rate reduction for PAL service compensates the CPTSPs for the reduced repair service in the basic PAL service relative to that provided with IBL service.
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36.
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With respect to the Companies' and TCC's arguments regarding deteriorating market conditions in the payphone segment, the Commission considers that nothing on the record of this proceeding indicates that the payphone market is more volatile than any other telecommunications business market segment.
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37.
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With respect to MTS Allstream's arguments on PIC discounts, the Commission notes that in Decision 98-8a number of safeguards were mandated as a condition of entering the local pay telephone market. In paragraph 101(d) of that Decision, the Commission mandated the following: the "[p]rovision of non-discriminatory access to the networks of all APLDS [alternate providers of long distance services] connected to the underlying LEC [local exchange carrier] network, if long distance calling is permitted." In the context of this Part VII application whereby the Competitive Providers are requesting discounts based upon PIC selection, the Commission considers that the lower PIC rates available from the IBL tariffs took into account the end-customers' use of an ILEC's combined long distance and primary exchange services. As customers of pay telephones could use different long distance service providers, the PIC concept and the attendant lower rate would not apply. Accordingly, the Commission agrees with MTS Allstream that the CPTSPs should not be eligible for PIC discounts
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38.
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The Commission notes that TCC offers discounted IBL monthly rates for one-, three-, and five-year contracts, in addition to volume discounts, while MTS Allstream offers IBL discounts for one-, three-, and five-year contracts.
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39.
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The Commission also notes that while the CPTSPs are customers of the ILECs' PAL service, this is essentially an IBL service, minus a few features, and thus considers that it would be reasonable to give the CPTSPs access to the same volume and term discounts that are currently available to IBL customers. In the Commission's view, the ILECs could be seen as unduly discriminating between different types of business customers by offering volume and term discounts to their IBL customers but not to the CPTSPs.
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40.
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In light of all the above, the Commission finds that if the CPTSPs can make the required contract term and applicable volume commitments with respect to the PAL service, they should be eligible to subscribe to PAL service based on the same contract terms that are available to IBL customers of Bell Canada, TCC, and MTS Allstream.
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41.
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Therefore, the Commission directs the ILECs to give the CPTSPs access to any contract term and volume discounts associated with IBL service they offer to their IBL customers. Consistent with the 25 percent rate reduction for PAL service set out in Order 2000-858, which compensates the CPTSPs for the reduced repair service in the basic PAL service relative to that provided with IBL service, the Commission finds that the CPTSPs are eligible for a 25 percent rate reduction on the applicable IBL contract rate.
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42.
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The ILECs are directed to issue revised tariff pages within 10 days of the date of this Decision.
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Secretary General
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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
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Footnotes:
1 On 7 July 2006, Bell Canada's regional wireline telecommunications operations in Ontario and Quebec were combined with, among other things, the wireline telecommunications operations of Aliant Telecom Inc., Société en commandite Télébec, and NorthernTel, Limited Partnership to form Bell Aliant Regional Communications, Limited Partnership.
2 Effective 1 March 2006, TELUS Communications Inc. assigned and transferred all of its assets and liabilities, including all of its service contracts, to TELUS Communications Company.
3 The Stentor‑member companies included BC TEL, Bell Canada, Island Telecom Inc., Maritime Tel & Tel Limited, MTS Communications Inc., The New Brunswick Telephone Company Ltd., and NewTel Communications Inc.
4 In Saskatchewan Telecommunications - Pay telephone basic access line service, Order CRTC 2001-‑22, 16 January 2001, the Commission approved, among other things, SaskTel's request to provide PAL service for competitors at a 25 percent discount from the IBL rates.
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Date Modified: 2006-09-08