Telecom Regulatory Policy CRTC 2009-379

Route reference: Telecom Public Notice 2008-18

Ottawa, 23 June 2009

Framework for forbearance from regulation of retail local exchange services in the serving territories of the small incumbent local exchange carriers

File number: 8640-C12-200814980 and 8640-T8-200810962

In this decision, the Commission sets out the framework for forbearance from regulation of retail local exchange services that will apply in the serving territories of the small incumbent local exchange carriers (SILECs).

This framework is based on the local forbearance framework established for incumbent local exchange carriers, with modifications to the requirements regarding the competitor presence test, the 18-month grace period for certain competitors, and competitor quality of service reporting.

The Commission also determines that those SILECs required to join the Commissioner for Complaints for Telecommunications Services Inc. must become members prior to the Commission granting local forbearance.

Introduction

1. In Telecom Public Notice 2008-18, the Commission initiated a public proceeding to determine the appropriate framework for forbearance from the regulation of retail local exchange services in the serving territories of the small incumbent local exchange carriers (SILECs).1

2. The Commission had previously established such a framework in incumbent local exchange carriers' (ILECs) serving territories in Telecom Decision 2006-15, as amended by the Governor in Council's Order Varying Telecom Decision CRTC 2006-15, P.C. 2007-532, 4 April 2007 (modified Telecom Decision 2006-15). However, that framework does not apply to the SILECs.2

3. The Commission received comments in response to Telecom Public Notice 2008-18 from Bell Aliant Regional Communications, Limited Partnership and Bell Canada (the Bell companies); the Canadian Cable Systems Alliance Inc. (CCSA); the Canadian Independent Telephone Company Joint Task Force (CITC-JTF) on behalf of the SILECs;3 the Coalition of Communications Consumers (the Coalition); Kenora Municipal Telephone System and NorthernTel, Limited Partnership (KMTS and NorthernTel); MTS Allstream Inc. (MTS Allstream); Shaw Communications Inc. (Shaw); and TELUS Communications Company (TCC).

4. The public record of this proceeding, which closed on 20 January 2009, is available on the Commission's website at www.crtc.gc.ca under "Public Proceedings" or by using file number 8640-C12-200814980.

What is the appropriate local forbearance framework for SILECs?

5. Parties who filed submissions in this proceeding generally supported applying the local forbearance framework established in modified Telecom Decision 2006-15 to the SILECs. However, some parties suggested modifications to the following elements of that framework given the SILECs' unique circumstances, small size, and limited resources:

  1. Market definition
  2. Competitor presence test
  3. 18-month grace period
  4. Competitor quality of service

6. The Commission considers it appropriate, and determines in the circumstances, that modified Telecom Decision 2006-15 will apply to local forbearance applications from SILECs, except where otherwise indicated in this decision.

7. In the following sections of this decision, the Commission will review and consider how to treat each of the four framework elements to which parties suggested modifications.

i) Market definition

8. In modified Telecom Decision 2006-15, the Commission found that for the purpose of local forbearance, residential and business local exchange services are to be considered as two separate markets since customers cannot generally substitute residential services for business services. In Telecom Decision 2008-10, the Commission found that Centrex services should be considered part of the same market as business services for the purpose of local forbearance.

9. Most parties agreed that the Commission should treat business and residential local exchange services as two separate markets as it does in the case of the ILECs. They argued that combining the residential and business markets would be contrary to the interests of customers because a particular competitor may only be capable of serving either the residential or the business market.

10. The CITC-JTF submitted, however, that in the SILECs' serving territories, the majority of business customers are small businesses with functional requirements that could be served through the use of residential facilities. Accordingly, it proposed that except for Centrex, digital trunks, and equivalent services, business local exchange services in SILEC territories should be combined with residential local exchange services into a single market. Centrex, digital trunks, and equivalent services would form a separate market for large business customers.

11. The Commission considers that residential and business local exchange services are priced and marketed differently, and that customers cannot generally substitute residential services for business services in either the ILECs' or the SILECs' serving territories. The Commission also considers that the capability of a competitor to provide residential local exchange services in an exchange is not indicative of its capability to provide business local exchange services in that same exchange.4

12. In light of the above, the Commission determines that for the purpose of local forbearance in the SILECs' serving territories, it will continue to treat residential and business local exchange services as two separate markets. The Commission also determines that Centrex, digital trunks, and equivalent services will continue to form part of the business market, as is the case in the ILECs' territories.

ii) Competitor presence test

13. The competitor presence test set out in modified Telecom Decision 2006-15 states that forbearance may be granted when the ILEC demonstrates that,

14. The CITC-JTF submitted a competitor presence test based on its proposed market definition. Given the Commission's findings above, the Commission finds that the CITC-JTF's proposed competitor presence test is not applicable.

15. The remaining parties generally agreed that the competitor presence test set out for ILECs in modified Telecom Decision 2006-15 should also apply to SILECs. However, KMTS and NorthernTel, and TCC submitted that the test should be flexible enough to allow for the particular circumstances of each application.

16. The Commission notes that SILECs generally have limited resources and serve exchanges with small customer bases dispersed over large geographic areas. The Commission considers that a dispersed customer base may affect a competitor's financial incentive or economic ability to offer services in the outskirts of a SILEC's exchange. Therefore, competitors may, in some instances, target the customers in the area of the exchange with the highest density: the core of the exchange. As a result, the Commission notes that in some SILECs' exchanges, local forbearance will not be possible within a reasonable time period if the competitor presence test that applies to ILECs is used.

17. The Commission therefore considers that using the competitor presence test established for ILECs in these instances would be unfair to the SILECs as it would unnecessarily impede forbearance. The Commission will therefore allow some flexibility in the application of the competitor presence test to the SILECs by lowering the threshold from 75 percent to 50 percent in instances where evidence demonstrates that due to the lack of financial incentive or economic ability to offer services in the outskirts of the exchange, the competitors will target the core of the exchange and, as a result, the 75 percent competitor presence threshold is unlikely to ever be achieved.

18. In order to demonstrate that the competitor(s) will target the core of the exchange and, as a result, the 75 percent competitor presence threshold is unlikely to ever be achieved, the applicant SILEC must submit at least the information set out in Appendix 1, part B, item 1b) to this decision.

19. In addition to the information to be filed by the SILEC in these circumstances, the competitor(s) are to file the information set out in Appendices 2, 3, and 4 to this decision.

20. In instances where the Commission determines that, based on evidence filed by the applicant SILEC, the competitor(s) will target the core of the exchange due to the lack of financial incentive or economic ability to offer services in the outskirts of the exchange, and, as a result, the 75 percent competitor presence threshold is unlikely to ever be achieved, the Commission will consider that the competitor presence test has been met if the following circumstances exist in the relevant market:

21. In instances where the Commission determines that the SILEC has failed to demonstrate that, due to the lack of financial incentive or economic ability to offer services in the outskirts of the exchange, competitors will be targeting the core of the exchange and, as a result, the 75 percent competitor presence threshold is unlikely to ever be achieved, then the competitor presence threshold of 75 percent set out in modified Telecom Decision 2006-15 will apply.

iii) 18-month grace period

22. Modified Telecom Decision 2006-15 states that when a forbearance application is based on the presence of a competitor with less than 20,000 local exchange service customers in Canada, forbearance will not be effective until at least 18 months after the day on which the competitor began providing local exchange services in that exchange.

23. The CCSA and MTS Allstream submitted that the 18-month grace period that applies in the ILECs' territories should also apply in the SILECs' serving territories because small competitors face the same challenges whether entering a market served by an ILEC or a SILEC. They also submitted that removing the grace period would be inappropriate since it is related to the resources and size of the competitor, not to those of the incumbent.

24. The Bell companies and the CITC-JTF argued that the 18-month grace period should not apply to local forbearance applications by SILECs. They submitted that in most cases, even when the competitor has less than 20,000 customers in Canada, it will still be larger than the SILEC.

25. The Commission notes that the 18-month grace period was intended to provide small competitors with time to develop a customer base, ensuring that competition is securely established prior to forbearance. However, the Commission agrees with the view that in most SILECs' serving territories, even when the competitor has less than 20,000 local exchange service customers in Canada, it will still likely be larger than the SILEC. Accordingly, the Commission considers that the protection afforded by the 18-month grace period is not justified in the SILECs' serving territories.

26. In light of the above, the Commission determines that the 18-month grace period will not apply to local forbearance applications from SILECs, regardless of the size of the competitor.

iv) Competitor quality of service

27. Based on modified Telecom Decision 2006-15, an ILEC must demonstrate to the Commission that during a six-month period, it met, on average, the quality of service standard for certain indicators and that it did not consistently provide any competitor with services below those standards.

28. All parties, with the exception of Shaw, agreed that SILECs should continue to use the current complaint-based system, which the Commission set out in Telecom Decision 96-6, instead of submitting competitor quality of service reports as the ILECs are required to do based on modified Telecom Decision 2006-15.

29. Shaw argued that SILECs should submit competitor quality of service reports as the ILECs do since the complaint-based system makes it difficult for competitors to bring forth issues. Shaw also argued that tracking quality of service standards should be a simple task given the SILECs' small volume of orders. Shaw further argued that without these reports, the Commission would be unable to determine whether a SILEC is providing competitors with a reasonable level of service.

30. The Commission continues to consider, as it did in Telecom Decision 2007-109, that the costs and resources required to track quality of service matters and submit reports could impair the SILECs' ability to compete. The Commission considers that the current complaint-based system that was established in Telecom Decision 96-6 has proven to be an appropriate way to monitor the level of service that SILECs are providing to competitors.

31. In light of the above, the Commission directs each SILEC, upon filing an application for forbearance, to include as part of the record all information identified in Appendix 1, part B, item 2, to this decision. Competitors will have the opportunity to comment on any issues they may have with service received and to challenge any of the information submitted by the SILEC.

32. Based on the information received from the SILEC and the competitors, the Commission will determine whether the quality of service provided to competitors by the SILEC is at a sufficient level to grant forbearance.

Effective date of local forbearance

33. The Bell companies and the CCSA submitted that local forbearance should not be granted until six months after local competition has been implemented in a SILEC's exchange. They argued that until local competition has been implemented by the SILEC, competitors cannot be sure that they will be able to obtain the services necessary to effectively compete in the exchange. The CITC-JTF, however, argued that a six-month head start would not be consistent with the Commission's increased reliance on market forces.

34. The Commission notes that forbearance from the regulation of retail local exchange services cannot be granted before local competition has been implemented in accordance with the applicable Commission decision. Furthermore, the Commission considers that a six-month delay could provide new entrants with an undue market advantage.

35. Accordingly, the Commission finds that absent exceptional circumstances, local forbearance in a specific exchange will take effect as of the date of the Commission's decision granting local forbearance.

Other matters

i) Process and information

36. The Commission determines that the timelines for submissions as set out in Telecom Circular 2007-13 and the guidelines for disclosure set out in staff letters dated 25 May and 7 June 2007,5 all of which apply to the ILECs' local forbearance applications, will also apply to the SILECs' local forbearance applications.

37. The Commission also determines that all SILEC local forbearance applications must include the information required in Appendix 1 to this decision, which outlines the minimum information to be filed by the applicant SILEC for the application to be considered complete. Further, the competitor(s) offering services in an exchange on whose presence the applicant SILEC justifies its forbearance request must file the information required in Appendices 2, 3, and 4 to this decision, as applicable.

ii) Membership in the Commissioner for Complaints for Telecommunications Services Inc. (CCTS)

38. In Telecom Decision 2007-130, the Commission determined that as a condition of providing telecommunications service, all Canadian carriers with annual Canadian telecommunications service revenues exceeding $10 million in the previous fiscal year, as reported to the Commission under the contribution regime, are required to be members of the  CCTS. One aspect of the CCTS's mandate is to deal with consumer and small business complaints about forborne local exchange services. 

39. Accordingly, the Commission determines that those SILECs required to join the CCTS pursuant to Telecom Decision 2007-130 must become members prior to the Commission granting local forbearance.

iii) Scope of forbearance

40. Where the Commission grants forbearance in a SILEC's exchange, the scope of forbearance will be in accordance with modified Telecom Decision 2006-15, including the retention and exercise of the powers of section 24 of the Telecommunications Act (the Act) that are necessary to further policy objectives such as affordability, accessibility, the availability of emergency services, and privacy.

iv) Policy Direction

41. The Commission considers that the framework set out above for implementing forbearance from regulation of retail local exchange services in the SILECs' serving territories is consistent with the Governor in Council's Order Issuing a Direction to the CRTC on Implementing the Canadian Telecommunications Policy Objectives, P.C. 2006-1534, 14 December 2006, and advances the following objectives set out in section 7 of the Act:

(b) to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada;

(f) to foster increased reliance on market forces for the provision of telecommunications services and to ensure that regulation, where required, is efficient and effective; and

(h) to respond to the economic and social requirements of users of telecommunications services.

Related documents

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: http://www.crtc.gc.ca

Footnotes


[1] Telecom Public Notice 2008‑18 responded to a 15 August 2008 application by TBayTel for forbearance from regulation of residential local exchange services in the exchange of Thunder Bay, Ontario.

[2] The framework set out in modified Telecom Decision 2006‑15 applies to the ILECs listed in paragraph 23 of that decision.

[3] Appendix 5 to this decision identifies which SILECs were represented by the CITC‑JTF.

[4] As of 23 June 2009, the Commission had forborne from regulating residential local exchange services in 482 ILEC exchanges and business local exchange services in 145 ILEC exchanges.

[5] The subject of the 25 May 2007 letter was "Applications for local forbearance – Requests for disclosure," and the subject of the 7 June 2007 letter was "Applications for local forbearance – Requests for disclosure of competitors information." These letters may be found on the Commission's website under file number 8640-C12-200706351.

Appendix 1

Application template for forbearance from regulation of retail local exchange services in the small incumbent local exchange carriers' territories

Part A – Submission

The SILEC must state why it believes it is entitled to forbearance in the relevant exchanges. The SILEC must also

Part B – Evidence

1. Competitor presence test
  1. The SILEC must provide, for each exchange for which it is requesting forbearance,
    • the name of the competitor(s) offering services on whose presence the SILEC justifies its forbearance request;
    • the name of the competitor(s) co-located at each SILEC wire centre;
    • a map that clearly demonstrates the boundaries of the exchange, by street name and street number, or by any other reference that can assist competitors to identify the boundaries of each exchange, such as, but not limited to, global positioning system (GPS) coordinates;
    • in addition to the above map, a list of six-character postal codes assigned to the exchange and the number of households estimated by mapping those postal codes onto the boundaries of the exchange;1
    • the total number of residential and business local access lines, as applicable, that it is capable of serving with local exchange services, as well as the total number of households and businesses, as applicable; and
    • the estimated percentage of households or businesses, as applicable, that its competitor(s) is/are capable of serving, together with the assumptions made to support the estimate.
  2. In instances where the SILEC submits that due to the lack of financial incentive or economic ability to offer services in the outskirts of the exchange, the competitor(s) will target the core of the exchange and, as a result, the 75 percent competitor presence threshold is unlikely to ever be achieved, the applicant SILEC must provide, in addition to the information requested above, the following information for each exchange:
    • a map that clearly demonstrates the boundaries of the core of the exchange – that is, where the majority of the SILEC's potential customer base is located – by street name and street number, or by any other reference that can assist competitors to identify the boundaries of the core of each exchange, such as, but not limited to GPS coordinates;
    • a comparison of the densities of the entire exchange and its core, based on the number of households or businesses, as applicable, per square kilometre;
    • the total number of residential and business local access lines, as applicable, that it is capable of serving with local exchange services in the core of the exchange; and
    • the estimated percentage of households or businesses, as applicable, in the core of the exchange that its competitor(s) is/are capable of serving, together with the assumptions made to support the estimate.
2. Competitor quality of service

When applying for forbearance from regulation of retail local exchange services in an exchange, the SILEC must comply with the following:

  1. Provide the Commission with a list of all complaints it has received from competitors during a six-month period, or since the implementation of local competition if less than six months, beginning no earlier than eight months before the date of its application for local forbearance and ending at any time before the Commission's decision regarding the application.
  2. Categorize each of these individual complaints under one of the following categories:
    1. unbundled loops,
    2. local number portability, or
    3. local network interconnection trunks and other trunks.
  3. Provide:
    1. a description of each complaint, including whether the complaint relates to the provision of a service or to the repair of a service;
    2. the date of the complaint;
    3. the date of the event that led to the complaint;
    4. the response time; and
    5. any other information relevant to the resolution of the complaint.

If applicable, the SILEC may submit an attestation that it has received no complaints in the six months prior to the date of the forbearance application, or since the implementation of local competition if less than six months has passed.

If wishing to file any of the above-noted information in confidence, in accordance with the staff letters dated 25 May 2007 and 7 June 2007,2 the applicant SILEC is to provide a copy of such information to each individual competitor to which the information relates.

Part C – Communications plan

The SILEC must provide a draft communications plan for Commission approval. The draft communications plan must include:

NOTE: Information for consumers in the proposed communications plan should be clearly visible, readily accessible, and written in a style that is simple and user-friendly. The wording of the materials should reflect the manner in which the notification is provided. Text should not include unnecessary use of upper case letters, narrow spacing, or anything else that may impede readability, and written material must be in 12 point font or larger. Information should be provided in both official languages, where appropriate.

Footnotes


[1] The SILEC is to explain the methodology it uses to assign the six‑character postal codes (also known as forward sortation area local delivery units, or FSALDUs) that span more than one exchange

[2] The subject of the 25 May 2007 letter was "Applications for local forbearance – Requests for disclosure," and the subject of the 7 June 2007 letter was "Applications for local forbearance – Requests for disclosure of competitors information."

Appendix 2

Information to be filed by competitive local exchange carriers using their own wireline facilities to provide local exchange services

Competitive local exchange carriers (CLECs) that use their own wireline facilities to provide local exchange services and on whose presence the applicant SILEC justifies its forbearance request in an exchange are to file the following information:

  1. For each exchange, the CLEC must provide the total number of residential and business local access lines,1 as applicable, that it is capable of serving with local exchange services. If this information is not available, it must provide the following for each exchange:
    1. for residential local exchange services, the total number of households that it is capable of serving with local exchange services, based on the six-character postal code information or maps provided by the SILEC in response to Appendix 1, part B, item 1;
    2. for business local exchange services, the total number of business local access lines that it is capable of serving with local exchange services, based on the six-character postal code information or maps provided by the SILEC in response to Appendix 1, part B, item 1; and
    3. all assumptions made and all evidence supporting each conclusion.
  2. Where the SILEC claims that, due to a lack of financial incentive or economic ability to offer services in the outskirts of the exchange, the competitor(s) will target the core of the exchange and, as a result, the 75 percent competitor presence threshold is unlikely to ever be achieved, CLECs are to provide the following for each exchange:
    1. for residential local exchange services, the total number of households in the core of the exchange, and, separately, the total number of households in the entire exchange, that the CLEC is capable of serving with local exchange services, based on the maps provided by the SILEC in response to Appendix 1, part B, item 1;
    2. for business local exchange services, the total number of businesses in the core of the exchange, and, separately, the total number of businesses in the entire exchange, that it is capable of serving with local exchange services, based on the maps provided by the SILEC in response to Appendix 1, part B, item 1;
    3. a description of its upcoming expansion plans outside the core of the exchange; and
    4. all assumptions made and all evidence supporting each conclusion.

Footnotes


[1] Local access lines are measured by network access services. For this purpose, a network access service is defined as a wireline connection from a customer location to the public switched telephone network, which includes 1) a telephone number, 2) a connection to the public switched telephone network, and 3) access from the customer's location to the service provider's office.

Appendix 3

Information to be filed by competitive local exchange carriers that rely on leased local access transmission facilities to provide local exchange services

CLECs that rely on leased local access transmission facilities to provide local exchange services and on whose presence the applicant SILEC justifies its forbearance request in an exchange are to file the following information:

  1. the name of each wire centre where the CLEC offers service;
  2. the percentage of the total number of residential and business local access lines, as applicable, it is capable of serving with local exchange services; and
  3. all assumptions made and all evidence supporting each conclusion.

Appendix 4

Information to be filed by wireless service providers

Wireless service providers on whose presence the applicant SILEC justifies its forbearance request in an exchange are to file the following information for each exchange, based on maps provided by the SILEC as part of its evidence:

  1. confirmation that it is capable of serving at least 75 percent of the exchange when the SILEC provides evidence pursuant to Appendix 1, part B, item 1 a) ;
  2. in the event that the SILEC provides evidence pursuant to Appendix 1, part B, item 1 b), an estimate of the percentage of the exchange and of the core of the exchange that it is capable of serving with its wireless services; and
  3. all assumptions made and all evidence supporting its conclusions.

Appendix 5

Companies represented by the Canadian Independent Telephone Company Joint Task Force

British Columbia

Ontario

Quebec

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