ARCHIVED - Telecom Decision CRTC 2013-176

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Ottawa, 4 April 2013

Sogetel inc. – Implementation of local competition and wireless number portability for Quebecor Media Inc. on behalf of its affiliate Videotron G.P.

File number: 8663-S4-201213131

In this decision, the Commission approves, with some modifications, Sogetel’s implementation plan for local competition and wireless number portability, which was filed in response to a formal expression of interest from Videotron. The Commission’s decision enables customers in the exchange of Beauceville to benefit from local competition by allowing them to choose among the services, options, and prices offered by different service providers.

Introduction

1. The Commission received a local competition and wireless number portability (WNP) implementation plan, dated 19 October 2012, from Sogetel inc. (Sogetel). The plan was filed in response to a formal signed expression of interest from Quebecor Media Inc., on behalf of its affiliate Videotron G.P. (Videotron), which indicated that Videotron wished to interconnect with Sogetel to provide local services as a competitive local exchange carrier (CLEC) in the exchange of Beauceville, Quebec.

2. In its implementation plan, Sogetel identified the services and network components that it planned to make available to Videotron. Sogetel also provided its estimated costs for implementing local competition and local number portability (LNP) [referred to jointly as local competition], as well as WNP, in the exchange of Beauceville.

3. In Telecom Decisions 2006-14 and 2008-122, the Commission, among other things, set out the frameworks for, respectively, local competition and WNP implementation in the territories of the small incumbent local exchange carriers (ILECs). Those decisions included directives that the small ILECs must follow when submitting their implementation plans.

4. The Commission reviewed these frameworks and determined, in Telecom Regulatory Policy 2011-291, that local competition and WNP should continue to be introduced in the territories of all the small ILECs based on the existing frameworks, subject to the modifications set out in that decision. In particular, the Commission established certain measures to help mitigate the financial impact on small ILECs of implementing local competition.

5. In Telecom Decision 2012-42, the Commission approved Sogetel’s local competition implementation plan for Cogeco Cable Inc. (Cogeco), including start-up and ongoing costs related to local competition implementation in the exchanges targeted by Cogeco.¹

6. The Commission received comments from Videotron. The public record of this proceeding, which closed on 9 January 2013, is available on the Commission’s website at www.crtc.gc.ca under “Public Proceedings” or by using the file number provided above.

Issues

7. The Commission notes that Sogetel and Videotron have generally agreed on most elements of the local competition and WNP implementation plan, but that issues related to costs and certain implementation matters remain.

8. The Commission has examined the following questions in considering whether to approve Sogetel’s proposed local competition and WNP implementation plan:

I. Should the Commission modify the approval process for the local competition and WNP implementation plan?

II. Are Sogetel’s proposed costs for implementing local competition and WNP appropriate?

III. What mechanisms are available to Sogetel to recover its local competition and WNP costs?

IV. Which interconnection methods and options for implementing local competition and WNP would be appropriate?

V. What would be a reasonable time frame to complete local competition and WNP implementation for Videotron in the exchange of Beauceville?

I. Should the Commission modify the approval process for the local competition and WNP implementation plan?

9. Videotron submitted that, in advance of its negotiations with Sogetel, it would be difficult to predict the distance over which the interconnecting trunks would have to be installed. Sogetel therefore requested that the Commission modify the approval process for its local competition and WNP implementation plan to allow it to initiate discussions with Videotron regarding the location of the two companies’ interconnection facilities, including the point where the facilities meet. Sogetel indicated that the proposed modification would enable it to more accurately estimate its start-up costs related to the installation of the interconnecting trunks.

10. The Commission considers that modifying the approval process as requested by Sogetel would unduly delay Videotron’s competitive entry in the exchange of Beauceville and would not be in the public interest.² Accordingly, the Commission denies Sogetel’s request to modify the approval process for its local competition and WNP implementation plan.

11. The Commission reminds Sogetel that it may make the filings it deems necessary if certain elements related to the implementation of its plan change following its negotiations with Videotron. However, if Sogetel makes such filings, they must not delay the local competition and WNP implementation process for Videotron in the exchange of Beauceville.

II. Are Sogetel’s proposed costs for implementing local competition and WNP appropriate?

12. Sogetel proposed start-up and ongoing costs related to the implementation of local competition and WNP within the exchange of Beauceville, including costs related to carrier service group (CSG)³ functions, consultation, maintenance, and training. Sogetel estimated that it would incur, over the five-year study period, approximately $129,000 in start-up costs and an average of $40,000 per year in ongoing costs to implement local competition and WNP for Videotron within the exchange of Beauceville.⁴

13. Based on its review of Sogetel’s proposed costs, the Commission has made adjustments to the following cost components: CSG personnel costs (salaries, accommodation, and office equipment and related maintenance costs) and personnel training costs. A summary of the company’s proposals, the Commission’s adjustments, and the rationale for these adjustments is set out in the Appendix to this decision.

14. Accordingly, the Commission approves $124,000 in start-up costs and $16,000 per year in ongoing costs for the implementation of local competition and WNP for Videotron in the exchange of Beauceville.⁵

III. What mechanisms are available to Sogetel to recover its local competition and WNP costs?

15. Two regulatory mechanisms are available to Sogetel for the recovery of local competition and WNP implementation costs: the recovery of up to $2 per network access service (NAS)⁶ per month of ongoing costs through the National Contribution Fund and an exogenous adjustment.⁷

16. In Telecom Regulatory Policy 2011-291, the Commission concluded that the small ILECs that incur ongoing local competition and/or WNP costs will be permitted to lower the primary exchange service (PES) rate component used in calculating their subsidy by an amount equal to the lesser of the approved ongoing costs on a per-NAS, per-month basis or $2 per NAS per month.

17. The Commission notes that in Telecom Decision 2012-42, it had approved a $0.64 reduction in the PES rate component used to calculate the amount of Sogetel’s subsidy. The Commission also notes that the ongoing costs of $16,000 per year that it has approved in this decision correspond to a reduction of $0.11 in the PES rate component on a per-NAS, per-month basis. Since the total amount of ongoing costs approved for Sogetel in Telecom Decision 2012-42 and in this decision is lower than the maximum amount of $2 per NAS per month established for the recovery of ongoing costs associated with local competition and WNP, the Commission approves an additional reduction of $0.11 in Sogetel’s PES rate component used to calculate the amount of its subsidy, effective the date that local competition and WNP are implemented for Videotron in the exchange of Beauceville.

18. Regarding the $124,000 in start-up costs approved in this decision, the Commission considers that implementation of local competition and WNP by Sogetel pursuant to a Commission direction would meet the three criteria for an exogenous event and qualify for an exogenous adjustment.⁸ The Commission notes that in Telecom Decision 2012-35, it allowed Bruce Telecom to recover its local competition and WNP start-up costs through the use of an exogenous adjustment.⁹

19. The Commission notes that an exogenous adjustment would give Sogetel the flexibility to increase rates to recover its local competition and WNP start-up costs. Therefore, the Commission approves an exogenous adjustment of $31,000 per year over a period of five years.¹⁰

20. Should Sogetel choose to take advantage of the exogenous adjustment by filing a tariff application to increase rates, its application should include a proposed cost recovery methodology that (i) complies with the regulatory framework and policies in place at the time of filing, and (ii) is consistent with previous decisions regarding the implementation of local competition for other small ILECs.¹¹

IV. Which interconnection methods and options for implementing local competition and WNP would be appropriate?

21. Sogetel proposed the construction of shared-cost facilities¹² using an OC-3 circuit¹³ for interconnection with Videotron. Videotron submitted that it would not oppose using an OC-3 circuit as the transmission technology if the companies build shared-cost interconnection facilities. However, Videotron requested that the Commission indicate that the constraint of using an OC-3 circuit would not apply to the rental of interconnection facilities if negotiations regarding the construction of shared-cost interconnection facilities prove to be unsuccessful.

22. In reply, Sogetel indicated that in Telecom Decision 2012-42, the Commission approved the construction of shared-cost facilities and the use of an OC-3 circuit. Sogetel also indicated that the construction of shared-cost facilities conforms with the recommendations set out in the CRTC Interconnection Steering Committee (CISC) report on joint build facilities.¹⁴

23. The Commission notes that CISC’s recommendations on interconnection are not specific regulatory directives but guidelines that aim to facilitate discussions between parties. The Commission notes, however, that the above-mentioned report recognizes that companies are not limited to the option of building shared-cost interconnection facilities and does not set out any standard regarding the capacity of these facilities.

24. The Commission considers that parties can negotiate other interconnection methods (i.e. renting facilities) and other interconnection options (i.e. using a capacity other than that offered by an OC-3 facility).

25. The Commission also notes that in Telecom Decision 97-8, in which it established the framework governing local competition in the large ILECs’ territories, it determined that competitors should be authorized to interconnect using shared-cost facilities in order to minimize local exchange carriers’ costs. The Commission considered that this approach would help promote competitive equity and interconnection efficiency by reducing or eliminating any incentive to impose interconnection facility costs on competitors that are higher than necessary.

26. The Commission also notes that in Telecom Decisions 2006-14 and 2011-291, it indicated that the interconnection and WNP frameworks that apply to the large ILECs should also apply to the small ILECs.

27. Accordingly, the Commission considers that the principles of competitive equity and interconnection efficiency set out in Telecom Decision 97-8 should prevail in the interconnection between Sogetel and Videotron to enable the parties to reduce their costs and, therefore, the impact on their subscribers.

28. In light of the above, the Commission concludes that Sogetel and Videotron must interconnect using the most efficient configuration, reducing as much as possible the costs to be incurred.

V. What would be a reasonable time frame to complete local competition and WNP implementation for Videotron in the exchange of Beauceville?

29. Sogetel proposed that local competition and WNP for Videotron be implemented 180 days following the date of publication of the Commission’s decision. Sogetel indicated that this time frame is generally used in the industry.

30. Videotron submitted that the proposed time frame is too long considering that the interconnection in question represents the second implementation of local competition in the exchange of Beauceville and that Sogetel has gained experience in implementing local competition for Cogeco. Videotron therefore proposed a time frame of 130 days to implement local competition and WNP.

31. The Commission notes that, despite Cogeco’s presence in the exchange of Beauceville, Sogetel must carry out many activities, such as installing interconnection facilities and conducting tests, to enable Videotron’s competitive entry.

32. In light of the above and the number portability guidelines set out by CISC, the Commission determines that all steps required to allow for local competition and WNP to be implemented for Videotron in the exchange of Beauceville are to be completed by no later than 2 October 2013, which will constitute the effective date of local competition and WNP implementation. Further, the Commission expects that the implementation of local competition and WNP be completed within a shorter time frame if the interconnection is carried out using rented facilities.

Conclusion

33. In light of all the above,

a) the Commission approves Sogetel’s implementation plan as modified above;

b) the Commission directs Sogetel to provide information and assistance to Videotron in the negotiation process, as required, in order to implement local competition and WNP as quickly as possible so that Videotron may begin operating in the exchange of Beauceville by no later than 2 October 2013; and

c) when implementing all aspects of local competition and WNP in the exchange of Beauceville, including but not limited to technical and network interconnection, Sogetel is to abide by the industry consensus items outlined in the various CISC documents related to interconnection, as well as the existing rules as outlined in the various decisions, orders, and letters issued by the Commission pertaining to local competition and WNP.

Compliance with the Policy Direction

34. The Commission considers that its approval of Sogetel’s implementation plan for local competition and WNP, as modified above, enables customers in the exchange of Beauceville to benefit from competition in the local services market by allowing them to choose among the services, options, and prices offered by different service providers. The Commission therefore considers that its determinations in this decision will advance the policy objectives set out in paragraphs 7(b), (f), and (h) of the Telecommunications Act.¹⁵

35. The Commission also considers that its conclusions will allow customers in the exchange of Beauceville to benefit from local competition within a reasonable period of time while allowing Sogetel to complete the steps required to implement local competition and WNP without imposing an overly demanding schedule on the company.

36. In light of the above, the Commission considers that its determinations are consistent with the Policy Direction¹⁶ requirements that the Commission should (i) rely on market forces to the maximum extent feasible as the means of achieving the telecommunications policy objectives; and (ii) when relying on regulation, use measures that are efficient and proportionate to their purpose and that interfere with the operation of competitive forces to the minimum extent necessary to meet the policy objectives.

Secretary General

Related documents

• Sogetel inc. – Implementation of local competition for Cogeco Cable Inc., Telecom Decision CRTC 2012-42, 24 January 2012
• Bruce Telecom – Implementation of local competition for Bragg Communications Inc., operating as EastLink, and wireless number portability for Rogers Communications, on behalf of Rogers Wireless, Telecom Decision CRTC 2012-35, 24 January 2012
• Obligation to serve and other matters, Telecom Regulatory Policy CRTC 2011-291, 3 May 2011, as amended by Telecom Regulatory Policy CRTC 2011-291-1, 12 May 2011
• Regulatory framework for the implementation of wireless number portability within the serving territories of the small incumbent local exchange carriers, Telecom Decision CRTC 2011-291, 18 December 2008
• Implementation of local competition in NorthernTel, Limited Partnership’s serving territory – ExaTEL Inc. and Ontera, Telecom Decision CRTC 2007-93, 28 September 2007, as amended by Telecom Decision CRTC 2007-93-1, 1 November 2007
• Implementation of local competition in TBayTel’s serving territory – ExaTEL Inc. and Shaw Communications Inc., Telecom Decision CRTC 2007-78, 31 August 2007
• Revised regulatory framework for the small incumbent local exchange carriers, Telecom Decision CRTC 2006-14, 29 March 2006
• Local competition, Telecom Decision CRTC 97-8, 1 May 1997

Footnotes:

[1] These exchanges are Beauceville, Lac-Etchemin, Nicolet, Sainte-Justine, Saint-Liboire, and Saint-Ludger, Quebec.

[2] In this regard, the Commission notes that, in the local competition and WNP implementation plans that it has approved in the past, not all details related to interconnecting trunks were set out; some had to be negotiated between the parties following the Commission’s approval of the plans. The Commission considers that this approach offers parties the flexibility to negotiate new arrangements as required.

[3] The CSG is functionally separate from a telecommunications company’s retail operations. Its role is to liaise and coordinate with CLECs when conducting a variety of inter-carrier activities, primarily with respect to customer transfers.

[4] The costs proposed by Sogetel in this proceeding are additional costs that Sogetel expects to incur in order to implement local competition and WNP for Videotron in the exchange of Beauceville and do not include costs resulting from the implementation of local competition for Cogeco in this exchange.

[5] Start-up costs are expressed in terms of the present worth of annual costs over the five-year study period, while ongoing annual costs are expressed as annual equivalent costs over the five-year study period.

[6] A NAS provides customers with access to the telephone network.

[7] Pursuant to Telecom Regulatory Policy 2011-291, the local competition and WNP start-up costs of small ILECs with 3,000 or fewer total residential and business NAS, including those of all their affiliates and/or their parent company, are to be reimbursed by new entrants. Given that Sogetel serves more than 3,000 NAS, this cost recovery mechanism is not available to Sogetel.

[8] An exogenous adjustment, which could result in a rate increase, reflects the financial impact associated with events or initiatives that are not captured by other elements of the price cap regime. Adjustments would be considered for events or initiatives that meet the following criteria:

a) they are legislative, judicial, or administrative actions beyond the control of the company;

b) they are addressed specifically to the telecommunications industry; and

c) they have a material impact on the company.

[9] In that decision, the Commission determined that Bruce Telecom should be allowed to recover its start-up costs over a period of five years.

[10] This amount represents Sogetel’s start-up costs of $124,000 annualized over a period of five years.

[11] See Telecom Decisions 2007-78 and 2007-93.

[12] Shared-cost facilities constitute equipment that transports local traffic between two local exchange carriers (LECs) and are built to enable local competition. The cost of building these facilities is shared equally between the LECs.

[13] An OC-3 circuit is a channel capable of digital transmission at a nominal rate of 155 megabits per second.

[14] That report (NTRE002b), submitted by the CISC Network Working Group and dated 20 April 1999, deals with the principles, building or provision possibilities, capacity use, and compensation related to facilities shared between connected LECs. The report is available on the Commission’s website at www.crtc.gc.ca under “Reports” in the CISC Network Working Group section.

[15] These objectives are the following:

7(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;

7(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

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

[16] Order Issuing a Direction to the CRTC on Implementing the Canadian Telecommunications Policy Objectives, P.C. 2006-1534, 14 December 2006