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Telecom Decision CRTC 2017-87

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Ottawa, 4 April 2017

File number: 8663-S4-201607293

Sogetel inc. – Implementation of local competition for CoopTel in the exchange of Nantes, Quebec

The Commission approves with changes Sogetel inc.’s implementation plan for local competition, including local number portability, for CoopTel in the exchange of Nantes, Quebec. The Commission’s decision enables customers in this exchange to benefit from local competition by allowing them to choose among the services, options, and prices offered by different service providers.

Background

  1. The regulatory framework for local competition in the serving territories of the small incumbent local exchange carriers (ILECs) is set out in Telecom Decision 2006-14. That decision includes directives that the small ILECs must follow when submitting their implementation plans. The implementation of local number portability (LNP) is one of the key requirements of that framework.
  2. The Commission reviewed this framework and determined, in Telecom Regulatory Policy 2011-291, that local competition should continue to be introduced in the serving territories of all the small ILECs based on the existing framework, subject to the modifications set out in that decision. For example, although the Commission considered that the customers of all small ILECs should be given the opportunity to benefit from local competition, it determined that small ILECs should be given special consideration with respect to cost recovery and access to the local service subsidy regime.

Application

  1. The Commission received an implementation plan for local competition, including LNP (the implementation plan), dated 30 June 2016, from Sogetel inc. (Sogetel). In accordance with the framework set out in Telecom Decision 2006-14 and modified in Telecom Regulatory Policy 2011-291, the implementation plan was submitted in response to a formal signed expression of interest from CoopTel, which indicated that CoopTel wished to interconnect with Sogetel to provide local services as a competitive local exchange carrier in the exchange of Nantes, Quebec, located in the local interconnection region (LIR) of Nantes, Quebec.
  2. In its implementation plan, Sogetel identified the services and network components that it planned to make available to CoopTel, as well as the costs related to its implementation plan.  
  3. However, Sogetel requested that the Commission deny CoopTel’s request for local competition, which it argued would enable economically inefficient access to the market in Nantes due to the prohibitive costs of the implementation plan and the limits of the local service subsidy regime set out by the Commission in Telecom Regulatory Policy 2011-291 (subsidy regime).
  4. The Commission received comments from CoopTel. The public record of this proceeding, which closed on 18 November 2016, is available on the Commission’s website at www.crtc.gc.ca or by using the file number provided above.

Issues

  1. The Commission has examined the following issues in considering Sogetel’s proposed implementation plan:
    • Which interconnection methods and options for implementing local competition in the exchange of Nantes would be appropriate?
    • Are new wholesale tariffs required to allow for the implementation of local competition in the exchange of Nantes?
    • What would be the additional costs related to the implementation of local competition for CoopTel, and what mechanisms are available to Sogetel to recover these costs?
    • What would be a reasonable time frame to implement local competition in the exchange of Nantes?

Which interconnection methods and options for implementing local competition in the exchange of Nantes would be appropriate?

  1. Sogetel proposed to respond to CoopTel’s request by using the default point of interconnection (POI)Footnote 1 in the Lac-Etchemin LIR, which is located in the central office of the Lac-Etchemin exchange, to enable CoopTel to serve the exchange of Nantes. This option would require, among other things, the replacement of the switch in Nantes, with the new switch being connected to the central control unit of the switch located in Lac-Etchemin, and construction of a new redundant 200-kilometre fibre link between Nantes and Beauceville. Sogetel noted that the details of the interconnection will have to be discussed between the two parties.
  2. In its intervention, CoopTel submitted that it was willing to accept Sogetel’s proposal to interconnect in the Lac-Etchemin LIR, since such an interconnection could be used to serve the exchanges around Lac-Etchemin as well as the exchange of Nantes. However, CoopTel explained that the obligation to interconnect in Lac-Etchemin might prevent other competitors from offering service in Nantes if they have to go through an LIR that is further away due to a technological choice made by Sogetel.
  3. In reply to a Commission request for information, Sogetel proposed two new interconnection options with lower costs than the option it had initially proposed. The first option, which is the least costly, would be to establish a new POI in Nantes and to install a new switch that allows for LNP (option 1). The second option involves using the Lac-Etchemin LIR and upgrading the ring connecting Nantes and Beauceville, instead of building a new fibre link (option 2).
  4. With respect to option 1, Sogetel indicated that the costs associated with the implementation plan would mostly stem from the capital costs of replacing the main switch with a Metaswitch brand switch to allow for LNP in the exchange of Nantes. However, Sogetel also indicated that regardless of whether local competition is implemented in Nantes, it was planning to replace all its switches that are at the end of their life, in order of priority, starting with the switch in Lac-Etchemin, which has more subscribers than the one in Nantes. Sogetel submitted that the switch in Nantes is scheduled to be replaced at the end of 2020.
  5. Sogetel argued that it is not willing to abandon its plan to install a Metaswitch brand switch in order to install a different switch or set of equipment at a lower cost. According to Sogetel, it chose the Metaswitch brand of equipment to ensure consistency within the network, thereby avoiding the additional costs of training staff on a second technology. Sogetel submitted that its search for a new switching equipment provider began with the need to replace the switch in Nantes, which did not meet the company’s quality standards. Sogetel indicated that it selected the Metaswitch brand as the result of an in-depth assessment of the existing technologies that were available to replace all its switching equipment.
  6. CoopTel submitted that if Sogetel chose the Metaswitch brand equipment to ensure consistency within its network, this implies that consistency is important for Sogetel; CoopTel therefore did not understand why Sogetel was planning to wait until 2020 to replace its switch in Nantes. CoopTel added that it is not convinced that the Metaswitch brand switch is necessarily the least costly solution and that there are many other switches available that would allow for appropriate interconnection.

Commission’s analysis and determinations

  1. In Telecom Decisions 2006-14 and 2008-122, which established the framework for local competition in the territories of the small ILECs, the Commission indicated that the interconnection and wireless number portability (WNP) frameworks that apply to the large ILECs should also apply to the small ILECs.
  2. Accordingly, the principles of competitive equity and interconnection efficiency should prevail in the interconnection between Sogetel and CoopTel to enable the parties to reduce their costs and, consequently, the impact on their subscribers.
  3. The establishment of a POI in Nantes, as proposed by Sogetel in option 1, is the most technologically and economically efficient solution. This option represents the optimal interconnection configuration, since subscribers located in Nantes would be directly connected to a local POI, resulting in lower costs to manage for network extensions. The other two options proposed by Sogetel require interconnection with the Lac-Etchemin POI, which is located about 130 kilometres away from Nantes.
  4. In addition, the implementation of option 1 could provide an incentive for some competitors to offer service in Nantes, as opposed to having to interconnect through Lac-Etchemin, which would force potential competitors to go through an LIR located further away in order to serve Nantes.
  5. Consequently, the Commission accepts option 1. Sogetel is to implement local competition by establishing a POI in Nantes and installing a switch that allows for LNP.
  6. The Commission considers that it is up to Sogetel to choose which switch to install, as long as the switch supports LNP, which is an essential functionality for the implementation of local competition in Nantes.

Are new wholesale tariffs required to allow for the implementation of local competition in the exchange of Nantes?

  1. Sogetel indicated that in Telecom Order 2012-297, the Commission approved tariffs for the purpose of implementing local competition in Sogetel’s serving territory. The company did not expect that it would need to file additional tariffs associated with CoopTel’s request.

Commission’s analysis and determinations

  1. In Telecom Decision 2006-14, the Commission concluded that a small ILEC is only required to file proposed tariffs for competitor services if it receives a bona fide request from a competitor for such services.
  2. Sogetel already has an Access Services Tariff that the Commission approved during the implementation of local competition in Sogetel’s serving territory following requests from TELUS Communications Company and Cogeco Communications Inc.
  3. CoopTel did not identify in this proceeding which services it may need. Accordingly, the Commission encourages the parties to come to an agreement on which services should be provided. If there is a change required to the rates or services that Sogetel offers, it must file a new tariff notice to that effect with the Commission.

What would be the additional costs related to the implementation of local competition for CoopTel, and what mechanisms are available to Sogetel to recover these costs?

  1. For each of its three proposed interconnection options, Sogetel submitted cost studies justifying the start-up and ongoing costs related to the implementation of local competition and LNP for CoopTel. Sogetel indicated that even option 1, which is the least costly of the three options, would involve extremely high costs, and it would be able to recover only a small percentage of these costs through the subsidy regime. 
  2. Sogetel submitted that the results of its economic analysis of the three options, which was based on a present worth of annual costs (PWAC) of five years, clearly indicate that the costs to implement option 1 are so high that even a drastic reduction of the costs would not resolve the problem.
  3. Sogetel pointed out that in Telecom Decision 2006-14, the Commission established an approval policy for local competition implementation plans to prevent precisely the type of untenable economic situation involved in the current proceeding. The company submitted that according to its economic analysis, assuming a PWAC of 10 years, it would not be able to recover more than 5% of its implementation costs through the subsidy regime. Sogetel added that the results of its analysis indicate that it would be unreasonable for the Commission to authorize the implementation of local competition in the Nantes exchange.

Commission’s analysis and determinations

  1. In its previous decisions regarding local competition, the Commission recognized that the implementation of local competition can be costly for small ILECs, but it determined that customers located in the small ILECs’ territories should not be deprived of the advantages of local competition.Footnote 2 The Commission has always recognized that local competition should continue to be implemented in the serving territories of all the small ILECs.
  2. In Telecom Regulatory Policy 2011-291, the Commission allowed for the recovery of ongoing costs related to local competition through access to the National Contribution Fund, finding that
    • the imputed $30 rate component used in calculating the subsidy requirement would be lowered by an amount equal to the lesser of the approved ongoing local competition costs on a per-network-access-service (NAS), per-month basis, or $2 per NAS per month; and
    • after the three-year period following the implementation of local competition, small ILECs that operate in competitive regulated exchanges would continue to receive monthly subsidies, but only for the number of residential NAS that they serve in those exchanges.
  3. With respect to start-up costs, they can be recovered in part through an exogenous adjustment.Footnote 3
  4. In this case, most of the implementation costs would be for Sogetel’s purchase of a new switch. The information on the record indicates that Sogetel would make this purchase in the near future, whether or not local competition is introduced in the Nantes exchange.
  5. Independently of the implementation of local competition in Nantes, Sogetel had already planned to replace all its switches that are at the end of their life and no longer meet the company’s quality requirements, including the one in Nantes. This being the case, the Commission considers that the purchase of a new switch and the costs associated with that purchase are not directly related to the introduction of local competition in the Nantes exchange.
  6. When the Commission approves the costs associated with a cost recovery plan for local competition, costs that are not directly related to the implementation of local competition are not included. In this case, the costs of buying and installing a new switch in Nantes are not directly related to the implementation of local competition in Nantes. In fact, even if Sogetel had not received a request to implement local competition in Nantes, it still planned to replace its current switch in Nantes, which is at the end of its life.
  7. The Commission therefore considers that in the context of the cost recovery plan for local competition in Nantes, the start-up costs should be limited to the costs of establishing interconnection with CoopTel, consultation costs, and the ongoing costs for portability and LNP research. The costs of installing a new switch are to be completely covered by Sogetel.
  8. Moreover, the Commission notes that in general, each rate related to the provision of a telecommunications service includes maintenance costs and the costs of replacing equipment related to the provision of service (e.g. the replacement of a switch according to a schedule based on its useful life). As well, in Order 2001-834, the Commission approved rate increases for the local residential and business services provided by la Compagnie de Téléphone Nantes inc. of $12 per month per subscriber, to allow for the installation of a new digital switch. Sogetel, which has since acquired la Compagnie de Téléphone Nantes inc., continues to benefit from these rate increases through the services it provides to customers located in Nantes.
  9. In Telecom Decisions 2012-42, 2013-176, and 2016-182 regarding local competition implementation in Sogetel’s territory, the Commission authorized exogenous adjustments of $71,000, $31,000, and $28,431 respectively for the recovery of local competition start-up costs, with corresponding reductions of $0.64, $0.11, and $0.39 to the company’s rate component used to calculate the amount of its subsidy for the recovery of ongoing costs.Footnote 4
  10. In the present case, Sogetel could decide to take advantage of an exogenous adjustment of $35,000 over five years to recover all its start-up costs and a reduction of $0.15 to its rate component used to calculate the amount of subsidy for the recovery of its ongoing costs.
  11. In light of the above and in accordance with the option accepted by the Commission – that is, the establishment of a POI in Nantes and the installation of a switch that allows for LNP – the Commission approves the costs proposed by Sogetel under that option, except for those related to the installation of the new switch.

What would be a reasonable time frame to implement local competition in the exchange of Nantes?

  1. Sogetel explained that, given the discussion on implementation costs, it does not foresee being able to implement local competition in the exchange of Nantes unless significant changes are made to the subsidy regime. Sogetel therefore indicated that it would not be able to propose a time frame before the issue of the economic viability of the implementation plan is resolved.
  2. CoopTel expressed its desire for Sogetel to implement its technological interconnection solution within a reasonable time frame.

Commission’s analysis and determinations

  1. The framework governing local competition applicable to the small ILECs did not set out a specific time frame to establish each element of an implementation plan. For example, the Commission approved a time frame of 180 days in the context of the proceedings leading to Telecom Decisions 2012-42 and 2013-176, and 150 days in the case of Telecom Decision 2016-182 (all decisions about Sogetel’s territory).
  2. Nonetheless, even if several activities related to the implementation of local competition for CoopTel must be undertaken independently of those already undertaken in the past, some elements, such as the network being connected to the LIR and the default POI, are already in place in the exchange of Nantes. Further, Sogetel now has the experience to successfully complete the implementation of local competition. However, an upgrade of the existing POI or the establishment of a new POI will be required to support number portability, as well as the installation of a switch that allows for LNP.
  3. With respect to this application, the Commission determines that local competition in Nantes must be implemented, according to the conditions set out in this decision, within 180 days of the date of this decision.

Secretary General

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