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Telecom Decision CRTC 2018-84

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Ottawa, 7 March 2018

Public record: 8640-T66-201608408

TELUS Communications Inc. – Application for forbearance from the regulation of billing and collection service

The Commission denies TCI’s application to no longer mandate the provision of billing and collection service (BCS), which is mainly used to support casual long distance services. The Commission considers that, based on the record of the proceeding, it is not possible to assess the impact that no longer mandating BCS would have more broadly on retail long distance competition. Moreover, policy considerations support the continued mandating of BCS, as it contributes to the welfare of vulnerable customers and facilitates efficient network deployment by long distance providers.

In light of its finding that BCS should remain mandated, the Commission considers that it is not appropriate to address TCI’s forbearance request for this service.

Background

  1. The Commission has established various policies, rules, and regulations to govern the provision of wholesale telecommunications services (wholesale services), which are services that telecommunications companies provide to each other. The provision of wholesale services primarily supports competition in various retail service markets, including long distance.
  2. When the Commission set out its long distance competitive framework in Telecom Decision 92-12, it established a regulatory policy referred to as equal access, which refers to the ability of a customer to directly access the competing long distance network of their choice. As part of this regulatory policy, incumbent local exchange carriers (ILECs) were required to bill and collect on behalf of certain long distance service providers (i.e. alternate service providers or ASPs). In order to implement this regulatory policy, several wholesale services were established, including billing and collection service (BCS).Footnote 1
  3. BCS is a mandated wholesale service that requires all local exchange carriers (LECs) to bill and collect on behalf of ASPs with respect to certain eligible services. These eligible services are casual long distance services (also known as 10-10 services), 900 services, collect call services, and bill-to-third call services (collectively referred to in this decision as eligible services).Footnote 2 BCS enables an ASP to provide services to a local exchange customer without having a pre-existing billing relationship (or establishing a new one) with that customer.
  4. In Telecom Decision 2008-17, the Commission classified BCS as a mandated interconnection service. Further, the Commission indicated that it continued to consider that, in the absence of BCS, the ILECs would be conferring an undue preference on themselves and, therefore, they must make these services available to competitors.
  5. In Telecom Decision 2008-119, the Commission denied Bell Canada et al.’sFootnote 3 application to review and vary Telecom Decision 2008-17 and confirmed that BCS should be mandated. The Commission noted, among other things, that the use of billing and collection alternatives to BCS, such as customer pre-subscription and credit cards, would materially alter the nature of 10-10 services, and that BCS was integral to, and needed for, the provision of 10-10 services.
  6. In Telecom Regulatory Policy 2015-326, the Commission established its current framework for mandating wholesale services, which requires the application of an “essentiality test” and an assessment of policy considerations in order to determine whether the Commission should mandate the provision of a wholesale service. Having applied the Essentiality TestFootnote 4 to several wholesale services in that decision, the Commission indicated that parties did not provide sufficient evidence at that time to allow for a meaningful application of the Essentiality Test for certain wholesale services, including BCS; as such, a change in their existing regulatory status was not justified. Accordingly, the regulatory status of BCS remained unchanged, and therefore continued to be mandated.

Application

  1. TELUS Communications Inc. (TCI)Footnote 5 filed an application, dated 11 August 2016, in which it requested that the Commission forbear from regulating BCS provided by all LECs throughout their respective operating territories.
  2. The following parties participated in the proceeding: Bell Canada; the Canadian Network Operators Consortium Inc. (CNOC); Caztel Communications inc.; Distributel Communications Limited (Distributel); Fastrack Global Billing Networks Inc. and Triton Global Business Services Inc. (Fastrack and Triton); the Public Interest Advocacy Centre (PIAC); Telehop Communications Inc.; and Yak Communications (Canada) Corp. (Yak).
  3. While TCI has requested forbearance for all LECs, the application itself and the evidence provided to support it relate to BCS provided by TCI in its operating territory. As such, the Commission is addressing this application in the context of TCI’s operating territory only.
  4. The Commission’s determinations in this proceeding take into account the policy objectives set out in section 7 of the Telecommunications Act (the Act), as well as the Policy Direction.Footnote 6

Issues

  1. The Commission has identified the following issues to be addressed in this decision:
    • Should BCS continue to be mandated by the Commission?
    • Should the Commission forbear from regulating BCS?

Should BCS continue to be mandated by the Commission?

Background – Essentiality Test and policy considerations

  1. The first step in applying the Essentiality Test is to define the relevant markets for the wholesale service, which include product and geographic components. These markets are typically characterized as the smallest group of services and geographic area for which a firm could profitably impose a significant and sustainable price increase.
  2. Once the product and geographic markets are defined, the Commission assesses the wholesale service in question against the three components of its Essentiality Test as described below.Footnote 7
    • Input component: The Commission assesses whether the facilityFootnote 8 associated with the wholesale service is required as an input by another firm to provide downstream retail service(s).
    • Competition component: The Commission examines two elements: (i) the upstream market conditions, specifically whether a firm or group of firms have market power; and (ii) the impact that any upstream market power might have on competition levels in the associated downstream market(s).
    • Duplicability component: The Commission assesses whether it is practical or feasible for competitors to duplicate the functionality of a facility, through either self-supply or third-party supply.
  3. In addition to the Essentiality Test, the Commission applies specific policy considerations to inform, support, or possibly reverse a decision to mandate the provision of a wholesale service. These policy considerations are as follows:
    • Public Good: There is a need to mandate the service for reasons of social or consumer welfare, public safety, or public convenience.
    • Interconnection: The service would promote the efficient deployment of networks and facilitate network interconnection arrangements.
    • Innovation and Investment: Mandating or not mandating the facility or wholesale service could (i) affect the level of innovation/investment in advanced or emerging networks or services for incumbents, competitors, or both; and (ii) impact the associated level of adoption of advanced or emerging services by users of telecommunications services.
Positions of parties
Relevant markets
  1. TCI submitted that the regulatory status of BCS must depend on the eligible service that each BCS transaction supports, arguing that BCS should no longer be mandated for casual long distance calling and 900 services given that competitive billing alternatives for these services are available in Canada. However, collect and bill-to-third calls are the last resort for people without credit cards, cellphones, or perhaps even a fixed address for billing purposes, and there is insufficient evidence on the record about billing alternatives for these services. As such, TCI submitted that BCS should remain mandated for collect and bill-to-third services in order to satisfy the policy objective set out in paragraph 7(h) of the Act.Footnote 9
  2. CNOC, Distributel, and Yak generally submitted that BCS allows the non-subscribed consumption of telecommunications services in a casual or spontaneous manner (i.e. without having to subscribe, register, pre-pay, or take any action prior to using the service), and that alternative billing and collecting methods are not appropriate for eligible services as they do not provide comparable convenience for end-users. They also argued that very few customers are ready to accept other billing approaches.
  3. While Distributel and PIAC agreed with TCI that the regulatory status of BCS must depend on the eligible service that each BCS transaction supports, CNOC and Distributel disagreed that the relevant upstream product market includes BCS as well as other methods of billing and collection. CNOC and Yak submitted that the relevant upstream wholesale market consists of BCS from each LEC within its respective serving territory. CNOC and Yak argued that casual long distance calling service providers have to rely on the LEC to bill and collect from customers, as LECs are the only party that holds the necessary information to identify and bill the appropriate end-user.
  4. In reply, TCI submitted that the “no subscription” aspect might be a characteristic of casual long distance calling, but it is not a requirement for casual long distance calling, as pre-registration for the use of a service is not an onerous obligation and would not have a material impact on the choice that casual long distance calling provides.
Input component
  1. TCI submitted that BCS does not satisfy the input component of the Essentiality Test for casual long distance and 900 services. TCI argued that rather than using BCS provided by a LEC, the ASPs could simply direct bill their end-customers for the services. TCI and Bell Canada also argued that their BCS revenues have significantly declined over the past few years.
  2. CNOC and Distributel submitted that BCS satisfies the input component of the Essentiality Test. CNOC argued that given that the offering of eligible services is only possible through BCS, BCS is a required input to provide these services in the downstream market. Distributel and Yak generally submitted that the declining revenue from wholesale BCS may reflect fewer consumers using the downstream retail services, using them less often, or paying lower prices for those services, but this does not prove that substitutes are available.
  3. In reply, TCI submitted that even if BCS were no longer available, casual long distance calls themselves would not be affected, as end-users would still be able to dial the 10-10 prefix and have their calls routed to the selected ASP, and the ASP would still receive the call along with the calling party number.
Competition component
  1. TCI submitted that BCS does not satisfy the competition component of the Essentiality Test. TCI and Bell Canada argued that, given the numerous alternatives to BCS that are available to providers of retail 900 and casual long distance calling services, withdrawal of BCS would not have a significant impact on the 900 market or the long distance market, as it is unlikely that any retail customers would have to change providers or cease using the retail services. TCI also argued that (i) customers are well-accustomed to getting direct bills from service providers who provide services via telephone or Internet, (ii) billing to a credit card, bank account, or other means is commonplace, and (iii) a significant non-transitory price increase for BCS by any LEC would only hasten ASPs’ transition to these alternative billing and collection means.
  2. CNOC, Distributel, and Yak submitted that LECs have market power in the upstream market for BCS, as each LEC is the only party that maintains a billing relationship with its respective end-users and holds the necessary information to identify and bill the appropriate end-user. CNOC and Yak submitted that without regulated access to BCS, LECs would have a strong incentive not to make the service available or to offer it on unreasonable terms.
  3. PIAC submitted that eligible services continue to be important for those who make only a small volume of long distance calls, and for those unable to afford or access other communications technologies (e.g. online and wireless services). PIAC also submitted that most Canadians have never made an online payment with a credit card, and that vulnerable persons are more likely not to have a credit card, including (i) younger Canadians aged 18-34; (ii) Canadians earning less than $45,000 in income; (iii) Canadians with only a high school education; and (iv) Canadians who rent or live for free. PIAC argued that the inconvenience of having to purchase minutes online or, for those without credit cards, having to purchase a calling card in-store, would act as a substantial barrier reinforcing TCI’s market power for long distance services.
Duplicability component
  1. TCI submitted that BCS does not satisfy the duplicability component of the Essentiality Test, arguing that the evidence of certain service providers self-supplying or using third parties other than LECs to bill and collect for 900 and casual long distance calling services constitutes evidence of duplicability.
  2. CNOC, Distributel, and Yak submitted that it is neither practical nor feasible for ASPs to duplicate the functionality of LECs’ BCS, as they cannot obtain the billing information of each LEC’s telephone customers. Distributel submitted that due to the casual nature of the usage of eligible services, it would be costly and impractical for the service provider to set up an account, perform a credit check, and complete all the other steps required to establish a billing relationship with infrequent users. Yak submitted that casual long distance calling cannot exist without BCS, as BCS is a unique arrangement that cannot be duplicated.
  3. In reply, TCI submitted that there are no technical barriers for ASPs to implement alternative billing arrangements, and that FastTrack and Triton offer credit card billing.
Policy considerations
  1. TCI submitted that BCS does not satisfy any of the policy considerations cited earlier in this decision. The company argued that BCS does not pertain to networks or to interconnection, so its absence cannot affect the efficient deployment of networks or impair network interconnections.
  2. TCI also argued that continued reliance on mandated BCS will not encourage innovation and investment, nor can billing for 900 or casual long distance calling be deemed a requirement for the public good, as neither social nor consumer welfare would be harmed in the absence of mandatory BCS for these services.
  3. Yak submitted that BCS facilitates network interconnection arrangements, as it is part of the equal access regulatory framework and facilitates the delivery of long distance calls from ASPs to LECs. Yak also submitted that casual long distance calling responds to the economic and social requirements of telecommunications users, as low-income customers with local telephone service can use this service without a credit card or credit check, and it constitutes a low-cost alternative for new Canadians and recent immigrants who need to call other countries.
Commission’s analysis and determinations
Relevant product markets
  1. Identifying the relevant product markets for BCS involves an assessment of the group of products that consumers would consider to be substitutes for the service if ASPs were to face a significant and sustainable price increase for BCS.
  2. With respect to the relevant upstream product market, the proposed substitutes to be used as alternatives to BCS are not suitable for services used in a spontaneous, casual manner. Under these alternative billing and collection methods, customers would be required to take additional steps (e.g. purchase, registration, providing credit card information) before they could use an eligible service provided by an ASP, which would likely have an impact on usage of these services. In addition, based on record of this proceeding, these alternatives are not generally used for eligible services, contrary to TCI’s assertion and despite a certain level of availability.
  3. Given that the proposed alternatives are not appropriate substitutes for BCS, and that there is little evidence that end-users would generally be ready and willing to use the proposed alternative billing and collection methods for eligible services, the Commission finds that BCS represents a distinct relevant upstream product market.
  4. With respect to the relevant downstream product market, BCS was introduced in order to support competition in the wireline long distance services market and is primarily used by ASPs to provide wireline long distance services. While it could be argued that each eligible service represents a distinct downstream retail market, providing a separate assessment for each of these distinct markets would not be efficient from a regulatory perspective, considering the fact that the vast majority of BCS eligible calls are related to casual long distance calling services. As such, the regulatory status of BCS should be determined by the assessment of its primary relevant downstream market. Consequently, for the purpose of this assessment, the Commission finds that the primary relevant downstream product market is the wireline voice long distance services market.
Relevant geographic markets
  1. Identifying the relevant geographic market for a product or service generally involves the assessment of whether a customer would be willing to switch from a supplier in one area to a supplier in another area.
  2. Given that the billing information of an end-user using eligible services is only available from its serving LEC, a price increase from a LEC for its BCS may not be constrained by the availability of BCS from another LEC. As such, the Commission finds that the relevant geographic market for BCS is each LEC’s territory, and in this case, TCI’s territory.
  3. In addition, as indicated above, ASPs use BCS primarily in order to provide wireline long distance services to LEC customers. Given that long distance service providers can offer their services from anywhere in Canada to any LEC customer in Canada, the Commission considers that it would be appropriate to take into account the wireline long distance services market on a national basis when assessing the impact of BCS on the downstream retail market.
Application of the Essentiality Test – Input component
  1. While there is a decline in competitor demand for BCS in TCI’s operating territory, and that decline is expected to continue, ASPs still use BCS in this territory. In addition, based on the data gathered from ASPs that participated in this proceeding, there are still a significant number of casual long distance calling end-users that used the service over the last years.
  2. While TCI argued that casual long distance calls themselves would not be affected if BCS were no longer available, alternative billing and collection methods involve additional steps before an end-user can use an eligible service provided by an ASP. Given than the usage of eligible services, with the exception of 900 services, already generally involves a preliminary step (e.g. dialing a 10-10 number before making a casual long distance call), the requirement to perform additional steps before using a service provided by an ASP may be seen as an inconvenience by customers, which could have an impact on usage of these services. This is particularly true when a similar service is offered by the customer’s LEC without involving any prior action from the customer.Footnote 10
  3. BCS is a required input for competitors to provide casual long distance calling services. Therefore, the Commission finds that BCS meets the input component of the Essentiality Test.
Application of the Essentiality test – Competition component
  1. With respect to the upstream market, LECs maintain the billing relationship with their respective end-users and hold the necessary information to identify and bill the appropriate end-user. While TCI proposed alternative billing and collection methods, as indicated above, these methods are not appropriate substitutes, given that they are not suitable for services used in a spontaneous or casual manner. As ASPs have to rely on the LEC serving the customer in order to be able to bill for their services, the Commission considers that LECs, and in this case TCI, possess upstream market power with respect to the provision of BCS.
  2. However, the presence of upstream market power alone is not sufficient to meet the competition component of the Essentiality Test. There must also be the potential for a substantial lessening or prevention of competition in the corresponding downstream retail market(s) should access to the upstream input be denied.
  3. While the telecommunications industry, and in particular the long distance services market, has significantly evolved since BCS was first mandated, there is insufficient evidence on the record of this proceeding to adequately assess whether competition in the wireline long distance market would be substantially lessened without BCS, or whether the availability of other retail alternatives (e.g. long distance plans, wireless services, and online tools) is sufficient to mitigate such an impact.
  4. Moreover, BCS is an integral and important component of a broader regulatory policy (i.e. equal access) that was established to enable long distance competition and that still applies today. Any changes to the regulatory status of BCS would have an impact on the equal access regulatory policy and on the long distance competitive framework.
  5. As such, assessing the competition component for BCS involves not only an assessment of the competitiveness of the entire long distance market, but also, by extension, an assessment of the continuing appropriateness of the equal access regulatory policy and of the current long distance regulatory framework. The narrow scope of this proceeding does not lend itself to such a broad review and is not the appropriate venue to address all the changes that have occurred in the long distance market since competition was first introduced.
  6. In light of the above, while LECs, and in this case TCI, have upstream market power for BCS, the Commission finds that it is not possible to adequately assess the impact of BCS on the downstream retail wireline long distance market as part of this proceeding.
Application of the Essentiality Test – Duplicability component
  1. While it may be technically feasible for ASPs to duplicate the functionality of BCS and to implement alternative billing arrangements, this fact does not automatically mean that it would be practical for ASPs to do so. In order to duplicate the functionality of BCS, ASPs would have to develop their own billing and collection systems, which may not be an efficient solution to collect from customers with infrequent usage and/or to collect low charges, given the costs associated with the production of bills and management of payments. Such a solution would also probably require significant investments from ASPs to modify their current billing systems – or to develop one – to enable them to directly bill their customers, which would likely be an inefficient use of resources.
  2. As indicated in Telecom Regulatory Policy 2015-326 with respect to the duplicability component, isolated or limited duplicability does not necessarily indicate that competitors would be able to deploy facilities on a widespread basis sufficiently to discipline the exercise of incumbent carriers’ upstream market power in relation to relevant downstream markets. While certain ASPs have made attempts to duplicate the functionality of BCS, the record of this proceeding does not demonstrate that they were able to do so on a sufficient scale to have a material effect on the provision of eligible services.
  3. While Fastrack and Triton offer credit card billing for their casual long distance calling services, their other lines of services include payment solution services to other service providers. There is nothing on the record of this proceeding that suggests that these payment solution services were originally developed in order to bill and collect for their casual long distance services. In addition, as indicated above, these payment solutions are generally not used to bill and collect for casual long distance services and are not appropriate substitutes with regard to these services.
  4. As such, the Commission finds that BCS meets the duplicability component of the Essentiality Test, as it would not be practical for ASPs to duplicate the functionality of BCS.

Policy considerations

  1. Equal access technology enables customers served by switches providing equal access functionality to directly access the competing long distance network of their choice, including the long distance services of casual long distance service providers such as ASPs. In Telecom Decision 92-12, the Commission mandated equal access services in order to foster long distance competition and found that equal access includes ancillary services such as BCS. In Telecom Decision 2008-119, the Commission restated its view that BCS was part of equal access. There is little evidence on the record of this proceeding that would suggest that this is no longer the case. The Commission considers that BCS supports efficient network interconnection since it is an integral part of equal access, which itself is a policy designed in part to facilitate efficient network deployment by long distance providers.
  2. Also, as indicated above, ASPs do not have the billing information they require to directly bill their end-users, and there are no appropriate substitutes for BCS. If BCS is no longer available or is provided under unreasonable terms, a significant portion of the market would likely be obliged to change long distance providers or to cease using casual long distance calling services.
  3. While there are other types of long distance services available in the wireline long distance market, such as long distance plans, and other options available online and through wireless services, the record of this proceeding does not permit the Commission to adequately assess the impact of BCS on the downstream retail wireline long distance market. However, the record of this proceeding suggests that a significant portion of casual long distance end-users are customers who make small volumes of long distance calls and customers that may be unable to afford or access other communications technologies (e.g. online and wireless services). These customers would likely be more impacted if BCS were no longer mandated. Casual long distance calling offered through BCS may, in many cases, be a very effective and affordable way for certain vulnerable customer segments to fulfill their telecommunications needs, and continuing to mandate BCS would contribute to the welfare of these customers.
  4. In light of the above, the Commission finds that the policy considerations considered above support the continued mandating of BCS.

Conclusion on whether BCS should remain mandated

  1. While the Commission considers that BCS meets the input and duplicability components of the Essentiality Test, it is not possible to determine that BCS is an essential service as part of this proceeding, given that the assessment of the competition component is inconclusive (i.e. it is not possible to adequately assess the impact of BCS on the downstream retail wireline long distance market).
  2. However, the policy considerations addressed earlier in this decision support the continued mandating of BCS, as it contributes to the welfare of vulnerable customers and facilitates efficient network deployment by long distance providers. The Commission therefore finds that BCS should remain mandated.

Should the Commission forbear from regulating BCS?

  1. In light of its findings that BCS remains mandated, the Commission considers that it is not appropriate to address TCI’s forbearance request.

Conclusion

  1. In light of all the above, the Commission denies TCI’s application.

Policy Direction

  1. The determinations made in this decision are consistent with the Policy Direction for the reasons set out below.
  2. The Policy Direction states that the Commission, in exercising its powers and performing its duties under the Act, shall implement the policy objectives set out in section 7 of the Act, in accordance with paragraphs 1(a), (b), and (c) of the Policy Direction.
  3. The issues under consideration in this proceeding relate to the provision of BCS and its associated impact on competition in the downstream retail market of wireline long distance services, including whether BCS should no longer be mandated. The determination made in this decision that BCS should remain mandated promotes competition in the retail wireline long distance market by ensuring wholesale access to BCS by long distance service providers. Therefore, subparagraph 1(a)(ii)Footnote 11 and subparagraphs 1(b)(i), (ii), and (iv)Footnote 12 of the Policy Direction apply to the Commission’s determinations in this proceeding.
  4. In compliance with subparagraph 1(b)(i) of the Policy Direction, the policy objectives set out in paragraphs 7(a), (b), (c), (f), and (h) of the ActFootnote 13 are advanced by the determinations set out in this decision.
  5. Consistent with subparagraphs 1(a)(ii) and 1(b)(ii) of the Policy Direction, the Commission considers that the regulatory measures approved in this decision are (i) efficient and proportionate to their purpose, and minimally interfere with market forces, and (ii) neither deter economically efficient competitive entry into the market nor promote economically inefficient entry. Specifically, the determination that BCS should remain mandated is efficient and proportionate to the purpose, given the objective of supporting retail long distance competition.
  6. Consistent with subparagraph 1(b)(iv) of the Policy Direction, the Commission considers that the determinations in this decision, as they relate to network interconnection arrangements or regimes for access to networks, are technologically and competitively neutral and do not artificially favour either Canadian carriers or resellers.

Secretary General

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