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Telecom Order CRTC 2021-57

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Ottawa, 11 February 2021

Public record: Tariff Notice 34

Shaw Cablesystems G.P. – Introduction of Internet 1000 wholesale high-speed access service

The Commission approves with changes, on an interim basis, Shaw’s application to introduce Internet 1000 wholesale high-speed access service. Specifically, the Commission approves a monthly access rate of $50.84, and denies the four conditions proposed by Shaw.

Background

Commission regulation of wholesale high-speed access services

  1. The Commission, pursuant section 27 of the Telecommunications Act (the Act), sets the rates that the large incumbent cable and telephone companies (collectively, the incumbents),Footnote 1 are permitted to charge competitors for wholesale high-speed access (HSA) services. Competitors use wholesale HSA services to provide their own retail Internet services.
  2. When the Commission mandates the provision of a wholesale service by the incumbents, such as wholesale HSA services, the Commission requires the incumbents to file proposed rates in a tariff supported by associated cost studies. These cost studies are generally conducted using the Phase II costing framework.
  3. In the absence of a cost study, the Commission has used a proxy approach to setting interim rates. This approach involves setting the interim rate for a new wholesale HSA service equal to the lower rate associated with the next lowest approved service speed.
  4. In Telecom Regulatory Policy 2010-632, the Commission determined that the incumbents must provide their wholesale HSA services to competitors at speeds that match all of the speed options the incumbents offer their retail Internet service customers (the speed-matching requirement).

Shaw’s previous applications to introduce aggregated wholesale HSA services

  1. On 10 July 2018, the Commission received Tariff Notice (TN) 26B from Shaw Cablesystems G.P. (Shaw), in which the company requested that the Commission approve the introduction of its aggregatedFootnote 2 wholesale Internet 300 service under new Speed Band 7, with a monthly access rate of $100.84.
  2. In Telecom Order 2018-442, the Commission approved, on an interim basis, a monthly access rate of $50.84 for wholesale Internet 300 service and Speed Band 7. In that order, the Commission noted that it had reviewed the reasonableness of Shaw’s proposed monthly access rate of $100.84, and that the rate, as it pertains to the estimation of coaxial access plant, was based on methodology and assumptions that differed from those used to establish the existing interim rates. Furthermore, the Commission noted that Shaw’s proposed methodology and assumptions had not yet been approved by the Commission.
  3. On 29 November 2018, the Commission received TN 26C, in which Shaw requested that the Commission approve the introduction of wholesale Internet 600 service under new Speed Band 8, with a monthly access rate of $112.56.
  4. In Telecom Order 2019-52, the Commission approved, on an interim basis, a monthly access rate of $50.84 for wholesale Internet 600 service and Speed Band 8. In that order, the Commission noted that Shaw had not filed the electronic version of its cost model in support of its proposed monthly access rate of $112.56. Further, the Commission stated that, in the absence of a cost study, the interim monthly access rates for new wholesale HSA service speeds are to be based on the rates for the nearest lower-speed service. Additionally, the Commission considered that, until it completed its review of the final wholesale HSA service rates, the rate for wholesale Internet 600 service and Speed Band 8 should be set, on an interim basis, at the same rate approved on an interim basis for wholesale Internet 300 service and Speed Band 7 in Telecom Order 2018-442.
  5. On 4 March 2019, the Commission received TN 26D in connection with wholesale Internet 600 service and Speed Band 8. Shaw noted that it had included the electronic version of its cost model to enable the Commission to assess the reasonableness of its proposed monthly access rate of $112.56. The Commission has not yet issued a determination regarding TN 26D.
  6. On 27 May 2020, the Commission received TN 32 from Shaw, in which the company proposed to introduce its wholesale Internet 750 service under Speed Band 8, with an interim monthly access rate of $50.84. Shaw based the rate on the interim approved rate for its wholesale Internet 300 service and Speed Band 7. The Commission approved TN 32 on an interim basis in Telecom Order 2020-325.

Shaw’s application for relief

  1. Also on 27 May 2020, the Commission received an application from Shaw (hereafter, the Relief Application), in which the company requested immediate interim relief from the speed-matching requirement as it applies to Shaw’s new residential Internet 1000 service, which offers download speeds of up to 1 gigabit per second (Gbps).Footnote 3
  2. In the Relief Application, Shaw submitted that five years have passed since the Commission issued Telecom Regulatory Policy 2015-326, which mandated competitor access to the incumbent local exchange carriers’ (ILECs) fibre-to-the-premises (FTTP) services available on a disaggregated basis.Footnote 4
  3. However, due to the lack of a final decision on wholesale FTTP access nationally, it argued that ILECs continue to enjoy a regulatory holiday from mandated wholesale HSA requirements for FTTP access and its associated high-speed service, while Shaw and other cable carriers have to contend with regulatory asymmetry with respect to required service speed offerings in the aggregated wholesale HSA service market.
  4. Due to the speed-matching requirement, the cable carriers must continue to match the wholesale market service speed tiers, while ILECs are only required to offer their wholesale customers service speeds up to those deliverable over copper or fibre-to-the-node (FTTN) facilities. Accordingly, Shaw submitted that its requested relief is urgently required to address the lack of competitive and technological neutrality pursuant to the Commission’s wholesale HSA service regime.
  5. On 29 May 2020, Commission staff sent a letter to Shaw in which it stated that, while the Relief Application is still an open proceeding before the Commission, the speed-matching requirement continues to apply. Consequently, the Internet 1000 service offered to Shaw’s retail customers must be made available concurrently on a wholesale basis. Commission staff requested that Shaw file a TN with a proposed monthly access rate for its new service, in accordance with existing rules and procedures.

Application

  1. The Commission received an application from Shaw (TN 34), dated 12 June 2020, in which the company proposed to introduce a wholesale HSA service, Internet 1000, which falls within new Speed Band 9. The service offers speeds of up to 1,000 megabits per second (Mbps) downstream (equivalent to 1 Gbps) and 25 Mbps upstream.
  2. Shaw proposed minimum and maximum interim monthly access rates of $67.79 and $84.73, respectively. These rates were calculated by taking two of its existing interim rates and pro-rating them to reflect the higher speed being offered (referred to as interpolation).Footnote 5
  3. Shaw also requested that the Commission make the availability of wholesale Internet 1000 service subject to certain conditions, which are discussed in detail below.
  4. The Commission received interventions regarding TN 34 from the Competitive Network Operators of Canada (CNOC) and TekSavvy Solutions Inc. (TekSavvy).

Issues

  1. The Commission has identified the following issues to be addressed in this order:
    • Should the Commission consider TN 34 and the Relief Application concurrently?
    • What would be the appropriate interim rate for wholesale Internet 1000 service and Speed Band 9?
    • Are Shaw’s proposed conditions for offering wholesale Internet 1000 service reasonable?

Should the Commission consider TN 34 and the Relief Application concurrently?

  1. Shaw submitted that it is seeking approval of TN 34 only if the Relief Application is denied. If the Relief Application is denied, approval of TN 34 will retain some measure of fairness for Shaw through interim rates and conditions that will allow it to continue to offer Internet 1000 service to its own retail customers.
  2. Shaw submitted that it is therefore not possible to consider TN 34 independently from the Relief Application.
  3. Shaw added that, if the Commission denies the Relief Application, then the only way to ensure some limited measure of regulatory fairness and compliance with the 2006 Policy DirectionFootnote 6 and the 2019 Policy DirectionFootnote 7 (collectively, the Policy Directions) and the telecommunications policy objectives set out in section 7 of the Act (the policy objectives) would be to mandate access based on rates and terms that ensure Shaw’s continued ability to offer Internet 1000 service. Shaw argued that, in that situation, approval of TN 34 would protect the public interest, but to a lesser extent than the approval of the Relief Application.
  4. CNOC submitted that the Relief Application has no bearing on the Commission’s consideration of TN 34, and raises no grounds whatsoever to excuse Shaw from its requirement to file a TN for its wholesale Internet 1000 service.
  5. TekSavvy submitted that Shaw’s concerns expressed in support of the proposed conditions are general policy concerns about how rates ought to be set and how services should be made available in light of an ongoing consultation that may have an impact on those rates or services. These broader policy issues should be addressed in the review of rate setting for wholesale services proceeding initiated by Telecom Notice of Consultation 2020-131, which is a stand-alone process to review the Commission’s established methodologies and tests.
  6. In its response to a request for information, Shaw reiterated that it is seeking approval of TN 34 only if the Relief Application is denied. Shaw reiterated that approval of the proposed rates, terms, and conditions set out in TN 34 is critical to offsetting the significant regulatory asymmetry and uncertainty surrounding the ongoing offering of the gigabit-speed service.
  7. In addition, Shaw submitted that TN 34 was filed solely to comply with the Commission’s request for the company to file a TN, and without prejudice to its Relief Application. Shaw argued that the public interest strongly favours approving the Relief Application rather than TN 34.

Commission’s analysis and determinations

  1. The Relief Application, including the broader policy issues the application raises, such as those related to regulatory asymmetry, is being treated as a separate proceeding and is still under the Commission’s consideration.
  2. Until such time that the Commission changes its policies, Shaw must comply with its existing regulatory obligations, including the speed-matching requirement, to provide its wholesale HSA services to competitors at speeds that match all of the speed options the incumbents offer their retail Internet service customers.
  3. It is the Commission’s view that it must, therefore, consider TN 34 independently of the Relief Application. In so doing, the Commission is seeking to ensure that the Internet 1000 service can be made available in the wholesale market as soon as possible to prevent further delay that would harm consumers and competitors.
  4. The Commission therefore denies Shaw’s request for the Commission to evaluate TN 34 concurrently with the Relief Application.

What would be the appropriate interim rate for wholesale Internet 1000 service and Speed Band 9?

  1. Shaw strongly objected to the requirement to file a tariff for its wholesale Internet 1000 service. Shaw submitted that it is unable to file a cost study to establish just and reasonable rates for this new service while the Commission’s review of the wholesale rate-setting methodology is underway, pursuant to Telecom Notice of Consultation 2020-131.
  2. Shaw further argued that, when cost studies cannot be produced at the launch of a new service speed, the Commission’s usual practice has been to approve the rate applicable to the nearest lower-speed tier on an interim basis, pending a review of a supporting cost study. However, in this case, this approach is unsuitable and will not meet the requirement for just and reasonable rates (or an approximation thereof) for two key reasons:
    • The next-lowest speed band with interim approved rates is Speed Band 7 (250 to 500 Mbps), which is 50% to 75% lower than the wholesale Internet 1000 service speed. Using the Speed Band 7 interim rates would force Shaw to offer its wholesale Internet 1000 service at rates that are below cost, at least until the review of the wholesale rate-setting methodology is completed.
    • The interim rate is likely to be in place for a long time, given the anticipated timeline of the wholesale rate-setting methodology review. Furthermore, the potential retroactive adjustments and uncertainty associated with Telecom Order 2019-288 and related legal challenges create an inherent risk to Shaw.
  3. Shaw submitted that, in light of the above-mentioned reasons and in accordance with subsection 25(1) of the Act, and consistent with its submission that rates for wholesale Internet 1000 service should be subject to commercial negotiation at this time, the appropriate interim rates should be within a rate range with a minimum rate of $67.79 and a maximum rate of $84.73 per end-user per month.
  4. Shaw based these interpolated rates with the maximum based on its current wholesale Internet 600 service interim tariffed rate of $50.84, while calculating the minimum rate from the current wholesale Internet 750 service interim tariffed rate of $50.84.
  5. Shaw submitted that its proposed approach provides a better approximation of a cost-based rate by allowing for an increase in the access rate that is proportionate to the increase in service speed. Shaw further submitted that any concerns the Commission may have about this approach are mitigated by the fact that the interim rates for both wholesale Internet 600 and Internet 750 services are derived from a below-cost service rate – that is, the rate for Shaw’s wholesale Internet 300 service.
  6. Shaw added that a rate range for wholesale Internet 1000 service leaves room for commercial negotiation – whether leading to off-tariff arrangements or flexibility in arrangements for related forborne services – which, as it submitted in the Relief Application, is entirely appropriate for gigabit-speed services.
  7. CNOC submitted that Shaw has not justified its proposed departure from the Commission’s general approach of setting interim rates, which is based on the approved rate for the next-lowest service speed in circumstances where a cost study is not available. It added that Shaw’s proposal is unprecedented and highly prejudicial to wholesale HSA service customers and Canadian consumers of downstream retail services.
  8. Accordingly, CNOC urged the Commission to deny all of Shaw’s proposals and instead establish an interim rate for Speed Band 9 and wholesale Internet 1000 service that is based on the interim rate for the nearest lower-speed tier, that is, $50.84 for Speed Band 8, as established in Telecom Order 2019-52.
  9. CNOC added that, when all appeals of Telecom Order 2019-288 are disposed of and all stays are lifted, the interim rates for speed bands 8 and 9 should be automatically adjusted in light of the final rates that apply to the next-lowest rate proxies for those services. At that time, Shaw should also be required to promptly file, for wholesale Internet 1000 service and all of its other wholesale HSA services that were introduced without cost studies, cost studies that comply with all Commission rules and prior costing determinations.
  10. TekSavvy submitted that the Commission has specifically considered and rejected interpolation proposals in the past in favour of its usual practice of setting interim rates based on an approved rate that provides a reasonable proxy.Footnote 8 
  11. TekSavvy submitted that Shaw’s interim tariffed rates for the next-lowest speed band cannot provide a reasonable proxy for wholesale Internet 1000 service, since the Commission already determined, in Telecom Order 2019-288, that those rates are not just and reasonable. Furthermore, in the same order, the Commission approved, on a final basis, a common access rate of $11.47 for all of Shaw’s speed bands.
  12. Accordingly, TekSavvy submitted that the Commission must set cost-based interim rates for wholesale Internet 1000 service using the approved just and reasonable access rate of $11.47 as a reasonable proxy.

Commission’s analysis and determinations

  1. As discussed above, Shaw did not submit a cost study for wholesale Internet 1000 service, and the service does not fall within any of Shaw’s existing speed bands with an approved rate. Instead, Shaw proposed minimum and maximum rates interpolated from interim rates for wholesale Internet 600 and Internet 750 services. In the absence of a cost study to support a proposed wholesale HSA service rate, the Commission has historically used a proxy approach to setting interim rates. This approach involves setting the interim rate for new speed bands equal to the lower rate associated with the next-lowest existing speed band.
  2. In the proceeding that led to Telecom Order 2012-706, Rogers Communications Partnership proposed interim rates for its new wholesale HSA services that were not based on cost studies, but rather on the interpolation approach. The Commission denied the interpolation approach since it deviated from past practice.
  3. In the proceeding that led to Telecom Decision 2016-117, Shaw also proposed an approach in which approved cost-based wholesale HSA service rates could be used to generate new rates through interpolation. The Commission rejected this approach, stating the following:

    23. […] interpolation has the effect of treating all costs as if they vary by speed, including speed-independent costs, which are fixed and should not change by speed. Accordingly, the Commission rejects the use of interpolation as a means of setting rates.

  4. For the same reason, the Commission does not consider it appropriate to use the interpolation approach in this case to determine the rate for Shaw’s wholesale Internet 1000 service. The interpolation approach effectively treats all costs as if they vary by speed, including fixed costs that are independent and do not change by speed. The Commission finds that an appropriate interim monthly access rate for this service would be $50.84, which is equal to the interim access rate for Speed Band 8.Footnote 9
  5. The Commission therefore approves on an interim basis, effective the date of this order, a monthly access rate of $50.84 for Shaw’s wholesale Internet 1000 service.
  6. The Commission is of the view that its approach of using the next-lowest speed tier to set the interim rate, in this case, produces a just and reasonable rate. A determination on the final rate, including the necessity for retroactive adjustments, as discussed below concerning Shaw’s Condition 2, will follow the conclusion of the review and vary proceedings related to Telecom Order 2019-288.

Are Shaw’s proposed conditions for offering wholesale Internet 1000 service reasonable?

  1. Shaw requested the Commission approve the availability of wholesale Internet 1000 service with the following conditions:
    • Condition 1: The minimum and maximum interim monthly access rates (both access and capacity) for Speed Band 9 will remain in place until the Commission has completed its review of the wholesale rate-setting methodology initiated in Telecom Notice of Consultation 2020-131, at which time a just and reasonable monthly access rate will be determined based on the results of the review.
    • Condition 2: The interim rates (both access and capacity) for Speed Band 9 will not be subject to any retroactive adjustments in connection with the final rates established for Speed Band 7.
    • Condition 3: The interim rates for Speed Band 9 will not be subject to any adjustments prior to Shaw filing the necessary evidence to establish the significant costs associated with provisioning its next-generation service speed, in accordance with the rate-setting methodology adopted by the Commission following the conclusion of the Telecom Notice of Consultation 2020-131 proceeding.
    • Condition 4: Given the significant uncertainty associated with the introduction of wholesale Internet 1000 service at the proposed interim rate, Shaw will have the ability to immediately destandardize or withdraw the service. In this regard, Shaw requested that the Commission confirm that it will waive the requirement set out in paragraph 37 of Telecom Information Bulletin 2010-455-1, which creates a 60-day period in which a wholesale HSA service provider is obligated to provide to wholesale customers a speed tier that is not available to wholesale HSA service providers’ retail customers.
  2. TekSavvy submitted that Shaw’s proposed arbitrary and self-serving conditions on the new service must be rejected in their entirety. The review of the wholesale rate-setting methodology is a stand-alone process to review the Commission’s established methodologies. Administrative decisions, such as those requested in TN 34, cannot grind to a halt or collect novel and one-sided conditions pending outcomes in other policy proceedings that may take years to be resolved.
  3. TekSavvy added that Shaw’s concerns expressed in support of the proposed conditions are general policy concerns relating to how rates ought to be set, as well as how services should be made available to wholesale customers in light of an ongoing review of the wholesale rate-setting methodology that may have an impact on those rates or services in the future. These broader policy issues should be addressed in the policy proceeding itself.
  4. TekSavvy noted that TN 34 relates to just one speed for one carrier. If Shaw were permitted to attach these conditions to its service, it would be an open invitation for all other incumbents to add similar conditions to their new service introductions as well. If the Commission had intended to put the competitive industry on hold pending the outcome of the Telecom Notice of Consultation 2020-131 proceeding, it would have ordered such conditions across the board in advance. Instead, presumably as part of the wholesale rate-setting methodology review or a related follow-up costing proceeding, the Commission will hear submissions and make a determination as to how any changes in the rate-setting methodology should apply to established rates and services, including with respect to issues of retroactivity and destandardization or withdrawal of services. As a result, the conditions that Shaw proposed must be rejected.
  5. CNOC submitted that the 60-day filing requirement for destandardization or withdrawal of services is critical
    • to ensure that wholesale HSA service customers have adequate notice to prepare themselves and their retail customers for a wholesale service destandardization or withdrawal, and
    • to enable the Commission and interested parties to scrutinize the destandardization or withdrawal application to ensure that it complies with applicable requirements and does not cause any harm to wholesale HSA service customers or Canadian consumers of affected downstream retail services.
  6. CNOC argued that Shaw proposed the removal of these important safeguards for no valid reason.
  7. In reply, Shaw submitted that CNOC and TekSavvy ignored the necessity of its proposed conditions, which are required to preserve its ability to offer competitive choice in the market for gigabit-speed sevices in western Canada, as well as to ensure that a measure of regulatory certainty and symmetry is restored to the wholesale service market.
  8. Shaw further submitted that TekSavvy’s comments fundamentally disregard the broader contextual motivation for TN 34 and the associated Relief Application. If Shaw’s objective were to gradually whittle away at the policy framework through a collection of “novel and one-sided conditions,” it would have sought to attach similar conditions to its recently launched wholesale Internet 750 service, which it did not. The conditions proposed by Shaw are appropriate in the western Canadian market for next-generation gigabit speed services, where Shaw is the only wholesale HSA service provider required to file a wholesale access tariff.
  9. Shaw further submitted that its first two proposed conditions are intended to provide a measure of regulatory stability during this period and to avoid a situation in which rates are modified.

Commission’s analysis and determinations

  1. With respect to Condition 1, which states that there should be no change in interim rates for Speed Band 9 until the Telecom Notice of Consultation 2020-131 proceeding is completed, the Commission considers that approving such a condition would deprive consumers of the benefits of new services and speeds pending an outcome of a proceeding that is a forward-looking policy and methodology review. Therefore, the Commission considers it inappropriate to approve this condition.
  2. With respect to Condition 2, where Shaw states that there should be no retroactivity associated with the interim rate for wholesale Internet 1000 service, the Commission notes that its practice is to consider determinations concerning retroactivity in light of the submissions of parties when establishing the final rate. The Commission follows this practice to ensure that it is maintaining just and reasonable rates and is furthering the policy objectives based on sound costing inputs and methodologies. The Commission is not persuaded that it should depart from this practice in this case.
  3. With respect to Condition 3, in Order 2000-789, the Commission determined that the rates for the cable carriers’ access services should be calculated using the appropriate Phase II rate-setting methodology. Accordingly, until the Commission makes final determinations with respect to the appropriate wholesale rate-setting methodology, rates associated with new wholesale HSA services must be developed using the current approved Phase II rate-setting methodology, taking into consideration and consistent with the Policy Directions issued by the Governor in Council and the Act. As discussed above, a final determination for wholesale Internet 1000 service and Speed Band 9 will follow the conclusion of the various proceedings related to Telecom Order 2019-288.
  4. With respect to Condition 4, in Telecom Decision 2016-65, the Commission proposed to align the intervention and reply periods for different types of applications as much as possible to provide greater consistency and to remove uncertainty. Specifically, as it pertains to the timeline to destandardize or withdraw a wholesale service, the Commission approved a requirement for applications to be filed at least 60 calendar days before the proposed effective date (the 60-day filing requirement).
  5. The 60-day filing requirement is critical to allow the Commission and other parties to evaluate the destandardization or withdrawal applications to ensure that they comply with all applicable requirements. It further ensures that competitors have sufficient notice to plan and prepare for the destandardization or withdrawal of a wholesale HSA service. Additionally, it is an important safeguard to ensure that consumers will not suddenly lose their service and will receive appropriate notice.
  6. Further, the Commission considers that a tariff application is not the appropriate mechanism to use to remove the 60-day filing requirement. Moreover, the Commission does not consider that there is significant uncertainty surrounding wholesale Internet 1000 service such that it requires unique treatment with respect to the 60-day filing requirement for its destandardization or withdrawal.
  7. Accordingly, the Commission denies the four conditions proposed by Shaw.

Conclusion

  1. In light of all the above, the Commission approves on an interim basis a monthly access rate of $50.84 for Shaw’s wholesale Internet 1000 service. The Commission directs Shaw to issue, within 10 days of the date of this order, revised tariff pages reflecting the Commission’s determinations set out above.Footnote 10  In addition, the Commission denies the four conditions proposed by the company.

Policy Directions

  1. The Commission regulates the provision of telecommunications services throughout Canada with an aim to implement the policy objectives and in light of the Policy Directions issued by the Governor in Council.
  2. The 2019 Policy Direction states that the Commission should consider how its decisions can promote competition, affordability, consumer interests, and innovation.
  3. The Commission has reviewed Shaw’s application in light of the 2019 Policy Direction and has considered its aspects to the extent necessary, using measures that are efficient and proportionate to their purpose. The Commission considers that approval of wholesale Internet 1000 service in a timely fashion is compliant with the 2019 Policy Direction, because it will positively impact competition and end-users due to wholesale HSA service customers having access to wholesale Internet 1000 service and being able to offer retail services to their own customers.
  4. Further, in compliance with paragraph 1(b)(i) of the 2006 Policy Direction, approval of wholesale Internet 1000 service will advance paragraph 7(f) of the Act. To ensure regulation is efficient and effective, the Commission considers that policy and methodological Footnote 11issues such as those raised by Shaw – notably, regulatory asymmetry, speed matching, and the use of interpolation as a costing methodology – should be predominantly considered in policy proceedings rather than TNs. This is to ensure all interested parties have the opportunity to participate and to ensure the Commission expeditiously disposes of TNs, thereby limiting regulatory delay in services being introduced in the market.

Secretary General

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