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Telecom Decision CRTC 2006-56
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Ottawa, 8 September 2006 |
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Part VII application by Canada Payphone Corporation and
FCT Communications Inc. regarding incumbent local exchange
carrier tariffs for payphone access lines
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Reference: 8650-C66-200602012 |
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The Commission denies the
request made by Canada Payphone Corporation and FCT Communications
Inc. (collectively, the Competitive Providers) to freeze the current
payphone access line (PAL) rates, to maintain PAL rates in effect at
the start of the current price cap period, and to refund the PAL rates
the incumbent local exchange carriers (ILECs) collected in excess of
what is required. The Commission approves the Competitive
Providers' request for the same contract term and volume discounts
available to individual business line customers, and directs the ILECs
to issue tariff pages allowing the same contract terms for PAL
subscribers. |
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The application
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1. |
The Commission received an application
dated 27 February 2006 from Canada Payphone Corporation and FCT
Communications Inc. (collectively, the Competitive Providers), filed
under Part VII of the CRTC Telecommunications Rules of Procedure,
seeking an order from the Commission applicable to Bell Aliant
Regional Communications, Limited Partnership (Bell Aliant),1
Bell Canada; TELUS Communications Company (TCC);2
MTS Allstream Inc. (MTS Allstream); and Saskatchewan
Telecommunications (SaskTel) (collectively, the incumbent local
exchange carriers (ILECs)) that would: |
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i) direct the ILECs, on an interim basis, to freeze payphone access
line (PAL) rates at the rates in effect as of 27 February
2006; the Competitive Providers argued that this would ensure
that Bell Canada's individual business line (IBL) rate increases,
approved by the Commission in Telecom Order CRTC 2006-19,
23 January 2006, were not flowed through to PAL rates until
the matters raised by this application were resolved;
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ii) reaffirm the obligations of the ILECs to maintain rates for
PALs at the rates in effect at the start of the current price
cap period, pursuant to the capped rate treatment (0 percent
increase) prescribed in Regulatory framework for second price
cap period, Telecom Decision CRTC 2002-34,
30 May 2002, as amended by Telecom Decision CRTC 2002-34-1
dated 15 July 2002 (Decision 2002-34);
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iii) direct the ILECs to refund any amounts they collected for
PALs that were in excess of the amounts permitted in Decision
2002-34; and
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iv) direct the ILECs, on an interim basis, to file revised
tariffs to make the contract term, volume, and primary interexchange
carrier (PIC) discounts, applicable to IBL services available to the
competitive pay telephone service providers (CPTSPs) in combination
with the existing PAL discount, subject to the constraint that the
addition of discounts for term, volume, and PIC selection (to the
extent they are applied) do not result in PALs being provided at
rates below their Phase II cost plus a 15 percent mark-up.
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Background
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2. |
In Local pay telephone competition,
Telecom Decision CRTC 98-8, 30 June
1998 (Decision 98-8), the Commission
found that it was appropriate to allow competition in the local pay
telephone market. In that Decision, the Commission directed the Stentor-member
companies3
to file proposed pay telephone access tariffs. |
3. |
In CRTC sets final rates for payphone
access lines, Order CRTC 2000-858,
15 September 2000 (Order 2000-858),
the Commission set final rates for basic PAL service at 75 percent
of the tariffed rate for an IBL. In that Order, the Commission noted
that the parties to that proceeding agreed that it would be appropriate
to base the tariff rates for PAL service on the IBL tariff. The Commission
concluded that the PAL service provided by the
ILECs was a lower grade of business line service and that it was therefore
appropriate to require the ILECs to provide PAL service at a
25 percent discount from the tariffed IBL rate. The Commission
also considered that the lower rate compensated the CPTSPs for the
reduced repair service in the basic PAL service relative to that
provided with IBL service.4 |
4. |
In Decision 2002-34,
the Commission classified PAL service as a Category II competitor
service. In that Decision, the Commission capped the rates for Category
II competitor services at existing rates. |
5. |
In Follow-up to Regulatory framework
for second price cap period, Telecom Decision CRTC 2002-34–
Service basket assignment, Telecom Decision CRTC 2003-11,
18 March 2003, as amended by Telecom Decision CRTC 2003-11-1,
23 May 2003 (Decision 2003-11),
the Commission assigned competitor services to Category I or II and,
in Appendix 1, outlined whether particular Category I competitor services
were exempt from the mark-up reduction and the inflation
(I) minus productivity offset (X) pricing constraint (the I-X constraint).
The Commission set out the classification of other tariffed services
in the various service baskets in Appendix 2 to that Decision. |
6. |
In Decision 2003-11,
the Commission also ruled on SaskTel's request that the Commission
clarify which price cap constraint applied where a tariff item in
one service basket cross-referenced another tariff item in a different
service basket. The Commission confirmed at paragraph 164 of that
Decision that "…where a tariff specifically references another
tariff item, the pricing constraints that are identified in Appendix
1 or Appendix 2 for the cross-referenced item are applicable to that
item." |
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7. |
The Commission received comments in
response to the application from Bell Canada, on behalf of itself,
SaskTel, and Bell Aliant (collectively, the Companies); TCC; and
MTS Allstream, all dated 29 March 2006. The Competitive Providers
filed reply comments dated 10 April 2006. |
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Issues
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8. |
The Commission considers that there are
two key issues arising from this application, which are discussed in
this Decision in the following sections: |
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A. Which price cap constraint applies to PAL service?
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B. Should PAL service providers be eligible for contract term,
volume, and PIC discounts offered on IBL service?
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A – Which price cap constraint applies to PAL service?
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Positions of parties
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The Competitive Providers
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9. |
The Competitive Providers argued that
two different price cap constraints could apply to the setting
of PAL rates: one applicable to IBL rates and one applicable to PAL
rates. The Competitive Providers submitted that the Commission dealt
with this issue in Decisions 2002-34
and 2003-11. |
10. |
The Competitive Providers submitted that
the extent to which a competitor service element should be held to the
specified price cap constraint for a retail element must depend on the
circumstances, including: |
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i) the extent to which the competitor service element use was
different from the retail element use; this addresses concerns of
arbitrage and negative pricing pressures on the retail element;
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ii) the differences between the competitor service element price
cap constraint and the pricing flexibility afforded to the
cross-referenced retail element; and
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iii) whether an increase in the price of a competitor service
element as a result of an increase in the price of a retail element
was consistent with "just and reasonable" pricing, and with the
objectives set out in section 7 of the Telecommunications Act
(the Act).
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11. |
The Competitive Providers argued that
PALs were used to provide a very different service from the retail
service, and that lowering PAL rates would not create arbitrage
opportunities for the resale of IBL service at lower rates. |
12. |
The Competitive Providers argued further
that the Commission clearly intended to freeze PAL rates, and that it
would not be appropriate to specify a rate cap of 0 percent for PALs
only to have the ILECs increase PAL rates by as much as 35 percent
over the current price cap period. |
13. |
The Competitive Providers submitted that,
given the importance from a public policy perspective of pay telephone
service, their interpretation of the interrelationship between price
cap constraints involving competitor service elements and
cross-referenced retail elements in the context of PALs was consistent
with the objectives set out in section 7 of the Act, including
paragraphs 7(a), 7(b), 7(c), and 7(h). |
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The Companies, TCC, and MTS Allstream
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14. |
The Companies, TCC, and MTS Allstream argued
that the Commission did not set two possible price cap constraints
applicable to PALs and IBLs in Decisions 2002-34
and 2003-11. |
15. |
The Companies argued that these Decisions
set only one possible constraint for each rate element that was subject
to tariff, and that Decision 2003-11
made it clear that where a rate element, such as the rate for PALs,
cross-referenced the rate for another service, such as the rate for
IBL service, the constraint applicable to the latter rate element
was also applicable to the former service. The Companies argued further
that the Commission's guidelines in this regard provided a clear and
sensible basis for managing a common and long-standing characteristic
of ILEC tariffs in light of differences in the price cap constraints
applicable to different service baskets. |
16. |
TCC argued that the rates charged to the
Competitive Providers corresponded to the rate treatment of PAL service
set out by the Commission in Decisions 2002-34
and 2003-11. TCC submitted
that the Competitive Providers' interpretation of conflicting price
cap constraints ignored the dynamic nature of the price cap mechanism,
and that the Competitive Providers had failed to present any
compelling measurement method. |
17. |
MTS Allstream argued that Decision 2002-34
stated, in the tables of Appendix 1, that no rate adjustment to the
existing rates for PAL service was required either as a mark-up reduction
or as an I-X constraint. MTS Allstream further argued that this
meant that the rates for PAL service provided by the ILECs had
been set at the levels in effect on the date of the price cap
decision, and were to remain at the same levels for the duration of
the current price cap period. |
18. |
The Companies argued that the Commission
did not intend to freeze PAL rates in Decision 2002-34,
and that any rate change approved for IBL service thus flowed through
to the rate charged for PAL service. The Companies submitted
that had it been the Commission's intention in Decision 2002-34
to freeze PAL rates, the Commission would have set PAL rates at a
specific value in each ILEC territory instead of making the rate a
percentage of the IBL rate. |
19. |
TCC argued that the Competitive Providers
had failed to provide any compelling evidence that would substantiate
their request to freeze the PAL rates. |
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Commission's analysis and determinations
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20. |
The Commission notes that in Appendix 1
to Decisions 2002-34 and 2003-11,
PAL service was classified as a Category II competitor service
and capped at existing rate levels. The Commission further notes that
in Appendix 2 to Decision 2003-11,
IBL service was classified as a capped service and, as such, the pricing
constraints allowed for an annual increase of up to 10 percent,
along with an overall I-X constraint at the basket level. |
21. |
The Commission finds that it is clear that
the Commission intended that where a tariff specifically references
another tariff item, the pricing constraints that were identified
for the cross-referenced tariff item are applicable to that item,
as set out in paragraph 164 of Decision 2003-11. |
22. |
The Commission therefore considers that
if individual rates for IBL service were increased or decreased, these
rate changes would flow through to the PAL service rates. |
23. |
The Commission finds therefore that the
interpretation of the PAL rate price cap constraint proposed by the
Competitive Providers is incorrect, and denies the Competitive
Providers' request for an order confirming that interpretation. |
24. |
The Commission notes that the Competitive
Providers' other requests for interim and retroactive rate
adjustments, which are also based on its proposed interpretation of
the current PAL rates, would necessarily fail. |
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Positions of parties
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The Competitive Providers
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25. |
The Competitive Providers requested that
the Commission direct the ILECs to file revised tariffs to make the
contract term, volume, and PIC discounts for IBL services available to
CPTSPs in combination with the existing PAL discount, subject to the
constraint that the rate resulting from combining and applying the 25
percent discount on IBL rates and term and volume commitment discounts
should not fall below the PAL Phase II cost plus a 15 percent mark-up. |
26. |
The Competitive Providers submitted that
Bell Canada offered term and PIC commitment discounts on IBL rates,
and TCC offered term, volume, and PIC commitment discounts on
IBL rates. The Competitive Providers submitted that the PAL tariffs
were filed by the ILECs well before the introduction of contracted
term IBL service rates. |
27. |
The Competitive Providers argued that Bell
Canada and TCC had refused to offer them contract option discounts
in conjunction with the IBL used to provision PALs, notwithstanding
the fact that the Competitive Providers were prepared to make the
required term and applicable volume commitments. The Competitive Providers
further argued that this was unfair, as the parties participating
in the proceeding leading to Order 2000-858
did not have a chance to comment on whether the IBL contract options
should be considered part of the IBL rate when the PAL rate is determined. |
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The Companies, TCC, and MTS Allstream
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28. |
The Companies, TCC, and MTS Allstream
submitted that the Competitive Providers' request for term, volume,
and PIC discounts should be denied. |
29. |
The Companies argued that they had received
no request for such discounts from the Competitive Providers. The
Companies further argued that Contract pricing for business lines,
Order CRTC 2000-346,
27 April 2000 (Order 2000-346),
which approved term and PIC discounts for Bell Canada's IBL services,
was issued well before Order 2000-858
was published on 15 September 2000, and that nothing prevented
the Competitive Providers from seeking such discounts for PALs at
any time during the proceeding that led to Order 2000-858.
The Companies submitted that as the Competitive Providers already
received a significant discount for the IBL service, the Companies
had no obligation to offer additional discounts, and that to
request additional discounts was inappropriate. |
30. |
The Companies argued that it was
inappropriate for the Competitive Providers to claim that they should
now be granted additional discounts on the basis of the allegation
that they could, or should, have received additional discounts for
term, volume, and PIC commitments. The Companies submitted that the
Competitive Providers' contention that there was inherent unfairness
in the PAL proceeding was untrue. Finally, the Companies argued that
given the substantial instability and consolidation in the payphone
business market, they were justified in not offering term and volume
discounts. |
31. |
The Companies noted that neither Aliant
Telecom Inc. (now part of Bell Aliant) nor SaskTel offered term,
volume, or PIC discounts for IBL services. |
32. |
TCC submitted that the Competitive
Providers' failure to participate in the proceeding that established
rates for PAL service and the corresponding "unfairness" was entirely
irrelevant, and that the Competitive Providers had failed to provide
any compelling evidence to suggest that such discounts should be
extended to a service that was already substantially discounted. |
33. |
MTS Allstream argued that a request for
discounts offered to end-users for loyalty associated with PIC
commitments would have no application for PAL service, as the
end-users choosing the PIC and the customers using the PAL service
were not the same. |
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Commission's analysis and determinations
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34. |
The Commission acknowledges that while
the Competitive Providers could have participated in the proceeding
leading to Order 2000-346
or could have brought up the issue in the proceeding leading to Order
2000-858, they did not.
However, in the Commission's view, the fact that the request for discounts
was not made earlier is irrelevant as to whether it would be appropriate
to grant the Competitive Providers access to them at this time. |
35. |
The Commission also considers it
irrelevant that the Competitive Providers already receive
a substantial discount on the IBL rate. As noted above,
the 25 percent rate reduction for PAL service
compensates the CPTSPs for the reduced repair service in the basic PAL
service relative to that provided with IBL service. |
36. |
With respect to the Companies' and TCC's
arguments regarding deteriorating market conditions in the payphone
segment, the Commission considers that nothing on the record of this
proceeding indicates that the payphone market is more volatile than
any other telecommunications business market segment. |
37. |
With respect to MTS
Allstream's arguments on PIC discounts, the Commission notes that
in Decision 98-8a
number of safeguards were mandated as a condition of entering the
local pay telephone market. In paragraph 101(d) of that Decision,
the Commission mandated the following: the "[p]rovision of non-discriminatory
access to the networks of all APLDS [alternate providers of long
distance services] connected to the underlying LEC [local exchange
carrier] network, if long distance calling is permitted." In
the context of this Part VII application whereby the Competitive Providers
are requesting discounts based upon PIC selection, the Commission
considers that the lower PIC rates available from the IBL tariffs
took into account the end-customers' use of an ILEC's combined long
distance and primary exchange services. As customers of pay telephones
could use different long distance service providers, the PIC concept
and the attendant lower rate would not apply. Accordingly, the Commission
agrees with MTS Allstream that the CPTSPs should not be eligible
for PIC discounts |
38. |
The Commission notes that TCC offers
discounted IBL monthly rates for one-, three-, and five-year
contracts, in addition to volume discounts, while MTS Allstream offers
IBL discounts for one-, three-, and five-year contracts. |
39. |
The Commission also notes that while the
CPTSPs are customers of the ILECs' PAL service, this is essentially an
IBL service, minus a few features, and thus considers that it would be
reasonable to give the CPTSPs access to the same volume and term
discounts that are currently available to IBL customers. In the
Commission's view, the ILECs could be seen as unduly discriminating
between different types of business customers by offering volume and
term discounts to their IBL customers but not to the CPTSPs. |
40. |
In light of all the above, the Commission
finds that if the CPTSPs can make the required contract term and
applicable volume commitments with respect to the PAL service, they
should be eligible to subscribe to PAL service based on the same
contract terms that are available to IBL customers of Bell Canada,
TCC, and MTS Allstream. |
41. |
Therefore, the Commission directs the ILECs
to give the CPTSPs access to any contract term and volume discounts
associated with IBL service they offer to their IBL customers. Consistent
with the 25 percent rate reduction for PAL service set out in Order
2000-858, which compensates
the CPTSPs for the reduced repair service in the basic PAL service
relative to that provided with IBL service, the Commission finds that
the CPTSPs are eligible for a 25 percent rate reduction on the
applicable IBL contract rate. |
42. |
The ILECs are directed to issue revised
tariff pages within 10 days of the date of this Decision. |
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Secretary General |
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This document is available in alternative
format upon request, and may also be examined in PDF
format or in HTML at the following Internet site: http://www.crtc.gc.ca |
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____________________ Footnotes:
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