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Telecom Decision CRTC 2006-49
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Ottawa, 3 August 2006 |
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The Quebec Coalition of Internet Service Providers – Part VII
application regarding Internet services
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Reference: 8622-Q18-200513566 |
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In this Decision, the Commission
disposes of a Part VII application by the Quebec Coalition of Internet
Service Providers in which it requested Commission assistance to address
certain provisioning and rate issues associated with Bell Canada's
asymmetric digital subscriber line services. |
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Introduction |
1. |
The Quebec Coalition of Internet Service
Providers (QCISP) filed an application, dated 18 November 2005, pursuant
to Part VII of the CRTC Telecommunications Rules of Procedure and
sections 24, 25, 27, 35, 37, 39, 48, 51, 60, and 61 of the
Telecommunications Act (the Act), in which it requested that the
Commission take the following actions with respect to Bell Canada's
retail and competitor asymmetric digital subscriber line (ADSL)
services: |
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- invalidate the $100 early contract termination fee applied by Bell
Canada to its retail ADSL customers, which has had a negative effect
on the ability of the QCISP's members to acquire customers;
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- declare that a 12-month promotional rate for retail ADSL Internet
service cannot be renewed repeatedly without consideration of the
promotional rate in the approval of the mark-up associated with the
rate for the comparable competitor service;
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- allow network interconnection using a high-speed service provider
interface (HSSPI) in a suitable support structure outside of the Bell
Canada central office (CO) by competitors using Gigabit Ethernet over
fibre optics to a point of interconnection (POI) in the outside plant,
similar to that available under incumbent cable carrier (ICC)
third-party Internet access (TPIA) service;
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- make a near-essential finding for Bell Canada's General Tariff
item 5400 – ADSL Access Service (General Tariff item 5400), the ADSL
access component of General Tariff item 5410 – Gateway Access Service
(GAS), and General Tariff item 5420 – High Speed Access Service (HSA
service);
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- declare that the highest mark-ups for Bell Canada's General Tariff
item 5400, GAS, and HSA service are those that Bell Canada deems
acceptable for its own comparable retail service offerings within each
band and direct Bell Canada to adjust the tariffed rates accordingly;
and
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- require Bell Canada to file updated Phase II cost studies
associated with General Tariff item 5400, GAS, and HSA service based
on 2005 data and direct Bell Canada to reflect the results in revised
tariff pages.
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Process
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2. |
The Commission received comments from Bell
Canada, MTS Allstream Inc. (MTS Allstream), Primus Telecommunications
Canada Inc. (Primus), and Cybersurf Corp. (Cybersurf) dated 19 December
2005. The QCISP submitted reply comments dated 28 December 2005. |
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The application
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3. |
The QCISP submitted that enforcement of
Forbearance from retail Internet services, Telecom Order CRTC
99-592, 25 June 1999 (Order
99-592), would end the
anticompetitive conduct by Bell Canada in the provisioning of ADSL-based
retail Internet services that was irreparably harming its members. |
4. |
In support of this view, the QCISP cited
facts and percentages from the Commission's 2001-2005 annual Report
to the Governor in Council: Status of Competition in Canadian
Telecommunications Markets – Deployment/Accessibility of Advanced
Telecommunications Infrastructure and Services,1
which collectively indicated a decline in Internet service provider
(ISP) market share and revenues between 2001 and 2005. |
5. |
The QCISP submitted that as a result of ISP
customers taking advantage of the lite high-speed Internet services2
offered by the incumbent local exchange carriers (ILECs), there had been
a reduction in dial-up Internet users and that this reduction was one of
the main causes of the decline in ISP market share and revenues between
2001 and 2005. |
6. |
The QCISP submitted that it was concerned
that the recurring promotional rate for Bell Canada's retail ADSL
Internet services could result in a margin-squeeze for its members'
Internet services. The QCISP also submitted that this margin-squeeze
could prevent its members from effectively competing against Bell Canada
in the Internet services market. |
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Positions of parties
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7. |
MTS Allstream and Cybersurf also noted the
decline in market share for small ISPs. MTS Allstream submitted that the
lack of growth and innovation observed in the competitor Internet
services market was largely due to the rates and the service structure
of Bell Canada's competitor ADSL access services. In this regard,
Cybersurf submitted that the market share statistics and cost
information provided by the QCISP in support of its application were
consistent with Cybersurf's experience as a competitor. |
8. |
In contrast, Bell Canada submitted that the
Canadian Internet services market exhibited all the characteristics of a
vigorously competitive market. Bell Canada also submitted that the
ICC ISPs were formidable competitors in the retail Internet services
market, including the Quebec retail Internet services market, where the
QCISP's members predominantly operated. Bell Canada further submitted
that it considered Vidéotron ltée (Vidéotron) as a price setter in the
Quebec Internet services market. In this regard, Bell Canada noted that
Vidéotron had consistently been the first to market in terms of
promotional offerings, forcing Bell Canada to adjust its pricing to
remain competitive. |
9. |
Bell Canada submitted that it was not
engaged in predatory pricing; rather, the low prices in the retail
Internet services market were evidence of a competitive marketplace. In
response to the QCISP's suggestion that the decline in dial-up users in
the ISP market was evidence of Bell Canada's anti-competitive behaviour,
Bell Canada submitted that customer migration from dial-up to broadband
services was, instead, evidence of natural market evolution. |
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Request for changes to terms of retail high-speed Internet services
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10. |
MTS Allstream submitted that the remedies
proposed by the QCISP with regard to the ongoing promotional rates for
retail ADSL Internet services and the $100 early contract termination
fee would amount to imposing conditions on a forborne service. MTS
Allstream also submitted that these remedies would have the undesirable
effects of increasing retail Internet services prices and of potentially
slowing growth and innovation. MTS Allstream further submitted that, in
the absence of similar remedies being imposed on the ICCs, the ILECs
would be placed at a competitive disadvantage. |
11. |
Bell Canada noted that early contract
termination fees in tariffs were commonplace and were either identified
in the tariff or set out in the general Terms of Service associated with
the company's service offerings. Bell Canada also noted that, in the
case of forborne services, it was commonplace for discounts to be
offered in exchange for term and/or volume commitments. |
12. |
Bell Canada submitted that in order to
grant the QCISP's request to invalidate Bell Canada's early contract
termination fees, the Commission would have to overturn findings that it
had made in a succession of Internet forbearance decisions and later
confirmed in successive proceedings initiated by the Independent Members
of the Canadian Association of Internet Providers (IMCAIP) in the
current decade. |
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Request to extend HSSPI outside the CO
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13. |
With respect to the QCISP's request to
allow network interconnection in a suitable support structure outside of
the CO, Bell Canada noted that the interface to a POI located in a
support structure might only be feasible in some instances, notably
where space and capacity were available and where conditions were
suitable for such equipment to be placed in the support structure in
question. Bell Canada submitted that on a mutually agreed-upon basis, it
would be willing to enter into interconnection arrangements at a POI
located outside the CO. |
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Request for reclassification of General Tariff item 5400, GAS, and
HSA service
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14. |
Bell Canada disagreed with the QCISP's
claim that General Tariff item 5400, GAS, and HSA service should be
declared near-essential services. Bell Canada submitted that these
services did not satisfy the Commission's criteria for classification
as a near-essential service, as established in Local competition,
Telecom Decision CRTC 97-8, 1 May
1997 (Decision 97-8). Bell Canada
further submitted that ISPs could self-supply ADSL service, either
by building their own parallel networks (by co-locating their own
ADSL equipment in Bell Canada's COs and subscribing to the ADSL Loop
Administration and Support component of General Tariff item 5400)
or by using an ICC TPIA service. |
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Request for re-rating of tariff components and modified tariff
structure
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15. |
In support of its request that
the mark-ups for Bell Canada's General Tariff item 5400, GAS, and HSA
service be lowered to levels that Bell Canada had deemed acceptable for
its own retail Internet services operations within each band, the QCISP
argued that once an ISP's additional operating costs were added to the
rates for GAS or HSA service, the ISP was unable to generate sufficient
profit to maintain a viable business. |
16. |
MTS Allstream submitted that competitors
had been unable to replace the revenues lost from the declining dial-up
market with other Internet services revenues due to the uneconomic rates
that competitors paid to Bell Canada for the GAS and HSA service.
Further, MTS Allstream submitted that these access components were only
one of the inputs of a competitor's Internet services, and once they
were combined with the other components necessary to provision retail
Internet services, it was difficult to offer competitive pricing for any
retail ADSL service in Bell Canada's territory. |
17. |
MTS Allstream and Cybersurf submitted that
Bell Canada's GAS and HSA service rates were too high relative to the
rates charged to their customers for the corresponding retail service.
MTS Allstream also submitted that the Commission should review the
rating structure for the GAS and HSA service, and that many of the GAS
and HSA service problems identified by the QCISP would be addressed if
Bell Canada's tariffs included a reasonable mark-up over costs but did
not differentiate by class of customer (i.e., residential or business)
or by access speed. Cybersurf also submitted that although GAS and HSA
service were classified as Category II Competitor Services, Cybersurf
has not seen the development of any significant alternative sources of
ADSL services in the marketplace. |
18. |
In response to QCISP's request that General
Tariff item 5400, GAS and HSA service be re-rated, Bell Canada noted
that since these were Category II Competitor Services, the services were
priced not only on the basis of Bell Canada's costs, but also on the
basis of alternatives available in the marketplace. Bell Canada
submitted that it would be inappropriate for the service components of
General Tariff item 5400, GAS and HSA service, other than those
components already subject to Category I Competitor Service rating
treatment, to be subject to mandated mark-ups when the alternatives to
these services (e.g., ICC TPIA) were not subject to that same costing
treatment. |
19. |
Bell Canada noted that the Commission gave
GAS and HSA service rates final approval in Bell Canada – Gateway
Access Service and High Speed Access Service, Telecom Order CRTC 2005-62,
17 February 2005 (Order 2005-62),
and that the final rates were negotiated with a broad spectrum of
industry participants as represented by IMCAIP. |
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Request for cost study updates
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20. |
The QCISP, supported by Primus, submitted
that the cost studies that Bell Canada filed with the Commission dated
19 November 2004 in support of GAS and HSA service did not reflect
current ADSL equipment costs. Further, the QCISP noted that Bell Canada
had not disputed that these cost studies were out of date. In support of
its request for updated ADSL cost studies, the QCISP provided evidence
from major manufacturers of the downward pricing of ADSL equipment over
the past several years. In the view of the QCISP, updating the GAS and
HSA service cost studies would yield substantial decreases for General
Tariff item 5400, GAS, and HSA service rates, even if the mark-ups
remained unchanged. Primus submitted that if these new cost studies
demonstrated that Bell Canada's costs had decreased, they should also be
used to determine new and lower rates for these services. |
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Commission's analysis and determinations
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Request for changes to terms of retail high-speed Internet services
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21. |
The Commission notes that in Order 99-592
the Commission conditionally forbore from regulating the retail Internet
services offered by ILECs, including Bell Canada, that had utility
segments and had implemented the split rate base regime. The Commission
also notes that in Order 99-592
it retained powers under section 24 and subsections 27(2), 27(3),
and 27(4) of the Act to, among other things, ensure that existing
conditions regarding confidential competitive information continue
to apply; to retain the power to impose conditions on the offering
and provision of Internet services as may be necessary in the future;
and to provide a safeguard against carriers granting any undue preference. |
22. |
The Commission is not persuaded by the
arguments presented by the interveners that the decline in the number of
dial-up Internet services customers necessarily implies that Bell Canada
has engaged in anti-competitive behaviour. Further, the Commission is of
the view that the decline in ISP dial-up Internet services customers is
primarily due to the migration of users from dial-up Internet services
to ILEC and ICC lite high-speed Internet services. The Commission also
notes that the lite high-speed Internet services market is subject to
competitive pricing behaviour between ILECs and ICCs. |
23. |
Accordingly, the Commission finds that the
QCISP has not established that the state of competition in the retail
Internet services market warrants the imposition of conditions pursuant
to section 24 of the Act on the terms under which Bell Canada may offer
retail Internet services. Further, the Commission finds that the QCISP
submitted no evidence that supported a finding of undue preference or
unjust discrimination to satisfy the requirements of subsection 27(2) of
the Act. |
24. |
In light of the above, the Commission
denies the request by the QCISP to invalidate the $100 early
contract termination fee applied by Bell Canada to its retail ADSL
customers, or to declare that a 12-month promotional rate for retail
ADSL Internet service cannot be renewed. |
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Request to extend HSSPI outside the CO
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25. |
The Commission notes the QCISP's request
that the HSSPI functionality be extended to allow interconnection
at a POI outside a CO. The Commission also notes that Bell Canada
indicated that, on a mutually agreed-upon basis, it would enter into
interconnection arrangements at a suitable support structure located
outside the CO, as outlined in Decision 97-8.
In light of this, the Commission considers that the request to extend
the HSSPI functionality to allow interconnection at a POI outside
a CO should be resolved through negotiations between the two parties.
In the event that parties cannot arrive at a mutually acceptable negotiated
solution, they may consult with the Commission for direction. |
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Request for reclassification of General Tariff item 5400, GAS, and
HSA service
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26. |
The Commission notes that the QCISP
requested that Bell Canada's General Tariff item 5400 and the ADSL
access components of the GAS and HSA service be reclassified as Category
I Competitor Services. The Commission also notes that the bundled GAS
and HSA service have been classified as Category II Competitor Services. |
27. |
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,
15 July 2002, the Commission described a Category I Competitor
Service as a competitor service that is in the nature of an essential
service. Further, a Category I Competitor Service makes available
a facility that is a critical input for competitors in light of its
very limited competitive supply. |
28. |
The Commission considers the nature of the
facility in question and the circumstances relevant to its supply by
competitors and third parties when it assesses whether to classify a
competitor service as a Category I Competitor Service. A competitor
service that does not meet the criteria for Category I Competitor
Services is classified as a Category II Competitor Service. |
29. |
The Commission is of the view that QCISP
members have other options for the provision of high-speed Internet
services to their customers. These include co-locating their own ADSL
equipment in Bell Canada's COs and subscribing to the ADSL Loop
Administration and Support component of General Tariff item 5400, or
using ICC TPIA service. |
30. |
In light of the above, the Commission
denies the request by the QCISP to reclassify the components of
General Tariff item 5400, GAS, and HSA service that are currently
classified as Category II Competitor Services to Category I Competitor
Services. |
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Request for re-rating of tariff components and modified tariff
structure
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31. |
With reference to MTS Allstream's request
for a review of the rating structure for GAS and HSA service and
Cybersurf's and the QCISP's requests for adjustments to the mark-ups of
Bell Canada's GAS and HSA service, the Commission notes that in the
proceeding that led to Order 2005-62, Bell Canada's GAS and HSA service
rates received industry support and were approved on a final basis. The
Commission considers that based on the record of the proceeding,
interveners have not provided sufficient evidence to justify that these
rates are no longer just and reasonable. |
32. |
In light of the above, the Commission
denies the request by MTS Allstream, Cybersurf, and the QCISP for a
review of Bell Canada's GAS and HSA service rate structure and the
mark-ups associated with those services. |
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Request for cost study updates
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33. |
The Commission notes that the primary
rationale for the QCISP's request for an update of the ADSL cost studies
was an article, dated 23 June 2005,3
that indicated that ADSL equipment costs had decreased significantly
between March 2000 and June 2005. The Commission further notes that Bell
Canada filed its cost studies for GAS and HSA service in 2003. Based on
the QCISP's data, the Commission estimates that the cost reductions of
ADSL equipment between 2003 and 2005 were much less than the cost
reductions between 2000 and 2003. The Commission considers that a review
of the cost studies would not yield material decreases with respect to
the overall cost of the GAS and HSA service. |
34. |
The Commission notes that the current GAS
and HSA service rates are the product of an industry negotiation process
and that parties to this process took into account the relationship
between rates for GAS and HSA service and the retail Internet services
rates. |
35. |
In light of the above, the Commission
denies the QCISP's request for Bell Canada to file updated Phase II
cost studies associated with General Tariff item 5400, GAS, and
HSA service. |
36. |
In light of the above, the Commission
denies the QCISP's application. |
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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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