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Order CRTC 2001-184
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Ottawa, 1 March 2001 |
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Local competition: Sunset clause for near-essential facilities
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Reference: 8622-C12-12/00 |
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The CRTC extends the sunset period for near-essential facilities,
without specifying a termination date, until such time as the market for
such facilities is sufficiently competitive. |
1. |
On 11 July 2000, the Commission issued Public Notice CRTC 2000-96,
Local competition: Proceeding to consider extending the sunset rule
for near-essential facilities and to treat copper loops as essential
facilities. PN 2000-96 sought comments on: |
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a) the Commission's preliminary view that the sunset clause should
be extended beyond the current five-year period;
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b) what criteria should be used to determine the appropriate period;
and
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c) whether copper loops should be treated as essential facilities
and, if so, what criteria should be used to determine when that
treatment should end.
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2. |
Local competition, Telecom Decision CRTC 97-8,
dated 1 May 1997, provides the principles and procedures that permit
competitive entry into the local exchange market. In Decision 97-8,
the Commission mandated the unbundling of certain incumbent local
exchange carriers' (ILECs) service and facility components that
competitive local exchange carriers (CLECs) will require, but will not
generally be able to provide themselves. To this end, the Commission
established a definition of an essential facility. To be considered
essential, a facility must meet all three of the following criteria: (a)
it is monopoly controlled; (b) a CLEC requires it as an input
to provide services; and (c) a CLEC cannot duplicate it economically or
technically. The following items met the definition of essential
facility: central office codes, subscriber listings and local loops in
certain bands.
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3. |
The Commission also mandated that certain facilities, functions or
services which did not meet the definition of an essential facility, but
for which the competitive supply is very limited, also be unbundled and
priced on the basis of rating principles established for essential
facilities, for a period of five years, commencing 1 May 1997 (the sunset
clause). The Commission stated in Decision 97-8
that after this five-year period, these facilities will not be subject to
mandatory unbundling and essential facilities rating. Such items,
commonly referred to as near-essential facilities, include: local loops
in low cost bands, transiting of switched local traffic and signalling
networks (i.e., common channel signalling system 7 (CCS7)
transiting), and extended area service (EAS) delivery of CLEC-originated
switched local traffic.
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4. |
Comments and/or reply comments were received from: Bell Canada on
behalf of itself and Island Telecom Inc., Maritime Tel & Tel Limited,
MTS Communications Inc., NBTel Inc., NewTel Communications Inc. and
Saskatchewan Telecommunications (Bell Canada et al.); Action Réseau
Consommateur, the Consumers' Association of Canada, and the National
Anti-Poverty Organization (NAPO); Futureway Communications Inc.; GT Group
Telecom Services Corp. (Group Telecom); Riptide Networks Inc.; AT&T
Canada Corp. and AT&T Canada Telecom Services Company (AT&T
Canada); MaxLink Communications Inc.; Microcell Telecommunications Inc.;
Call-Net Enterprises Inc. on behalf of itself and NorthPoint Canada
Communications Inc. (Call-Net); Cannect Communications Inc., C1.com Inc.
on behalf of itself and AXXENT Corp. (C1); Vidéotron Communications Inc.
on behalf of Vidéotron (1998) ltée and Vidéotron Télécom (1998)
ltée; EastLink Telephone; TELUS Communications (B.C.) Inc. and TELUS
Communications Inc. (TELUS); and Commissioner of Competition (Competition
Bureau).
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Position of parties
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Should the sunset clause be extended?
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5. |
All of the new entrants (except Futureway) submitted that the current
five-year sunset clause for near-essential facilities, ending on
1 May 2002, should be extended. In most cases, the entrants argued
for an additional three- to five-year period, and proposed that a review
at, or near, the end of the extension period be conducted by the
Commission to determine if further extension is warranted. NAPO and the
Competition Bureau proposed that the sunset rule be extended until such
time that sufficient competition exists in the provision of
near-essential facilities and that a termination date not be specified.
They argued that an analysis of the state of competition is a better
objective standard than choosing a specific sunset date, since there is
no way to predict beforehand the evolution of competition.
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6. |
The entrants generally submitted that the sunset period for
near-essential facilities must be extended, for a number of reasons,
including:
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· local competition was slow to get started since all the necessary
regulatory policies were not resolved when Decision 97-8
was released (e.g., local number portability, rates for essential and
near-essential facilities, inter-carrier processes for critical
functions, access to municipal rights-of-way, access to buildings);
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· near-essential facilities are critical inputs required by
entrants;
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· critical barriers to entry into the local market, such as access
to municipal rights-of-way and to buildings, limit the ability of
entrants to extend their networks and acquire customers through
self-supplied facilities such as local loops;
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· the ILECs are still the only supplier of near-essential
facilities;
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· practical and economical substitutes for near-essential
facilities such as local loops, are not available; and
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· entrants face numerous cost disadvantages which in many cases
make it uneconomical to serve certain types of customers.
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7. |
Most of the entrants submitted that the ILECs will continue to be the
dominant source of supply of near-essential facilities and argued that it
is crucial that near-essential facilities remain available at regulated
rates.
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8. |
Bell Canada et al., Futureway and TELUS submitted that an extension of
the current sunset period is unwarranted and argued that the principles
established by Decision 97-8
are sound and still apply.
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9. |
Bell Canada et al. identified CLECs providing voice, data and
high-speed access (over their own facilities) in major local telephone
markets. They submitted that there is a high level of entry in the local
exchange market, and that extending the sunset period for near-essential
facilities is not a critical factor in sustaining the evolution of
competition.
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10. |
Bell Canada et al. also stated that while they are not opposed to a
reasonable extension of the sunset period, any extension must be
conditional upon the telephone companies receiving a fair price for their
services. TELUS stated that in light of the delays in implementing the
local competition regulatory framework, an 18-month extension of the
sunset date would be reasonable. However, both Bell Canada et al. and
TELUS stated that it is imperative that any such extension be firm and
final.
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11. |
Bell Canada et al., Futureway and TELUS submitted that extending the
sunset period for near-essential facilities would remove incentives for
entrants to invest in building their own facilities. They argued that
entrants' increased reliance on the facilities of the ILECs will limit
genuine competition, and thus undermine the Commission's objective of
facilities-based competition.
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12. |
The entrants and NAPO submitted that, contrary to the assertions by
Bell Canada et al. and TELUS, extending the sunset period will not
impede investment in facilities, either by the ILECs or the entrants.
They noted that since the rates charged by the ILECs for near-essential
facilities are compensatory (tariffed at Phase II costs plus a 25%
mark-up), the ILECs will continue to have an incentive to invest in such
facilities. Also, the entrants will continue to have an incentive to
build-out their own networks, since access to the ILECs' local loops will
simply complement their own build-outs, and thus make it more economic
for CLECs to serve a greater geographic range of customers and achieve
the necessary minimum efficient scale of operations. They argued that
increased competition will stimulate, not deter investment in facilities.
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What criteria should be used to determine the appropriate period?
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13. |
The entrants generally proposed that the onus should be on the ILECs
to demonstrate on a case-by-case basis that, for a given geographic
area, the near-essential facility in question is subject to sufficient
competitive supply such that CLECs have a viable alternative to the
ILECs' facilities. The following measures of competition were proposed: |
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· the Competition Bureau recommended that the Commission apply the
"sufficient competition" test, outlined in Review of
regulatory framework, Telecom Decision CRTC 94-19,
dated 19 September 1994. Call-Net and Microcell proposed a similar
test;
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· NAPO stated that mandated unbundling and price regulation would
be unnecessary when: (a) the ILEC in question had less than 60% of the
network access services (NAS), and (b) at least two other competitors
are each providing service to at least 10% of the NAS in the area in
question. Also, if alternate technologies are being utilized to serve a
significant share (say 20%) of local loops in a market, that market as
well as other similar geographic markets, should be presumed to be
sufficiently competitive; and
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· Cannect proposed there must be sufficient competitive facility
builds, such that three or more local exchange carriers are willing to
offer the facilities to a new entrant CLEC.
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14. |
Other parties, such as Group Telecom, MaxLink and C1, proposed that at
the end of the extension period, the Commission initiate a proceeding to
define the appropriate market test and to determine the regulatory
framework that will apply to services relieved of near-essential status. |
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Near-essential local loops
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15. |
The entrants submitted that the sunset rule on local loops should be
extended. They stated that local loops are a critical input affecting
their ability to compete in the local telephony market, and that
self-supply of such loops is simply not economically feasible, and has
been hampered by, among other things, difficulties and delays in
obtaining access to municipal rights-of-way and access to buildings.
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16. |
Most of the entrants also stated that economically feasible
substitutes to the ILECs' near-essential local loops are not available.
They submitted that other access technologies for providing fixed access,
such as coaxial cable, are not economically viable and are still largely
unproven or unsuitable for ubiquitous deployment.
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17. |
AT&T Canada, C1 and Group Telecom submitted that the new entrants
face a considerable cost disadvantage when deploying local loops. Since
the ILECs have nearly 100% of the market, they can optimize their feeder
systems and amortize costs over a large customer base. By contrast, the
entrants have a very small number of customers, which are
widely-dispersed. Consequently, it is difficult for the entrants to
acquire a critical mass of geographically concentrated customers that
would make self-supply of local loops economic. Thus, the entrants must
rely on unbundled loops from the ILECs.
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18. |
C1 proposed that all near-essential local loops be deemed to be
essential facilities. AT&T Canada proposed that the local loops in
question remain as near-essential facilities indefinitely, with the
exception of Type C loops (supporting T1 bandwidth) and higher-speed
accesses, which should remain near-essential for an additional five
years, followed by a review to examine the state of local competition in
near-essential facilities.
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Copper loops
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19. |
Group Telecom and Call-Net submitted that copper (i.e., metallic)
continuity of a loop, either from the ILEC's central office to the
customer's premises or the metallic portion of a combined copper/fibre
loop from the ILEC's remote switch to the customer's premises, meets the
criteria of an essential facility in bands where local loops are
currently considered essential and as a specific type of near-essential
facility in other bands. They submitted that the significance of
continuous copper loops is the metallic continuity required for digital
subscriber line (DSL) technology which enables the high-speed
transmission of alpha-numeric, sound and video information in a digital
format over ordinary copper telephone lines to and from homes and
business (e.g., high-speed Internet).
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20. |
Group Telecom, Call-Net and C1 argued that, similar to the case for
local loops in general, they must rely on the provision of continuous
copper loops by the ILECs in order to enter the DSL market. Call-Net
stated that as a result of the ILECs' copper plant monopoly, they have a
corresponding dominance in the DSL market, and that it is unlikely that a
competitive supply of copper loops will emerge at any time in the
foreseeable future.
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21. |
Bell Canada et al. and TELUS submitted that unbundled copper loops are
not the only means by which competitors can provide high-speed digital
access services to their end-customers, and stated that substitutes, such
as cable, fibre optic and various wireless technologies, are currently
being used in Canada to provide broadband voice, Internet access and data
services to customers. Further, Bell Canada et al. argued that the logic
underlying the arguments that copper loops are essential, if accepted,
would require the Commission to order cable modem, wireless and any other
providers of high-speed Internet access services to also unbundle their
service offerings.
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Transit services
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22. |
The entrants noted that transiting is provided by a carrier to permit
communications between two other carriers who are themselves not
interconnected, but who are both interconnected with the carrier offering
the transiting. The alternative to transiting is for each carrier to
connect directly with every other carrier. They noted that in Decision 97-8
the Commission found that, given the small volumes of traffic that would
be exchanged in the early stages of competition, direct interconnection
with every other CLEC, wireless service provider (WSP) and inter-exchange
carrier (IXC) would present a significant barrier to entry. Accordingly,
the Commission mandated the provisioning of transiting, at regulated
rates, for a period of five years in order to accelerate entry into the
local market by removing the burden on CLECs of having to provide trunks
between themselves and every other carrier. The ILECs are required to
provide CLECS with the following types of transit services:
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· local transit: between two CLECs for traffic originating and
terminating within the same exchange, as well as EAS transiting;
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· toll transit: between a CLEC and an IXC, for both originating and
terminating traffic; and
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· CCS7 transit: the exchange of CCS7 signalling messages between
two different carriers (CLECs, WSPs and IXCs).
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23. |
The entrants submitted that the sunset period for local, toll and EAS
transiting should be extended because they still have a very small share
of the local market, and therefore lack the critical mass of customers
that would enable the economic self-supply of transiting. They submitted
that there are no CLEC to CLEC or CLEC to IXC combinations that can cost
justify direct interconnection with every other carrier, since almost all
the traffic is ILEC to CLEC and not CLEC to CLEC.
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24. |
For example, AT&T Canada stated that traffic that would be carried
on 18 local transit trunk groups would require the construction of over
200 trunk groups if it was required to interconnect directly with three
other CLECs and four WSPs in each of the 18 exchanges.
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25. |
Transiting on an ILEC's CCS7 signalling network allows CLECs, WSPs and
IXCs that are not themselves interconnected to exchange signalling data.
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26. |
The entrants noted that in Decision 97-8,
the Commission recognized that there were no alternative sources of
supply of CCS7 signalling and that it would take time for CLECs to obtain
their own signalling transfer points (STPs). Therefore, the Commission
determined that CCS7 signalling should be subject to mandatory unbundling
and essential facilities pricing for a period of five years.
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27. |
The entrants submitted that access to the CCS7 signalling network is
essential for setting up and taking down calls, and for providing
enhanced services (e.g., call display, three-way calling, distinct
rings). They submitted that the same criteria for extending the sunset
rule for other forms of transiting should also apply to CCS7 signalling.
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Conclusions
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28. |
The Commission notes that the near-essential facilities in question
are critical inputs required by entrants, and that in virtually all cases
the ILECs are the only available source of such facilities. The
Commission considers that entrants in the local market face substantial
barriers to entry, which limit their ability to expand their networks and
acquire customers through self-supply of such facilities. Moreover, in
light of the delays in implementing local competition and remaining entry
barriers, the Commission considers that competition will not evolve
sufficiently prior to the end of the sunset period (1 May 2002). The
Commission considers that not extending the current mandated access
period for near-essential facilities would make it more difficult for
entrants to acquire the critical mass of customers necessary to make
entry and expansion of their own networks economic, and would
significantly limit the development of competition in the local exchange
market.
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29. |
The Commission considers that it would be appropriate to extend the
sunset period without specifying a particular termination date. The
Commission considers that the major disadvantage with extending the
sunset rule with a firm and final termination date is the difficulty in
determining at this time what the appropriate sunset extension period
should be. In this regard, the Commission notes that it is not possible
to accurately forecast at this time the degree to which competition in
the local market in fact will evolve. If too short a period is chosen and
sufficient alternate sources (including self-supply) of near-essential
facilities have not emerged, the evolution of local competition would be
hampered. Too long a period would be unfair to the ILECs since they would
be required to continue to provide such facilities (at mandated rates)
despite competitive alternatives being readily available to the CLECs.
The Commission therefore considers that extending the sunset period for a
specific period would not be appropriate.
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30. |
The Commission is not persuaded by Bell Canada et al.'s and TELUS'
argument that removal of a firm and final termination date for the sunset
clause would result in significantly fewer incentives for entrants to
invest in their own facilities. The Commission considers that most CLECs
will likely use the ILECs' near-essential facilities to complement their
own networks, rather than rely entirely upon the ILECs' near-essential
facilities. Indeed, availability of ILECs' near-essential facilities
during the early stages of competition, facilitates entry and would be
pro-competitive and enhance facilities-based competition.
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31. |
The Commission considers that the record of this proceeding does not
provide an adequate basis for adopting criteria that could be used as
benchmarks to determine when the market has become sufficiently
competitive to no longer require mandated unbundling and pricing.
Moreover, the Commission considers that it would be premature to adopt
criteria now in light of uncertainties with respect to the evolution of
the markets in question, the impact of current and emerging technologies,
and the relative economic positions of the various players in the market.
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32. |
The Commission agrees with those parties that proposed that no
distinctions should be made in the approach and treatment among the
different types of near-essential facilities in question. Therefore, the
Commission considers that all near-essential facilities that are the
subject of this proceeding be subject to the same determinations.
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33. |
In light of the above, the Commission extends the sunset period for
near-essential facilities, without specifying a termination date, until
such time as the market for such facilities is sufficiently competitive.
The Commission considers that the onus should be on the ILEC in question
to apply for relief from mandated unbundling and essential facilities
pricing, demonstrating that the provision of near-essential facilities is
sufficiently competitive in a particular rate band and/or geographic
area. The Commission notes that a more accurate assessment of the state
of competition in the market(s) in question can be made at that time.
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Copper loops
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34. |
The Commission notes that, contrary to the position taken by some
parties to this proceeding, the intent of PN 2000-96
was not to address the issue of whether the metallic (i.e., copper)
portion of a hybrid fibre/copper local loop should be an essential
facility (i.e. subject to mandatory unbundling). Rather, the intent
was to obtain comment on whether near-essential local loops should be
made essential.
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35. |
Based on the record of this proceeding, the Commission is not
persuaded that it would be appropriate to deem, at this time,
near-essential local loops to be essential. Nonetheless, the Commission
notes that with the extension of the sunset rule, all near-essential
local loops will be subject to mandatory unbundling and essential
facilities pricing until such time that the provision of such loops is
subject to sufficient competition.
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Secretary General
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This document is available in alternative format upon request and
may also be examined at the following Internet site: http://www.crtc.gc.ca |