Telecom Public Notice
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Ottawa, 19 January 1999
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Telecom Public Notice CRTC 99-3
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AFFILIATE RULE
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File No.: 8643-S1-01/98
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I AFFILIATE RULE FOR INTEREXCHANGE VOICE SERVICES
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1.On 16 March 1998, Stentor Resource Centre Inc. (Stentor), pursuant to Part VII of the
CRTC Telecommunications Rules of Procedure, filed, on behalf of BC TEL, Bell Canada,
Island Telecom Inc., Maritime Tel & Tel Limited, MTS Communications Inc., NBTel Inc.,
NewTel Communications Inc. and TELUS Communications Inc., an application to eliminate the
affiliate rule, as currently stated in the tariffs of the Stentor companies. Teleglobe
Canada Inc. (Teleglobe); Mobility Canada (Mobility); Call-Net Enterprises Inc., on behalf
of itself and fONOROLA Inc. (Call-Net); Rogers Cantel Inc. (Cantel) and Microcell
Telecommunications Inc. (Microcell) filed comments on Stentor's application.
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2.Stentor submitted that the underlying rationales for establishing the affiliate rule
no longer exist or have been adequately addressed by other mechanisms established by the
Commission.
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3.The affiliate rule was imposed in Resale and Sharing of Private Line Services,
Telecom Decision CRTC 90-3, 1 March 1990
(Decision 90-3), on all facilities-based interexchange carriers. In Decision 90-3 the
Commission concluded that permitting a facilities-based carrier to lease services to an
affiliate for the provision of voice services on a joint use basis would be analogous to
permitting facilities-based entry, which was not permitted at that time. There was also
concern that such use of affiliates could lead to contribution erosion.
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4.The affiliate rule was retained in Competition in the Provision of Public Long
Distance Voice Telephone Services and Related Resale and Sharing Issues, Telecom Decision CRTC 92-12, 12 June 1992, and in Affiliate
Rule, Telecom Decision CRTC 94-6, 4 March
1994 (Decision 94-6), in part, to prevent contribution erosion.
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5.In Forbearance - Regulation of Toll Services Provided by Incumbent Telephone
Companies, Telecom Decision CRTC 97-19, 18
December 1997 (Decision 97-19), the Commission found that the toll market was sufficiently
competitive to protect the interests of users, and forbore from regulating the prices of
the Stentor companies' long distance services.
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6.Stentor submitted that in light of the degree of competition in the long distance
market, the Commission's concerns set out in Decision 94-6, as summarized above, no longer
apply with regard to Stentor companies' long distance reseller affiliates.
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7.Further, Stentor argued, among other things, that with the implementation of the
carrier access tariff pursuant to Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994, contribution
rates are explicitly identified for the companies' services. Stentor submitted that,
accordingly, any potential that may have existed for the companies' affiliates to avoid or
reduce contribution no longer exists.
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8.Mobility and Teleglobe supported Stentor's application.
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9.Microcell and Cantel opposed Stentor's application on the grounds that the affiliate
rule is required to prevent unjust discrimination and undue preference by the Stentor
companies and their affiliates, and to reduce the opportunity for abuse of their dominance
in the market for long distance services.
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10.Microcell and Cantel argued that the Stentor companies could use affiliates to
circumvent the intent of regulatory rules; for example, by bundling basic exchange
services with forborne services and selling the bundled services at a lower price than
permitted under the bundling rules and safeguards, most recently discussed in Joint
Marketing and Bundling, Telecom Decision CRTC
98-4, 24 March 1998. Microcell and Cantel also argued that affiliates of the Stentor
companies would be in a position to engage in predatory pricing, since the return earned
by an affiliate would be immaterial to the combined return of a telephone company and its
affiliate.
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11.Call-Net acknowledged that the original reasons for establishing the affiliate rule
no longer exist, in view of forbearance from regulation of the Stentor companies' toll
activities in Decision 97-19 and the elimination of contribution discounts for new
entrants and line-side access.
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12.However, Call-Net argued that an affiliate rule is required to prevent the Stentor
companies from using affiliates to resell local services, and that the Commission should
retain the current affiliate rule until an affiliate rule for local services has been
established, to ensure compliance with the bundling rules.
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13.The Commission agrees with Stentor and Call-Net that the original reasons for which
the affiliate rule for interexchange voice services was established no longer exist, or
have been addressed by other mechanisms established by the Commission.
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14.However, as described below, the Commission is of the view that further comment is
needed on whether an affiliate rule is required in local markets to ensure that the
Stentor companies comply with the bundling rules and safeguards. In the interim, to ensure
compliance with these rules and safeguards, the Commission will retain the current
affiliate rule until it makes its decision on the issues raised by this Public Notice.
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II AFFILIATE RULE FOR LOCAL SERVICES
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15.Call-Net, Cantel and Microcell submitted that an affiliate rule is needed for local
services in order to prevent the Stentor companies from using unregulated reseller
affiliates to delay the development of competition in these markets.
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16.Stentor argued that an affiliate rule for local services was not required. It also
noted that the Stentor companies have been permitted to resell local services since Resale
to Provide Primary Exchange Voice Services, Telecom Decision CRTC 87-1, 12 February 1987.
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17.The Commission notes, however, that circumstances have changed since 1987, in that
the Commission has established a regulatory regime for facilities-based competition in the
provision of local services, and has forborne from regulating long distance service
prices. In view of these developments, the Commission invites comment on whether an
affiliate rule is required in local markets for reasons such as ensuring compliance with
the bundling rules and safeguards.
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III AFFILIATE RULE FOR TELEGLOBE
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18.Call-Net applied on 5 June 1998 to make Teleglobe subject to an affiliate rule. By
letter dated 3 July 1998, the Commission denied Call-Net's request for an expedited
process, and stated that Call-Net's application should be considered after the release of
the decision pursuant to the proceeding initiated by Competition in the Provision of
International Telecommunications Services, Telecom Public Notice CRTC 97-34, 2 October 1997.
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19.Bill C-17, An Act to Amend the Telecommunications Act and the Teleglobe Canada
Reorganization and Divestiture Act, which received assent on 12 March 1998, amended the
Telecommunications Act to, among other things, empower the Commission to license
international resellers. In Regulatory Regime for the Provision of International
Telecommunications Services, Telecom Decision CRTC
98-17, 1 October 1998 (Decision 98-17), the Commission determined that, as a condition
of licence, resellers of international services are prohibited from engaging in
anti-competitive conduct in the provision of telecommunications services. Such conduct
would include entering into agreements or engaging in activities that would unduly lessen
competition.
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20.The Commission invites comment on whether, with this licence condition, an affiliate
rule for Teleglobe is necessary.
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IV ISSUES
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21.The Commission invites comment on the following issues:
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(1) Whether an affiliate rule prohibiting affiliates of Stentor companies from
reselling local services is required to ensure development of effective competition in
markets for local exchange services, including comment on the effects both on the Stentor
companies and on competitors.
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(2) What form such a rule should take. For example, should there be outright
prohibition of Stentor companies' affiliates reselling local exchange services, or
alternatively, would limits on the activities of the Stentor companies' affiliates suffice
to ensure the development of competition in local services. If the latter, parties should
describe and discuss the nature of the limits on the activities of affiliates that, in
parties' views, are required.
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(3) Parties are also invited to discuss whether an affiliate rule for local services is
required to ensure that the Stentor companies comply with the bundling rules.
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(4) Finally, parties are invited to comment on whether an affiliate rule for Teleglobe
is required to ensure that Teleglobe complies with the company's remaining regulatory
requirements, or whether the conditions of licence discussed in Decision 98-17 would be
sufficient.
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V PROCEDURE
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22.The Stentor companies and Teleglobe are made parties to this proceeding.
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23.Other persons wishing to participate in this proceeding must notify the Commission
of their intention to do so by writing to Secretary General, CRTC, Ottawa, Ontario, K1A
0N2, fax: 819-953-0795, by 19 February 1999. Parties are to indicate in their notice
their Internet email address, where available. If parties do not have access to the
Internet, they are to indicate in their notice whether they wish to receive disk versions
of hard copy filings. The Commission will issue a complete list of parties and their
mailing addresses (including Internet email addresses, if available), identifying those
parties who wish to receive disk versions.
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24.Parties may file comments with the Commission, serving copies on all other parties,
by 12 March 1999.
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25.Parties may file reply comments with the Commission, serving copies on all other
parties, by 24 March 1999.
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26.Where a document is to be filed or served by a specific date, the document must be
actually received, not merely sent, by that date.
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27.The record of this proceeding may be examined, or will be made available promptly
upon request, at the Commission's offices in the following locations:
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Bank of Commerce Building
1809 Barrington Street
Suite 1007
Halifax, Nova Scotia
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Central Building
Les Terrasses de la Chaudière
1 Promenade du Portage
Room G-5
Hull, Quebec
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Place Montréal Trust
1800 McGill College Avenue
Suite 1920
Montréal, Quebec
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55 St. Clair Avenue East
Suite 624
Toronto, Ontario
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580 Hornby Street
Suite 530
Vancouver, British Columbia
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275 Portage Avenue
Suite 1810
Winnipeg, Manitoba
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28.In addition to hard copy filings, parties are encouraged to file with the Commission
electronic versions of their submissions in accordance with the Commission's Interim
Telecom Guidelines for the Handling of Machine-Readable Files, dated 30 November
1995. The Commission's Internet email address for electronically filed documents is
public.telecom@crtc.gc.ca. Electronically filed documents can be accessed at the
Commission's Internet site at http://www.crtc.gc.ca.
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Secretary General
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This document is available in alternative format upon request.
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