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Order CRTC 2000-425
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Ottawa, 19 May 2000 |
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Bundling framework developed
for customer-specific arrangements
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Reference: 8638-C12-16/98
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This order establishes the rules for
customer-specific agreements (CSAs) that bundle tariffed telecommunications services with
non-tariffed and/or non-telecommunications services. The new rules create criteria for
bundling tariffed and forborne services consistent with the competitive marketplace. |
1.
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In Joint marketing and bundling,
Telecom Decision CRTC 98-4, dated 24 March
1998, the Commission stated it is appropriate to further examine the bundling regime
established in Review of regulatory framework, Telecom Decision CRTC 94-19, dated 16 September 1994. The Commission
wanted to determine whether the rules for bundling tariffed services with forborne
services, with those services of affiliated and non-affiliated companies and
non-telecommunications services, should be extended to CSAs. The Commission sought
comments on the extent to which such CSAs are appropriate by the major incumbent telephone
companies and if so, whether the imputation test should be the same as prescribed in
Decision 94-19 for customer-specific bundled services. |
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Commission considered two types of
tariffs |
2.
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In Decision 94-19, the Commission considered
that greater flexibility in pricing and packaging of services by means of
customer-specific tariffs would be appropriate. Accordingly, the Commission considered two
general types of customer-specific tariffs: |
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a) those providing service, via a special
facilities or special assembly tariff (SFT), that involves service features or
technologies that differ from those covered by the general tariff (Type 1 CSA); and
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b) those providing a
bundle of services tailored to a particular customer's needs, primarily involving elements
available from the general tariff, where the purpose is to customize the offering in terms
of rate structure or levels (Type 2 CSA). |
3.
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In Decision 94-19, the Commission continued to
permit Type 1 CSAs, and implemented the following competitive safeguards: |
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a) the provision of a study demonstrating that
the imputation test is met;
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b) the telephone company demonstrating in its
tariff application that there is not sufficient demand to offer the service through the
general tariff;
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c) in order that there be no unjust
discrimination or undue preference, the service package and the associated rates, terms
and conditions provided under the customer-specific arrangement being generally available
to other customers; and
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d) resale is permitted.
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4.
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Also, in Decision 94-19, the Commission
permitted Type 2 CSAs, subject to the following competitive safeguards (which contain more
stringent imputation of costs):
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a) the provision of a study demonstrating that
the present worth of revenues under the customer-specific contract equals or exceeds the
sum of:
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i) the present worth of revenues under general
tariff rates for those service components available under the general tariff over the
duration of the customer-specific contract; and
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ii) the present worth of causal costs for
those components not covered by the general tariff rates;
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b) the telephone company demonstrating in its
tariff application that there is not sufficient demand to offer any customer-specific
elements of the service through the general tariff;
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c) in order that there be no unjust
discrimination or undue preference, the service package and the associated rates, terms
and conditions provided under the customer-specific arrangement being generally available
to other customers; and
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d) resale being permitted.
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Parties disagree over extending current
bundling regime |
5.
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Comments and/or reply comments were received
from AT&T Canada Long Distance Services Company (now AT&T Canada Telecom Services
Company), Call-Net Enterprises Inc., MetroNet Communications Group Inc., Microcell
Telecommunications Inc., Mobility Canada, Rogers Cantel Inc. and Stentor Resource Centre
Inc. 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. (major incumbent telephone companies). |
6.
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The major incumbent telephone companies and
Mobility Canada proposed that the Commission extend the current bundling regime
established for general tariffs to CSAs that include bundles of tariffed and other
services (i.e., forborne services, services of affiliated and non-affiliated
companies and non-telecommunications services offered in-house by the telephone company).
The other parties, however, submitted that it would currently be inappropriate to allow
the major incumbent telephone companies greater flexibility in the bundling of services
under CSAs. |
7.
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The major incumbent telephone companies and
Mobility Canada submitted that the Commission's bundling-related decisions, which
culminated in Decision 98-4, have established a general regime which encompasses numerous
types of bundles involving tariffed services, and that this framework should be extended
to cover all CSAs. In particular, the major incumbent telephone companies and Mobility
Canada submitted that since the regulatory, legal and economic differences between CSAs
and other tariffs are not significant, the Commission should adopt the general imputation
test, as outlined in paragraph 64 of Decision 98-4, rather than the Type 2 costing test
used for CSA bundles in Decision 94-19.
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8.
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The major incumbent telephone companies
submitted that the requirement that CSAs must be available for resale, combined with the
imputation test, limits the potential for anti-competitive cross-subsidies and unjust
discrimination since competitors and resellers would have access to such CSAs at the same
associated rates, terms and conditions. |
9.
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AT&T Canada, Call-Net, Cantel, MetroNet
and Microcell submitted that, until key restrictions on competitive entry into local
telecommunications markets are removed, it would be inappropriate to permit the major
incumbent telephone companies greater flexibility in the types of services they may bundle
in a CSA. According to AT&T Canada, the prospects for local competition in the near
term are limited because the arrangements for local competition, which they expected to be
in place by 1 January 1998, have been delayed. |
10.
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MetroNet argued that local facilities-based
competition is only in its early stages. It submitted that the necessary conditions for
competition, such as widespread implementation of local number portability, finalization
of local loop rates, determination of the location of the demarcation point in
multiple-unit dwellings and the completion of Commission-led co-location negotiations, are
still months away. According to MetroNet, all of these issues must be resolved before it
is appropriate to allow the major incumbent telephone companies greater flexibility in
bundling CSAs that involve tariffed and other services. Otherwise, MetroNet submitted that
the major incumbent telephone companies will be able to entrench their dominant positions
in the local market before local market competition has been established. |
11.
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Cantel and MetroNet submitted that, until
bundling of local exchange services can be economically and technically duplicated through
facilities-based competition, allowing the major incumbent telephone companies greater
flexibility in CSA bundling will enable them to charge lower rates for primary exchange
service to their large customers than to competing carriers. However, Cantel noted that
this issue would be less of a concern once unbundled local loop tariffs become widely
available. |
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AT&T Canada advocates implementing
new costing safeguards |
12.
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AT&T Canada submitted that should the
Commission permit greater flexibility in CSA bundling, it is imperative that appropriate
costing safeguards be implemented. In particular, AT&T Canada submitted that the more
stringent Type 2 test contained in Decision 94-19 (and not the imputation test outlined in
Decision 98-4) should be applied when the bundled CSA includes any component that is also
available under a general tariff service. This approach was also supported by Call-Net. |
13.
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AT&T Canada submitted that the Type 2 test
set out in Decision 94-19 is necessary for two reasons: |
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a) as a safeguard against unjust
discrimination (which could arise if a CSA customer is implicitly charged different rates
than those charged for competitors); and |
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b) to ensure that the major incumbent
telephone companies do not have the opportunity to circumvent the Commission's authority
with respect to the provision of general tariff services under terms and conditions that
are just and reasonable.
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14.
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AT&T Canada also submitted that the
effectiveness of implementing the Type 2 costing safeguard is dependent upon the
establishment of clear guidelines for determining when the Type 1 or Type 2 test should be
applied to a particular CSA proposal by the major incumbent telephone companies. According
to AT&T Canada, this requirement would ensure that the major incumbent telephone
companies are not accorded broad discretion to obtain approval of CSAs through the
application of the less stringent imputation test used for Type 1 CSAs.
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15.
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In order to facilitate the enforcement of its
proposed rules regarding CSAs, AT&T Canada requested that the major incumbent
telephone companies be directed to provide the following information with respect to CSA
proposals in future tariff notices: |
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a) explicit identification and justification
as to whether a CSA is Type 1 or Type 2 according to the Commission's definition in
Decision 94-19;
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b) further, in the case of a Type 1 CSA, the
telephone companies should be required to justify why such features could not be made part
of the general tariff;
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c) in cases where a CSA is identified as Type
2, the proper costing test must be performed, as specified in Decision 94-19; and
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d) the telephone companies should be required
to specify, in each CSA tariff notice, more flexible terms and conditions necessary for
other customers, including resellers, to qualify for the service and which recognized that
substantially similar circumstances would, in all probability, not require exact adherence
to the eligibility conditions proposed in the tariff filing. |
16.
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Microcell submitted that the only way for a
telephone company to quantify the causal costs of components provided by affiliated and
non-affiliated companies would be to impute the acquisition cost to the telephone company
of such components. However, Microcell argued that in the absence of stringent
requirements for arm's-length dealings, as well as a requirement that affiliates of the
major incumbent telephone companies make such components available for resale at the same
acquisition cost as they are provided to the telephone company, there can be no assurance
that such acquisition costs represent fair market value. |
17.
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In response, the major incumbent telephone
companies submitted that many of the arguments raised by the competitors are merely
restatements of arguments which they placed on the record in the proceeding leading up to
Decision 98-4. Major incumbent telephone companies also submitted that the general
bundling regime established in the bundling-related decisions (as outlined in Decision
98-4) is entirely applicable to CSAs at this time, and that this regime satisfactorily
addresses competitors' concerns and the protection of customers' interests. Accordingly,
the major incumbent telephone companies argued that CSA bundles should not be treated any
differently than bundles involving general tariff components. |
18.
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The major incumbent telephone companies
submitted that the requirement that CSA bundles must be available to competitors and
resellers for resale constitutes an effective competitive safeguard to ensure against
anti-competitive behaviour by the major incumbent telephone companies. Moreover, the major
incumbent telephone companies argued that the competitors did not present any evidence to
demonstrate they will not be able to use resale to offer bundled services to compete
against bundled CSAs offered by the major incumbent telephone companies. Further, the
major incumbent telephone companies noted that all proposed bundled CSAs, including those
which contain local exchange services, must receive Commission approval before they may be
provided to any customer. Accordingly, the major incumbent telephone companies submitted
that the Commission would be in a position to evaluate such CSAs regarding the degree to
which it is possible for competitors to duplicate the bundle.
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19.
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The major incumbent telephone companies
disagreed with AT&T Canada's proposal to apply the Type 2 test for CSAs involving
bundles of services as set out in Decision 94-19. the major incumbent telephone companies
submitted that AT&T Canada did not present any convincing evidence to demonstrate that
there is a need for a separate regulatory regime for bundled CSAs which differs from the
regime for bundles under general tariffs. Further, the major incumbent telephone companies
submitted that the Type 2 test proposed by AT&T Canada would result in several
inconsistencies between the economic test for bundled CSAs and the economic test for
bundles under the general tariff. For example, the Commission determined in Local
competition, Telecom Decision CRTC 97-8,
dated 1 May 1997, that certain tariffed local services should be included in the
imputation test for a bundled service at their Phase II incremental cost. However,
AT&T Canada's position would in effect require that these same services be imputed at
tariffed rates when they are part of a CSA bundle. |
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Barriers to local competition resolved |
20.
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The Commission notes that many of the issues
raised by interveners such as AT&T Canada, Call-Net, MetroNet, and Microcell were also
raised in an application filed by Microcell on behalf of numerous applicants (including
AT&T Canada, Call-Net and MetroNet), pursuant to section 62 of the Telecommunications
Act to review and vary Decision 98-4. Among other things, the applicants requested
that the major incumbent telephone companies not be permitted to bundle local tariffed
services with competitive services, until such time that the barriers to local competitive
entry have been substantially removed. In denying that application, Application to
review and vary telecom decision CRTC 98-4: Joint marketing and bundling, Telecom
Decision CRTC 98-20, dated
6 November 1998, stated, among other things, that the barriers to entry into the local
telephony market have been resolved and the CRTC Industry Steering Committee (CISC)
process to implement local competition is functioning as intended. The Commission notes
that competitive local service providers have entered into numerous markets across the
country since the release of Decision 98-20. Moreover, the Commission stated in Decision
98-20 (paragraph 59) that the complete elimination, or even partial elimination, of
barriers to entry in the local market is not a precondition for the major incumbent
telephone companies to bundle services. |
21.
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The Commission notes in this regard, that, as
indicated in Decision 98-20, numerous competitive safeguards for bundling services have
been established to allow for the bundling of a variety of tariffed and other services.
Decision 94-19 established the conditions and the imputation test for bundling monopoly
service elements with competitive service elements and for the bundling of CSAs. Decision
97-8 expanded the scope of Decision 94-19 to permit the bundling of local services with
forborne services. Decision 98-4 extended these conditions to the bundling of tariffed
services with services of an affiliated or non-affiliated company, and
non-telecommunications services offered in-house by the major incumbent telephone
companies.
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22.
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The Commission considers that permitting CSA
bundles to include tariffed services with forborne services and services of affiliated and
non-affiliated companies and non-telecommunications services would be consistent with the
Commission's regulatory framework for bundling.
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23.
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Further, in light of issues raised by the
interveners, the Commission considers it appropriate to extend the competitive safeguards
developed for Type 2 CSAs in Decision 94-19 to CSA bundles which include non-tariffed
services. The Commission considers that the more stringent imputation of costs contained
in this test is necessary to ensure greater protection against unjust discrimination and
undue preference given the nature of CSAs (i.e., customized bundles typically purchased by
large customers through long-term service contracts) and their potential impact on the
evolution of telecommunications competition. |
24.
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Consistent with Decisions 94-19 and 98-4, the
Commission directs that any tariff proposed by a major incumbent telephone company for a
CSA involving tariffed services bundled with forborne services and services of affiliated
and non-affiliated companies and non-telecommunications services offered in-house is
subject to the following: |
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a) provision of a study demonstrating that the
present worth of revenues under the customer-specific contract equals or exceeds the sum
of:
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i) the present worth of revenues under general
tariff rates for those service components available under the general tariff over the
duration of the customer-specific contract; |
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ii) the present worth of causal costs for
those components not covered by the general tariff rates; and |
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iii) the acquisition costs of any service
elements in the bundle acquired from an affiliated or non-affiliated company; |
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b) the telephone company demonstrating in its
tariff application that there is not sufficient demand to offer any customer-specific
elements of the service through the general tariff;
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c) in order that there be no unjust
discrimination or undue preference, the service package and the associated rates, terms
and conditions provided under the customer-specific arrangement being generally available
to other customers; and
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d) resale being permitted. |
25.
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The Commission also considers that in order to
facilitate the enforcement of the rules regarding CSA bundles, it is important that Type 1
and
Type 2 CSAs be readily distinguishable. In this regard, the Commission directs that, in
addition to the other conditions currently outlined in this order, the major incumbent
telephone companies explicitly identify and justify in their future tariff notices whether
a proposed CSA is Type 1 or Type 2.
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Secretary General
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This document is available in alternate
format upon request and may also be examined at the following Internet site: http://www.crtc.gc.ca |