CASE COMMENT
CHRONIQUE DE JURISPRUDENCE
The Competitive Provision of Public Long Distance
Voice Telephone Services in Canada
Christian S. Tacit*
In Telecom Decision 92-12, the C.R.T.C.
approved an application by Unitel Communi-
cations Inc. and B.C. Rail Telecommunica-
tions/Lightel Inc. asking that the provision of
long distance telephone services be opened up
to competition. The author provides a detailed
analysis of the decision and its implications,
including those surrounding the entry of com-
petitors, resale and sharing, and regulatory
safeguards. He concludes that the decision is
an important turning point in Canadian tele-
communications, but that it should not be
viewed as the end of the struggle for more
open competition; on the contrary, he tells us,
the struggle has just begun.
Dans Ia d6cision T06com 92-12,
le
C.R.T.C. a approuv6 une requite d6pos6e par
Unitel Communications Inc. et B.C. Rail Tele-
communications/Lightel Inc. visant A per-
mettre ]a concurrence dans le domaine de l’in-
terurbain. L’auteur fait une analyse d6taill6e de
la d6cision et de ses repercussions possibles,
notamment celles qui vont influer sur l’entr~e
sur le march6 de nouveaux concurrents, la
revente et le partage, et la r~glementation. II
conclut que la d6cision marque un tournant
d6cisif dans les t6lcommunications cana-
diennes, mais qu’il ne faut pas ]a consid~rer
comme la fin de la lutte pour ]a lib6ralisation
de la concurrence, lutte qui ne fait que com-
mencer.
* Osler, Hoskin & Harcourt, Ottawa. The firm of Osler, Hoskin & Harcourt represented B.C. Rail
Telecommunications, Lightel Inc. and Call-Net Telecommunications Ltd. in the proceeding leading
to Telecom Decision 92-12 entitled Competition in the Provision of Public Long Distance Voice
Telephone Services and Related Resale and Sharing Issues, rendered on 12 June 1992 by the Cana-
dian Radio-television and Telecommunications Commission. The firm also represented the same
parties in subsequent appeals brought by other parties from that decision. The opinions expressed
in this article are solely those of the author. The author gratefully acknowledges the assistance of
Donald A. Ford in reviewing this article.
McGill Law Journal 1993
Revue de droit de McGill
To be cited as: (1993) 38 McGill L.J. 416
Mode de r6fdrence: (1993) 38 R.D. McGill 416
19931
CASE COMMENT
Synopsis
Introduction
I.
H.
Reasons for the Decision
The Terms of Entry
A. Multiple Entry
B. General Terms of.Entry
C. Contribution
D. Costs of Interconnection
I. Resale and Sharing
A. The Scope of Resale and Sharing
B. Contribution Payable by Resellers
C. General Treatment of Resellers
D. Regulatory Status of Resellers
IV. Regulatory Safeguards
A. The Issues
B. Principles Applicable to Regulatory Safeguards
C. Tariff and Pricing Principles
D.
Interconnection Arrangements
V.
The Dissent
VI. The Challenges to Decision 92-12
A. The Federal Court Appeal
B. The Cabinet Petitions
Conclusion
Introduction
Following a lengthy and complex process,’ in a landmark decision, Com-
petition in the Provision of Public Long Distance Voice Telephone Services and
Related Resale and Sharing Issues,2 the Canadian Radio-television and Tele-
communications Commission (“the Commission”) extensively liberalized com-
‘See Unitel Communications Inc. and B.C. Rail TelecommunicationslLightel Inc. – Applica-
tions to Provide Public Long Distance Voice Telephone Services and Related Resale and Sharing
Issues: Scope and Procedure (3 August 1990), Telecom Public Notice 90-73 (C.R.TC.).
2(12 June 1992), Telecom Decision 92-12 (C.R.T.C) [hereinafter Decision 92-12 or the Deci-
sion].
REVUE DE DROIT DE McGILL
[Vol. 38
petition in the provision of public long distance voice telephone services (also
called switched interexchange voice services, with competition in the provision
of such services also described as interexchange competition).
In so doing, the Commission approved the request of Unitel Communica-
tions Inc. (“Unitel”) for an order requiring Bell Canada (“Bell”), British Colum-
bia Telephone Company (“B.C. Tel”), the Island Telephone Company Limited
(“Island Tel”), Maritime Telegraph and Telephone Company, Limited
(“MT&T”), The New Brunswick Telephone Company, Limited (“NBTel”), and
Newfoundland Telephone Company Limited (“Nfld. Tel”) (collectively called
“the respondents”) to connect Unitel’s telecommunications network to their
public switched telephone networks (PSTNs) for the purpose of providing pub-
lic long distance telephone services, and to afford all reasonable and proper
facilities for the interchange of public long distance telephone traffic between
Unitel’s network and those of the respondent telephone companies.3
The Commission also approved, in principle, an application by B.C. Rail
Telecommunications (“B.C. Rail”) and Lightel Inc. (“Lightel”) (collectively
called “BCRL”) for an order requiring Bell, B.C. Tel and Unitel (“the BCRL
respondents”) to connect BCRL’s telecommunications network to the PSTNs of
Bell and B.C. Tel and to Unitel’s telecommunications network for the purpose
of providing public switched and dedicated voice and data telephone service,
and Wide Area Telephone Service (WATS).4 The Commission indicated that
once B.C. Rail, Lightel and Call-Net Telecommunications Ltd. (“Call-Net,”
which is an affiliate of Lightel), who together initiated the BCRL joint venture,
file documentation with the Commission which demonstrates that certain joint
venture agreements have been implemented, the Commission will order the
BCRL respondents to issue tariff pages providing for the interconnection of the
BCRL respondents’ systems with those of the companies which result from the
implementation of the agreements.5
Most significantly, however, the Commission embraced a competitive
model for the provision of interexchange voice services and indicated a willing-
ness to approve other future applications for interconnection by facilities-based
interexchange carriers or IXCs (i.e. new competitors employing their own trans-
mission facilities) who are willing to abide by the terms and conditions estab-
lished in the Decision.6 Accordingly, the Decision creates potential new busi-
ness opportunities for telecommunications carriers in Canada, will offer users of
telecommunications services a greater choice of telecommunications suppliers
and services, and represents a marked departure from the Commission’s previ-
ous refusal in Interexchange Competition and Related Issues,7 to permit the
predecessor of Unitel, CNCP Telecommunications, to engage in full-scale inter-
exchange competition using its own facilities interconnected to telephone com-
pany PSTNs.
3See Decision 92-12, ibid. at 1, 13.
41bid. at 1, 13-14.
51bid. at 117.
6ibid.
7(29 August 1985), Telecom Decision 85-19 (C.R.T.C.) [hereinafter Decision 85-19].
19931
CHRONIQUE DE JURISPRUDENCE
The Decision has also significantly liberalized the regime applicable to the
resale and sharing of telecommunications services provided by federally regu-
lated telecommunications carriers. Resellers and sharing groups buy large quan-
tities of telephone services (which normally only large users of such services
can afford to purchase) from telecommunications carriers and sell these services
to or share them among a number of smaller users. Resellers are motivated by
profits, whereas true sharing groups are motivated by a desire to share savings.
For simplicity, the two are often called resellers in this article. Resale and shar-
ing of telecommunications services have been liberalized over a number of
years by the Commission and this has resulted in gradually increasing compe-
tition in the provision of various types of telecommunications services.
In Resale and Sharing of Private Line Services,’ the Commission consol-
idated and extended the rules which it had developed over a number of years
governing the resale and sharing of telecommunications services offered by car-
riers under its jurisdiction. Prior to Decision 90-3 these rules permitted resale
and sharing to provide: (1) local voice services (i.e. voice services to which long
distance charges do not apply) other than pay telephone services; (2) data ser-
vices; and (3) long distance voice services which are not interconnected to tel-
ephone company PSTNs. In addition, the rules also permitted the sharing of pri-
vate line voice services which are interconnected to telephone company PSTNs,
and the resale of such services when individual circuits are dedicated to a user.
However, the Commission went much further in Decision 90-3 and, subject to
certain special terms and conditions, also permitted the resale and sharing of pri-
vate lines for joint use (i.e. private lines leased from certain federally regulated
telecommunications providers could be interconnected with telephone company
PSTNs and shared and resold to provide voice ‘services without a requirement
that a circuit be dedicated to a user).9 This effectively enabled resellers to pro-
vide long distance voice services in competition with Bell and B.C. Tel. Since
the time when the proceeding leading up to Decision 90-3 commenced, Island
Tel, MT&T, NBTel, and Nfld. Tel (collectively “the Atlantic telephone compa-
nies”), which had previously been subject to provincial regulation, have come
under the Commission’s jurisdiction as a result of the decision of the Supreme
Court of Canada in Alberta Government Telephones v. Canada (Canadian
Radio-television and Telecommunications Commission).0
In Decision 92-12, the Commission, subject to certain revised terms,
approved an application filed by Call-Net in April of 1990, in which permission
was sought for the resale and sharing for joint use of the private line services
of the Atlantic telephone companies.” The Commission also decided that the
8(1 March 1990), Telecom Decision 90-3 (C.R.T.C.) [hereinafter Decision 90-3].
91bid. at 37.
10[1989] 2 S.C.R. 225, [1989] 5 W.W.R. 385 [hereinafter AGT cited to S.C.R.].
“Decision 92-12, supra note 2 at 121. In Applications by Unitel Communications Inc. -Resale
and Sharing in the Maritimes and in the Operating Territory of AGT Limited (18 March 1991),
Telecom Letter Decision 91-2 (C.R.T.C.), the Commission had denied previous requests to permit
resale and sharing pursuant to the rules set out in Decision 90-3 in the Maritime Provinces and in
the operating territory of Alberta Government Telephones (“AGT”), prior to making a determina-
tion in Decision 92-12.
McGILL LAW JOURNAL
[Vol. 38
resale of the services of the Atlantic telephone companies should include the
other forms of resale permitted by Decision 90-3, under the same terms.’
The Decision also fully liberalized the resale of WATS and other volume
or targeted discount services, or TDSs (such as Advantage 3 and Teleplus)
offered by the respondents. 4 Use of these services will be permitted to terminate
calls in the operating territories of those telephone companies which were not
respondents (“non-respondent telephone companies”) in the proceeding (known
as “IC2”) leading up to the Decision, but use of 800 Service to originate com-
peting long distance traffic in the operating territories of non-respondent tele-
phone companies is prohibited. 5
The newly expanded resale and sharing rules and their extension to the
Atlantic Provinces will also create new business opportunities for resellers and
give consumers an even greater choice of telecommunications suppliers and ser-
vices.
I. Reasons for the Decision
Based on a thorough assessment of all of the information presented, the
Commission concluded “that increased [long distance] competition, subject to
… appropriate terms and conditions, would be in the public interest.”‘ 6 In addi-
tion, “[i]n arriving at its conclusions, the Commission determined that toll [i.e.
long distance] rates should be reduced to increase affordability of toll services,
in general, and the competitiveness of Canadian business, in particular, and to
maximize the use of Canadian telecommunications facilities.”‘7
The Commission found that not only would competition increase pressure
on the respondents to reduce rates, but also stated:
More importantly, competition … can [also] be expected to increase choice and
supplier responsiveness, particularly in terms of the number of price and service
packages tailored to address the specific needs and applications of a greater variety
of user groups. This increase in responsiveness and choice would reduce initia-
tives by business and resellers to bypass the Canadian network and would increase
the use of telecommunications as a strategic input to increase the efficiency and
effectiveness of Canadian business. In the opinion of the Commission, such choice
12Decision 92-12, ibid. at 122.
13Resellers had previously argued that they should be allowed to resell volume discount services
such as Advantage Canada given that their profitability is closely linked to the tariff structures of
the carriers from whom they procure services to be resold. See Application by Call-Net Telecom-
munications Ltd. to Review and Vary Telecom. Orders C.R.T.C. 90-1000 and 90-1001 and Deci-
sions dated 30 November 1990 and 24 December 1990 (27 February 1991), Telecom Decision 91-3
(C.R.T.C.); Bell Canada and British Columbia Telephone Company-Revisions to Monopoly Toll
Services and Voicecom Rates and Introduction of Advantage Canada (6 August 1991), Telecom
Decision 91-I1 (C.R.T.C.); and Competitive Telecommunications Association et al. -Application
to Review and Vary Final Approval of Advantage Canada (3 April 1992), Telecom Decision 92-4
(C.R.T.C.).
14Decision 92-12, supra note 2 at 127.
’51bid.
161bid. at 11.
’71bid.
1993]
CASE COMMENT
and responsiveness [could not] be met in the longer term in a single supplier envi-
ronment, nor [would it be] reasonable to assume that a single supplier can differ-
entiate in terms of product and price sufficiently to meet the specific needs and
multiple demands of different user groups.’8
The Commission rejected proposals (called Reference Plans) put forward
by various respondent and non-respondent telephone companies for reducing
toll rates through targeted discounts financed by surplus revenues (i.e. revenues
which are greater than those which such a telephone company is permitted by
the Commission to earn and retain) as an alternative to liberalized competition. 9
The Commission also rejected a number of arguments raised against
increased competition, including those based on contentions that facilities-based
interexchange competition would: (1) increase the long-run costs of supplying
telecommunications services due to the presence of economies of scale, econo-
mies of scope, or because costs are subadditive 0 or increase the respondents’
costs; ‘ (2) be uneconomic because the applicants (Unitel and BCRL) would
have higher cost structures;22 (3) lead to local rate increases which would cause
a diminution of universally affordable telephone service;’
(4) cause non-
respondent telephone companies to experience significant revenue reductions;24
(5) harm subscribers -in rural regions and in areas having low population den-
sities;’
(6) lead to reductions in the quality of service associated with the pro-
vision of telephone services;26 and (7) lead to inefficient network planning and
design.27
The Commission also expressed the concern that if it did not further liber-
alize competition
it would not only diminish the threat of future entry but also diminish the degree
of competition currently in place under the Decision 90-3 Resale rules, since the
Reference Plan rate reductions [i.e. the rate reductions planned by the respondents
during the coming years] are aimed at some of the same market segments served
by resellers. 28
The Commission has, for a number of years, accepted the premise that long
distance services are priced significantly above cost, in order to provide a source
of funds (called contribution) which cross-subsidizes the cost of providing tel-
ephone company subscribers access to the PSTNs, while maintaining rates for
basic service (i.e. local rates) at modest levels.29 In the U.S., for example, where
8Ibid. at 12.
191bid.
20Ibid. at 18 and 21.
21lbid. at 44.
221bid. at 20.
231Ibid. at 48.
241bid. at 52 and 55.
25lbid. at 64.
261bid. at 65-66.
271Ibid. at 67.
281bid. at 36-37.
29This issue appears to have been first raised in a more modem context by Bell Canada in the
proceeding leading to CNCP Telecommunications: Interconnection with Bell Canada (17 May
1979), Telecom Decision 79-11 (C.R.T.C.).
REVUE DE DROIT DE McGILL
[Vol. 38
long distance competition has been in place for a number of years, and rates
have also been restructured so that the bulk of access costs are levied from sub-
scribers directly instead of through cross-subsidies, long distance rates are much
lower.3”
Accordingly, there is an incentive for those routing long distance traffic to
Canadian destinations to bypass Canadian telephone company telecommunica-
tions facilities. This may be done in a variety of ways, including routing such
traffic through the U.S. To the extent this occurs, it could be said to be a form
of long distance competition. However, competition in the form of U.S. bypass
may be economically disadvantageous to Canada for a number of reasons.
In the first place, when long distance traffic is removed from Canadian
facilities, the contribution associated with that traffic is also lost, but since the
identities of those participating in bypass and the extent of bypass are hard to
ascertain, and since U.S. carriers are not under the Commission’s jurisdiction,
the lost contribution cannot be recovered. In a regulatory regime in which it is
assumed that Canadian telephone companies operate in a monopoly environ-
ment, each company is regulated in a manner which results in the earning of a
return on equity (ROE) within a specified range. Therefore, to the extent that
contribution is eroded as a result of bypass, there will be severe pressure on reg-
ulators to allow local telephone rates to increase to make up the difference. This
is a significant concern for a regulator such as the Commission, which wishes
to ensure that local rates remain affordable and that local rate increases are not
so sharp as to cause a public outcry, particularly among residential subscribers.
Bypass through the U.S. may also be wasteful, to the extent that it leads
to an underutilization of Canadian resources which would otherwise be
involved in the carriage of the traffic. Finally, to the extent that Canadian long
distance prices are too high in an economic sense (i.e. priced significantly above
cost) for public policy reasons, while telecommunications costs are a significant
cost for many businesses, the international competitiveness of the Canadian
economy is adversely affected.3
Accordingly, it is not surprising that the importance of reducing Canadian
interexchange rates towards levels in the U.S. was clear in the Commission’s
view. In the Commission’s words:
Such rate reductions would assist in achieving the two important and related
objectives of enhanced international competitiveness and reduced incentive to
bypass Canadian network facilities. Since competition would not only result in
lower interexchange rates in the long run, but also in greater choice in terms of
price and service packages, the dual objectives of increased competitiveness and
reduced bypass would be more readily achieved in a competitive environment. 32
30A description of past regulatory and competitive developments in telecommunications in the
U.S. may be found in R.W. Crandall, “Has the AT&T Break-Up Raised Telephone Rates?” (Winter
1987) The Brookings Review 37.
31Decision 92-12, supra note 2 at 56-57.
321bid. at 61.
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CHRONIQUE DE JURISPRUDENCE
In addition, liberalizing competition, while not deregulating the industry,
affords the Commission the opportunity to ensure that the portion of contribu-
tion lost by telephone companies due to a loss of market share to competitors
which the Commission deems appropriate is recovered from the new entrants,
thereby avoiding, or at least partially deferring or smoothing the rate restructur-
ing which would otherwise eventually be brought about as a result of the con-
tinued bypass of Canadian telecommunications facilities, resulting in significant
local rate increases. Therefore, the Commission’s decision to liberalize interex-
change competition can be seen as the exercise of a rational policy choice, in
which the Commission has preferred to establish a regime involving regulated
competition which it can control, and which allows it to have greater control
over the timing and rate of local rate increases, as opposed to fostering an envi-
ronment in which it is merely reacting to the consequences of unregulated com-
petition in the form of bypass, which has survived previous regulatory attempts
to control it,33 due to the continued presence of economic incentives.
II. The Terms of Entry
A. Multiple Entry
As indicated, the Commission decided that increased competition should
not be based’on a regulated duopoly market structure. Rather, it found that mul-
tiple entry would bring greater discipline to the marketplace in terms of pricing
and supplier responsiveness, and would be more likely to result in the provision
of specialized services to market niches that may otherwise not be fully served
by more ubiquitous service providers. 34 In order to exploit fully the benefits of
competition, the Commission provided a framework (including charges for con-
tribution and interconnection costs) which would allow other applications for
interconnection by IXCs that would be subject to federal regulation, if the share-
holders of such applicants are prepared to assume the risks and obligations asso-
ciated with the terms and conditions set out in the Decision.3
The Commission was also convinced that the Reference Plan, or the broad
elements of it, will likely be implemented with competitive entry. The Commis-
sion expects that, in the early years of competition, surplus revenues predicted
by the respondents would be used to offset any negative effects (due to items
such as the contribution discount specified in this Decision and any start-up
costs that will not be recovered from Unitel or other IXCs) that the respondents
may experience as a result of entry. As competition unfolds and the respondents
begin to experience the positive impact of competition-induced productivity
improvements and market expansion, the Commission expects that toll reduc-
tions by some respondents may be larger than estimated in the Reference Plan.
These benefits could then be passed on to the respondents’ customers through
long distance rate reductions.36
33 bid. at 60.
34Ibid. at 116.
3 1bid. at 116-17.
36Ibid. at 99.
McGILL LAW JOURNAL
[Vol. 38
In its Decision, the Commission assumed that an IXC has the opportunity
available to it to achieve cost reductions similar to those which the respondents
will attain. The ability of an IXC to reach this objective ultimately rests on the
managerial efficiency and strategic decisions of the firm. Since the achievement
of lower costs is critical in achieving profitability, the Commission indicated
“that the risks of entry have to be assumed by shareholders [of IXCs]. 37
B. General Terms of Entry
The Commission indicated that it expects IXCs to abstain from originating
traffic from within the territories of nearly fifty independent telephone compa-
nies, which the Commission presently considers to be under provincial regula-
tory jurisdiction. In the Commission’s view, any potential impacts on the inde-
pendents attributable to traffic arrangements should be resolved through
negotiations between the IXCs, independents and their existing connecting car-
riers, subject to whatever regulatory approvals are required, rather than through
limitations imposed by the Commission.38 Similarly, IXCs will not be allowed
to use 800 Service to originate competing interexchange voice traffic in the
operating territories of the independents or non-respondents which are members
of Stentor Canadian Network Management (Stentor, formerly called Telecom.
Canada), the consortium comprised of Canada’s major telephone companies.39
At the same time, the Commission refused to impose a requirement for
IXCs to provide universal service (i.e. service in the entire operating territory
of a telephone company) as a condition of entry.4” This will permit carriers to
address niche markets.
While the Commission considered it reasonable that IXCs serving more
than one respondent territory may apply different rates in each territory, the
Commission determined that current general policies regarding route-averaging
should be maintained within the boundaries of each territory.4 The principle of
route-averaging requires that long distance calls of the same duration that are
carried over the same distance, during the same time period, under similar cir-
cumstances, be priced at the same level regardless of their geographic location.42
Accordingly, IXCs will be expected to adhere to this policy for basic MTS (i.e.
Message Toll Service or regular long distance service) and volume discount ser-
vices, in order to ensure that pressure to increase rates on low volume routes
does not develop (due to efforts by all competitors in a market to utilize the
higher revenues from these low volume routes not subject to extensive compe-
tition to cross-subsidize competitive rate reductions on the high volume, low
cost routes), but the Commission also acknowledged that some services result-
ing from competition (such as those based on new technologies) may only be
rolled out on high volume routes.43 Furthermore, to the extent that certain tariff
37Ibid. at 108-09.
381bid. at 53.
39Ibid. at 127.
401bid. at 63.
411bid. at 142.
421bid.
431bid. at 63.
1993]
CASE COMMENT
offerings of the respondents which serve as MTS substitutes may not be cur-
rently adhering to the policy of route-averaging (such as, for example, WATS,
800 Service, Selectel, Extended Area Service and Econopak), the onus on IXCs
will be no higher. Finally, the Commission also indicated that it does not cur-
rently impose route-averaging on resellers, and does not intend to do so after
facilities-based entry, since “[s]uch a policy would unduly limit the benefits
associated with resale, particularly the servicing of pent-up demand in niche
markets.”
C. Contribution
In Canada, with certain minor exceptions, there are no recurring charges
for recovering the entire cost of providing telephone company subscribers with
access to the telephone network.45 Rather, the cost of access is recovered by
means of contribution,46 primarily from the revenues earned by telephone com-
panies from the provision of local and, to a much greater extent, long distance
services.
In the words of the Commission:
When respondents lose market share to competitors, the contribution associa-
ted with the lost traffic is also lost. Accordingly, to the extent that the access cost
subsidy is to be maintained, competitors in the long distance market must also
pay some level of contribution. Therefore, the contribution requirement of com-
petitors, and the manner in which it is to be collected, are important considera-
tions.
47
The Commission was of the view that the contribution scheme in Canada
operates as a subsidy independent of access cost causality. Therefore, the Com-
mission refused to base contribution payments on the use of the respondents’
access facilities in providing long distance services.4″
The Commission also stated that it “has traditionally determined the con-
tribution payments required from service providers in light of the particular cir-
cumstances of their business and service offerings and their potential impact on
local rates.”49 Accordingly, the Commission did not agree that an equal payment
should be required from all providers.”
The Commission adopted Unitel’s proposal to pay contribution based on
the amount of foregone contribution that arises as a result of its entry since,
under this proposal, “IXCs would pay sufficient contribution to ensure that the
principle of maintaining local rates at affordable prices is not jeopardized in any
of the respondents’ territories.”5′.
“Ibid. at 63-64.
41bid. at 69.
461bid.
471bid. at 69.
48Ibid. at 70-71.
49Ibid.
50Ibid.
51Ibid.
REVUE DE DROIT DE McGILL
[Vol. 38
The Commission decided to use costing information regularly produced
and filed by some respondents, in accordance with a costing methodology
developed during the Inquiy into Telecommunications Carriers’ Costing and
Accounting Procedures: Phase XI- Costing of Existing Services52 as the basis
for determining an appropriate contribution level. 3
The objectives of Phase III are:
(1) to assess whether rates for competitive services are compensatory in the sense
that revenues resulting from the provision of such services cover the costs of pro-
viding them; and (2) to determine the extent to which the contributions made to
the overall revenue requirement of carriers by monopoly services as a whole, and
by certain categories [Broad Service Categories or BSCs] of competitive services
are above or below cost. [emphasis added]54
In fact, results prepared in accordance with the Phase Ell methodology can
also indicate the contribution surplus or shortfall associated with the provision
of certain BSCs of monopoly services, such as Monopoly Toll, Monopoly Local
and Access, which makes it possible to use Phase III as a basis for calculating
the contribution surpluses associated with the provision of toll and local ser-
vices on the one hand, and shortfall associated with access on the other. The
Phase III costing methodology originally applicable to terrestrial telephone
companies which are members of Stentor was based on the method (known as
the Revenue Settlement Plan or the RSP) which Stentor employs to allocate
jointly earned revenues among its members. 5 The respondents are all members
of Stentor. Since the Atlantic telephone companies are not yet capable of pro-
ducing information in the Phase III format, those respondents will, for the time
being, be required to produce contribution calculations based on RSP proxy
results and RSP-to-Phase I conversion formulm which attempt to approximate
equivalent Phase III results. 6
After making a number of technical adjustments57 to the contribution levels
payable to the respondents, the Commission granted IXCs the following dis-
counts regardless of the date of their entry:”
52(25 June 1985), Telecom Decision 85-10 (C.R.T.C.) [hereinafter Decision 85-10].
53Decision 92-12, supra note 2 at 72.
54Report of the Inquhy Officer with Respect to the Inquiry into Telecommunications Carriers’
Costing and Accounting Procedures: Phase III – Costing of Existing Services (Ottawa: Canadian
Radio-television and Telecommunications Commission, 30 April 1984) at 3.
55Decision 85-10, supra note 52 at 39.
56Decision 92-12, supra note 2 at 73-74.
57See the adjustment which excludes Plant Under Construction and Common costs allocated on
the basis of BSC deficits from the competitors’ contribution obligation discussed ibid. at 74-75,
the 6% reduction in contribution payable to Bell associated with Gross Receipts Tax discussed ibid.
at 76, the 2% surcharge associated with Direct Access Line usage discussed ibid. at 78-79, and the
1.7% reduction associated with WATS and 800 Services discussed ibid. at 79-80.
581bid. at 83-84. In Unitel Communications Inc. -Application for Extension of the Contribution
Discount Period and Other Matters ((19 April 1993), Telecom Decision 93-5 (C.R.T.C.)), the
Commission extended the contribution discount period established in Decision 92-12 by six
months with respect to Bell, B.C. Tel, Island Tel and MT&T, since those telephone companies had
requested and obtained a stay of Decision 92-12 from the Federal Court of Appeal pending an
appeal of the Decision to that Court.
19931
CHRONIQUE DE JURISPRUDENCE
Table 1
Contribution Discount
1993
1994
1995
1996
1997
1998
25%
25%
25%
15%
10%
0%
The Commission granted the contribution discount of limited duration on
the basis that “the respondents currently hold a market advantage over all com-
petitors in the long distance voice market, both as a result of their control of the
local networks and as a result of their historically dominant positions.” 59
Competitors will be limited in the initial years in their market coverage and
in their ability to obtain equal ease of access (EEA) “so their subscribers can
access their networks .as easily as most customers now access long distance ser-
vice provided by the respondents, i.e., dialing either 0 or 1 plus a seven-digit or
ten-digit telephone number” (0+ or 1+ calling).’ Thus, the contribution discount
schedule shown in Table 1 was also approved on the grounds that competitors
will be limited in the initial years in their market coverage and in their ability
to obtain EEA.6′
After taking into account all of the adjustments described, the Commission
calculated the appropriate level of contribution to be paid by IXCs obtaining
59Decision 92-12, ibid. at 84.
60 Ibid. at 154. In order to facilitate this approach, interexchange subscribers would have to pre-
select a primary long distance carrier in advance (pre-subscription). Then, whenever a 0+ or 1+
call is made, the telephone company switches would have to recognize the pre-subscribed carrier
associated with the line from which the call is made and route the call to the appropriate interex-
change carrier. In order to permit customers pre-subscribed to a particular carrier to use another
carrier’s services (casual calling), the subscriber would dial 1OXXX plus a seven-digit or ten-digit
* telephone number (10XXX calling) where XXX is a unique Carrier Identification Code (CIC) of
the desired carrier. Not all telephone company switches can be converted to EEA (such switches
are called “non-conforming” while the others are “conforming”). In order to provide access from
all non-conforming switches and, pending conversion to EEA, from conforming switches, a two-
stage dialing arrangement could be employed: first the subscriber would dial 1+950-OXXX (where
XXX is CIC of the carrier to be used), and, after a second dial tone, the subscriber would dial the
ten-digit number of the called party (1+950 calling). 1+950, 1+ or 1OXXX access (collectively
trunk side access) are provided by technically superior trunk side connections which also enable
the carrier obtaining such access to offer certain advanced services. Following Decision 90-3,
supra note 8, resellers were provided with an inferior type of access known as line side access,
which cannot serve as a platform for certain advanced services, and which requires a reseller’s sub-
scriber to dial a long stream of digits in order to: (1) access the reseller’s network; (2) identify the
subscriber as a legitimate user of the reseller’s network; and (3) identify the number being called.
Resellers have partially overcome this disadvantage by installing automatic dialers on customer
premises which dial all of the digits required to access a reseller network and identify the caller
as a valid subscriber. See also Decision 92-12, ibid. at 154-59, for a more detailed discussion of
EEA.
61Ibid. at 84.
McGILL LAW JOURNAL
[Vol. 38
equal access interconnection for 1993. The per-minute levels for each of the
respondents are shown below:62
Table 2
Estimate IXC Contribution Charge 1993
Respondent
#/min./end
B.C. Tel
Bell
Island Tel
MT&T
NBTel
Nfld. Tel
0.05400
0.04852
0.04782
0.07596
0.06354
0.05559
A number of mechanisms for allocating and collecting contribution were
proposed during IC2, including: “(1) per minute approaches put forward by the
respondents; (2) per trunk approaches put forward by the applicants; and (3) a
market share allocation approach put forward by ETI [Economics and Technol-
ogy, Inc.], external consultants to the Commission.”63
In assessing the various contribution recovery proposals, the Commission
considered several basic criteria, including:
(1) efficiency of administration;
(2) sustainability;
(3) the achievement of universal service objectives; and
(4) pricing flexibility for all market participants. 64
The Commission found that a variable per access trunk contribution charge
that increases with the number of interconnecting circuits (i.e. the circuits that
connect a facility of an IXC or leased facility of a reseller to a facility of a
respondent to provide access to the respondent’s PSTN) in a trunk group, to
reflect the greater efficiencies available in larger trunk groups, would be supe-
rior in assessing contribution.65
Where an interconnecting circuit is associated with 1+950, 1+ or 1OXXX
access (trunk side access) the Commission set the following contribution char-
ges for each interconnecting circuit within a circuit group:’
621bid. at 86, as amended by p. 86-R contained in an errata issued by the Commission on 28
August 1992.
63Decision 92-12, ibid. at 81.
61bid. at 80-81.
651bid. at 81, 177.
661bid. at 181-82, as amended by p. 182-R contained in an errata issued by the Commission on
28 August 1992.
1993]
Table 3
CASE COMMENT
Per Circuit Contribution Charges (IXCs)
# of circuits in
the circuit group
1-3
4-6
7-9
10-14
15-19
20-29
30 – 39
40-49
50 – 74
75 – 99
100 plus
Bell
$ 35
115
165
205
240
270
300
315
335
350
370
B.C.
Tel
$ 40
125
185
230
270
300
330
350
370
390
415
Island MT&T NBTel
Tel
$ 35
115
165
205
240
270
295
310
330
345
365
$ 55
180
260
325
375
425
465
495
520
550
580
$ 45
150
215
270
315
355
390
410
435
460
485
Nf Id.
Tel
$ 40
130
190
235
275
310
340
360
380
400
425
Where the interconnecting circuit is not associated with trunk side access
(i.e. it is associated with the inferior form of access known as line side access),
only 85% of the applicable contribution charges are payable.6′
For each overseas access circuit (i.e. a circuit that connects to a service or
facility of Teleglobe Canada (Teleglobe), which is Canada’s international tele-
communications carrier) located in a respondent’s operating territory, used by
an IXC, Teleglobe will be required to collect the monthly contribution charges
specified in Table 3 from the IXC and remit the payment to the respondent.68
In the case of IXC Canada-U.S.A. circuits which use a border crossing point in
a respondent’s operating territory, a monthly contribution charge approximately
equal to that applicable to the particular respondent for trunk groups of fifty to
seventy-four circuits will apply to each circuit.69 This essentially assumes an
average per trunk usage of 7,000 minutes per month in the case of such cross-
border circuits.” The collection of contribution will involve the respondents,
IXCs, Teleglobe and Telesat Canada (“Telesat”), Canada’s national satellite car-
rier.
No contribution is payable in connection with test facilities provided to an
IXC by a respondent, 71 where an interconnecting circuit is used solely to access
a respondent’s MTS/WATS services, 72 or where an IXC gathers traffic from its
67Decision 92-12, ibid. at 182.
6SIbid. at 182-83.
69Ibid. at 183, as amended by p. 183-R, contained in an errata issued by the Commission on
28 August 1992. The actual monthly per circuit amount applicable in respect of the operating ter-
ritory of each respondent is: $340 (Bell), $380 (B.C. Tel), $335 (Island Tel), $530 (MT&T), $445
(N.B. Tel) and $390 (Nfld. Tel).
70Decision 92-12, ibid. at 85.
71Ibid. at 179.
72Ibid. at 183.
REVUE DE DROIT DE McGILL
[Vol. 38
customers by itself with the aid of Direct Access Lines (DALs) instead of rely-
ing on a telephone company to deliver the customer’s traffic to the IXC.
7 3
Where an interconnecting circuit associated with line side access, a
Canada-U.S.A. circuit or an overseas access circuit is used by an IXC for the
purpose of providing a data service or a telecommunications service which is
dedicated to the private communications needs of a user where one end of the
facility used to provide the service is terminated at equipment dedicated to the
user, the contribution charges specified in the Decision will not apply.74 How-
ever, at least in the case of the provision of dedicated services under these cir-
cumstances, the Commission will require evidence that “by reasons [sic] of the
technical, economic or operational characteristics of the service, it is unlikely
that the connections [supplied for the purpose of providing data services] will
be used significantly for voice service.”’75
Based on these determinations, the Commission directed that, with their
annual filings of Phase IlI forecasts in December of each year, the respondents
provide estimates of the appropriate contribution charges for the following year,
to come into effect on 1 April of the following year, along with the underlying
calculations, in a format approved by the Commission, as well as the forecast
information on which their estimates and calculations are based. Respondents
who do not yet produce Phase III results are to provide, each December, their
best estimates in accordance with the RSP-based methodology already dis-
cussed. The Commission will use this to determine whether changes to the con-
tribution tariff are required.76
Since competitors will be required to pay contribution relative to the level
of contribution generated by the respondents, to the extent that toll reductions
are included in a company’s annual Phase lIh/RSP forecasts, contribution pay-
ments can be established that reflect the anticipated toll reductions. However,
for toll reductions that are not included in the annual Phase IIE/RSP filing, the
respondents will also be required to file an estimate of any change in the con-
tribution charge which would arise, using the methodology established by the
Commission in the Decision, so that appropriate adjustments to the contribution
charges established in the annual process may be made when required.77
Finally, the Commission has attempted to mitigate the impact of competi-
tion on non-respondent members of Stentor by establishing a contribution
mechanism that is based on amounts associated with revenues settled between
members of Stentor through the RSP, as opposed to the originating toll revenues
of the member companies, “and [which] therefore better reflects the manner in
which member companies settle revenues among themselves.”78
731bid. at 78-79. The Commission decided that directly applying a contribution charge to DAL
traffic would be administratively difficult. Accordingly, it incorporated estimates of DAL usage in
its calculation of overall contribution requirements.
741bid. at 183.
751bid. at 183-84.
761bid. at 85.
771bid. at 141.
781bid. at 55.
1993]
CHRONIQUE DE JURISPRUDENCE
It is interesting to note that the respondents are not being compensated for
100% of the contribution which will be lost to them as a result of increased
competition. If a truly competitive environment in the provision of interex-
change voice services is to flourish, this may be seen as positive to the extent
that it motivates respondents to increase their efficiency and find new sources
of revenue associated with the provision of access and local services. There
should be some ongoing motivation for respondents to eliminate their contribu-
tion requirement over time, and only permitting recovery of a portion of the
contribution lost due to competition is a proper first step in this direction.
In recent years, the respondents have started earning significant revenues
from new optional local services, such as Custom Calling Features (e.g. Call
Forwarding, Call Waiting, Speed-Call, Ident-A-Call and Three-Way Calling)
and Call Management Services (e.g. Call Display, Call Screen, Call Return and
Call Trace). Bell has also recently introduced another series of such services,
called Tele-Messaging Services, and has recently launched Call Answer as the
first service in this new category. The full potential of these services in gener-
ating revenues is still being developed. Other similar services, such as remote
call forwarding and telephone company provided voice mail, have yet to be
marketed to any significant degree in Canada.79
Encouraging telephone companies to develop revenues from these types of
services is positive, since it stimulates the more rapid diffusion of technology
to the local networks, and the more rapid and broader introduction of new and
innovative local services. This, in turn, could lead to the gradual elimination of
contribution payments by competitors to telephone companies, as rates for inter-
exchange services (tolls) are allowed to fall more rapidly towards costs, without
the fear of triggering substantial rate increases for basic telephone services (rate
restructuring or rebalancing). The Commission has in fact hinted that it may
study such an alternate approach in stating: “[g]iven the variety of factors influ-
encing local service prices … there may be alternative ways to generate
increased revenues from local/access service other than across-the-board reba-
lancing.”80 The Commission has also indicated that it intends, “within its exist-
ing resource constraints, to initiate a process to study the most efficient and
equitable way of pricing local and access services.”‘”
D. Costs of Interconnection
Providing interconnection to IXCs will require changes to the respondents’
networks, systems and procedures which will cause additional costs to be
incurred. Some of the costs, such as the cost of modifying the respondents’
switches, will occur once, generally near the outset of competitive entry, and are
7 9For example, in The New Brunswick Telephone Company Limited-Market Trial of Universal
Voice Mail Service (22 June 1992), Telecom Public Notice 92-38 (C.R.T.C.), the Commission indi-
cated that NBTel had only recently asked for Commission approval to offer universal voice mail
service, under the name PhoneMail, in the Sussex, New Brunswick exchange area, for a four-
month market trial.
80Decision 92-12, supra note 2 at 143.
8 11hi.
McGILL LAW JOURNAL
[Vol. 38
collectively called start-up costs. Ongoing costs are primarily those associated
with aggregating and terminating competitors’ traffic for delivery to and from
the IXCs’ networks (switching and aggregation costs) as well as cost compo-
nents associated with customer and operator services and carrier billing func-
tions. The Commission found that “the magnitude of these costs is largely a
function of the nature of the interconnection arrangements requested and the
traffic generated.”82
The Commission decided that rates for services that respondents provide
to IXCs should be based on the incremental, economic, causal costs of provid-
ing the services,8 3 and that start-up costs should be amortized over a ten-year
period, so that IXCs would not be handicapped by an excessive assignment of
start-up costs in the early years of competition.’
The Commission determined “$240 million to be a reasonable estimate of
the respondents’ start-up costs and $1.2 billion a reasonable estimate of the ten-
year ongoing costs,”85 and decided to allocate the start-up costs on the basis “of
an approximation of the long-run market share of all competitors, including the
respondents.”86 The Commission indicated that it expected the market share lost
by respondents to be approximately 30% by the year 2002.7 Accordingly, it
decided that “the IXCs will pay 30% of the start-up costs through tariffed char-
ges and that the remaining 70% will be allocated to the respondents.”8
The Commission adopted the use of a per minute recovery mechanism for
these costs so as to reflect the proportion of market share captured by compet-
itors. Based on its estimates of the start-up costs and traffic volumes associated
with each respondent, the Commission established the following per minute
charges applicable to all trunk side access minutes that originate or terminate on
the respondents’ networks:8 9
Table 4
Charges for Recovery of One-Time Costs of Entry
Bell
B.C. Tel
MT&T
NBTeI
Island Tel
Nfld. Tel
$0.0011
$0.0017
$0.0020
$0.0010
$0.0020
$0.0013
82Ibid, at 86-87.
831bid. at 88.
84Ibid. at 92.
851bid. at 89.
86Ibid. at 91.
871bid. at 103.
88Ibid. at 91.
891bid. at 92, as amended by p. 3 of an errata issued by the Commission on 28 August 1992.
1993]
CASE COMMENT
The Commission noted that tariffs already exist for the circuits that would
be used for the connection of the respondents’ switches to those of the appli-
cants. Therefore, the Commission concluded that, pending the development of
appropriate rates during the introductory stages of competition, charges for
switching, aggregation and related ongoing network sources and arrangements,
will be rolled into one aggregate network charge of $0.011 per minute per end
for the respondents to recover the ongoing costs of entry (excluding connection
costs). The Commission also indicated that it expects the respondents to propose
unbundled rates for the specific functions relating to interconnection that may
better reflect their particular circumstances.9”
The Commission also determined that the respondents should be required
to carry overflow traffic where requested, but expressed concern that IXCs
could exploit the availability of overflow traffic carriage in an attempt to min-
imize the total number of trunks in use, so as to avoid the associated charges
(including contribution). Since IXCs have the ability to minimize overflow traf-
fic by ordering additional trunks, the Commission stated that a tariffed rate for
carriage of overflow traffic should be developed separate from the network
charge which would reflect any additional costs, so as to encourage IXCs to use
appropriate engineering criteria in the design of their networks.9
M. Resale and Sharing
A. The Scope of Resale and Sharing
In Decision 90-3,92 the Commission took a rather limited view of the poten-
tial scope and viability of resale in stating that “resale for joint use would
increase the number of suppliers in the market and would stimulate the devel-
opment of integrated voice/data and value-added services.” The Commission
went on to state that “to the extent that margins between MTS and private line
rates are sufficiently limited, resellers would be unable to compete solely on the
basis of price and would have to add value to their services to compete effec-
tively, thus … differentiating [their] services from MTS/WATS.”’93 The Commis-
sion further found that resellers would likely operate primarily in high traffic
corridors94 and would be technically disadvantaged by the poor quality of (line
side) connections obtained from Bell and B.C. Tel, the necessity of reseller cus-
tomers to dial extra digits, and the absence of lower-priced termination available
through WATS.95
In Decision 92-12, the Commission, in extending resale and sharing to the
Atlantic provinces, determined that “resale of the facilities of the Atlantic tele-
phone companies would provide benefits similar to those anticipated in Deci-
sion 90-3. “96 The Commission also determined that permitting the resale of
9 0Decision 92-12, ibid. at 95.
9 1Ibid. at 96.
92Supra note 8 at 19.
93Ibid. at 20.
94Ibid. at 35.
95Ibid. at 20.
96Decision 92-12, supra note 2 at 121.
REVUE DE DROIT DE McGILL
[Vol. 38
WATS/TDS would “enable resellers to increase their geographic coverage at
reduced costs”97 and lower the cost of carrying long distance traffic which trav-
els, in part, outside a reseller’s network (off-net).
The Commission expanded on its reasons for liberalizing resale and shar-
ing as follows:
It has been the Commission’s finding in past decisions that resellers can provide
certain benefits and that resale is in the public interest where it does not result in
substantial contribution erosion. Such benefits include greater supplier responsive-
ness, both in terms of service innovation and service and pricing flexibility. The
Commission is of the view that resellers could deliver benefits to subscribers in
certain niche markets that may not be served by facilities-based competitors.
Moreover, in the absence of WATS resale, the Commission considers that resellers
would be limited in their ability to offer alternatives to facilities-based competi-
tors.
In the opinion of the Commission, resale can increase the price responsiveness of
the marketplace. Whenever there are significant differences in rates charged to end
users, resellers have the opportunity to take advantage of available margins to
respond to portions of the market that would not otherwise be able to benefit from
various rate discounts. The respondents have the opportunity to respond to the
reseller by reducing margins or beginning to serve such pent-up demand as iden-
tified by the reseller. The need for the reseller to continually respond to underser-
ved market segments creates a dynamic marketplace. Such dynamic pricing can be
considerably reduced if carriers can restrict access to volume discounted services.
In such circumstances, not only can the reseller be limited in targeting pent-up
demand, but respondents could use restrictions on access to target the resellers’
customer bases with lower rates than the resellers can obtain. For instance, if the
reseller is limited to off-net traffic at MTS rates, while the respondents can offer
the resellers’ customers a discount using Advantage, then the respondents would
obtain a significant advantage and, as a consequence, the benefits of lower prices
might not be as broadly based. 98
Nevertheless, the Commission also cautioned that while “resale can pro-
vide many benefits … it is not a substitute for facilities-based entry.”99 The Com-
mission went on to discuss the more limited scope of resale in the following
terms:
Facilities-based entry permits sustainable and more broadly-based competition,
thereby increasing the benefits to be derived from competition. A facilities-based
carrier has more control over its facilities costs. Since a reseller leases its under-
lying facilities and operates at the margin provided for in the price of leased facil-
ities and services, a reseller is at risk wherever cariers can reduce these margins.
Since resellers have less control over their costs, a resale market that operates
solely on arbitrage opportunities, without providing value-added services, may not
be sustainable over the long run. However, resellers can complement facilities-
based competition by providing price discipline, ensuring greater responsiveness
ind serving niche markets.,c
Accordingly, while the Commission decided to extend resale and sharing
to the Atlantic provinces and permit the resale of WATS and other targeted dis-
count services, it was not satisfied that resale alone is a viable form of compe-
97Ibid. at 125.
9 Ibid. at 126.
991bid. at 118.
11 ‘bid.
19931
CHRONIQUE DE JURISPRUDENCE
tition in the provision of interexchange voice services in the long-run. There-
fore, since the Commission, in permitting resale and sharing for joint use in
Decision 90-3, created a competitive alternative which, in the Commission’s
own view, is inherently unstable, it is not surprising that the Commission is now
permitting facilities-based competition and providing both IXCs and resellers
with expanded resale capabilities. Or, alternatively stated, resellers will also
now be able to employ their own facilities in their operations, thereby reducing
their dependence on the price structures of the facilities-based carriers from
which they lease facilities. The net effect of the new regime on resellers will
likely be to encourage the development of two types of resellers, namely: (1)
specialized resellers who compete primarily on the basis of value-added ser-
vices rather than price (thereby enabling them to price their services at a pre-
mium over telephone company basic long distance voice services) and (2)
mixed mode (i.e. resale and facilities-based) carriers who compete heavily on
the basis of price and ;need to become less dependent on the margins between
telephone company private line and MTS rates, thereby increasingly motivating
such resellers to employ their own facilities or those provided by entities other
than telephone companies (e.g. hydro utilities, etc.).
In fact, the Commission found that the BCRL application was premised on
the use of “existing regional facilities and a resale customer base, and assume[d]
a mix of owned and leased facilities.”’01
B. Contribution Payable by Resellers
In Decision 90-3, the Commission, in addition to requiring resellers to pay
the regular tariffed rates for services and facilities obtained from telecommun-
ications carriers, also established a contribution rate of $200 per month on pri-
vate lines resold for joint use in order to relieve pressure to increase local rates
resulting from the contribution erosion associated with that form of resale.” In
Decision 92-12, the Commission decided that this amount should be increased
as a result of the geographic extension of resale to the Atlantic provinces and
the adoption of WATS/TDS resale.10 3
In establishing the contribution for resellers in a competitive environment
that includes facilities-based entry, the Commission was mindful of the follow-
ing two considerations:
The first consideration is to establish a contribution for resellers that is appropriate
given the nature of their operations and Commission objectives. The nature of
resellers’ operations has been to obtain end office non-equal access interconnec-
tion. The Commission considers it appropriate to charge resellers less for such
access than for trunk-side access to the toll office switch on an equal access basis.
However, the Commission considers that resellers should not be provided with an
uneconomic price advantage over facilities-based competitors.
The second consideration is whether the difference in the contribution charged to
resellers and to IXCs would introduce a substantial opportunity for contribution
avoidance.
1’Ibid. at 111.
102Supra note 8 at 52.
103See Decision 92-12, supra note 2 at 121, 125.
McGILL LAW JOURNAL
(Vol. 38
The Commission notes that a contribution charge for resellers that would protect
against significant contribution erosion may be less than that which is appropriate
for IXCs. However, if resellers were to be charged a substantially lower amount,
the difference would provide a strong incentive for IXCs to take advantage of the
lower reseller contribution, even though the quality of access would be inferior.
In the Commission’s view, any difference greater than 15% could provide suffi-
cient incentive to offset the lower quality. However, a differential of only 15%
would mean a substantial change in the economic circumstances under which
resellers operate. The Commission is of the opinion that the benefits of competi-
tion would be maximized if service providers could choose the mix of leased and
owned facilities best suited to their market strategies. However, this would require
that differences in contribution should reflect the type of access obtained rather
than the type of service provider. Therefore, the Commission considers it reason-
able to establish a transitional period during which the contribution charge
required from resellers would increase from the minimum level necessary to pro-
tect against significant contribution erosion to within 15% of the contribution
charges to facilities-based carriers.104
In light of the foregoing, the Commission established a five-year transi-
tional period during which the contribution paid for a line side connection will
increase, at the rate of 5 percentage points per year, from 65% of the contribu-
tion charged to facilities-based carriers in 1993 to 85% of the contribution
charge applicable for toll office equal access interconnection in 1997.”05 Since
these amounts are relative to IXC contribution, they also include the contribu-
tion discounts granted to IXCs which are reflected in Table 1.
Based on these discounts, the Commission set the following 1993 contri-
bution charges for each interconnecting circuit within a circuit group: 6
Table 5
Per Circuit Contribution Charges (Resellers)
# of circuits in
the circuit group
1-3
4-6
7-9
10-14
15-19
20-29
30-39
40 – 49
50-74
75 – 99
100 plus
Bell
$ 20
75
110
135
155
175
195
205
215
230
240
B.C.
Tel
$ 25
85
120
150
175
195
215
230
240
255
270
Island MT&T NBTel
Tel
$ 20
75
105
135
155
175
190
200
215
225
240
$ 35
115
170
210
245
275
305
320
340
355
380
$ 30
95
140
175
205
230
255
270
285
300
315
Nfld.
Tel
$ 25
85
125
155
180
200
220
235
250
260
275
104Ibid. at 128-29.
1051bid. at 129-30.
1061bMd, at 188, as amended by p. 188-R contained in an errata issued by the Commission on 28
August 1992.
1993]
CASE COMMENT
In order to liberalize resale and sharing in 1992, the Commission decided
to apply the 1993 contribution rates in 1992.'” Accordingly, subject only to the
different discounted transitional rate schedule (shown in Table 5) applicable to
resellers (who were only given the option of obtaining line side interconnection
in Decision 92-12), 1″8 the contribution rules applicable to overseas access and
Canada-U.S.A. circuits acquired by resellers are the same as those which have
been described herein for IXCs.1″ Where a reseller obtains access circuits from
Unitel (or presumably from any other IXC), the contrihution charges specified
in the general tariffs for resale and sharing of the telephone companies within
whose territory the said circuits are located apply. “‘
No contribution is payable where an interconnecting circuit is used solely
to access a respondent’s MTS/WATS services,”‘ or where a reseller gathers traf-
fic from its customers by itself with the aid of Direct Access Lines (DALs)
instead of relying on a telephone company to deliver the customer’s traffic to
the reseller.” 2
Where an interconnecting circuit, a Canada-U.S.A. circuit or an overseas
access circuit is used by a reseller for the purpose of providing a local service,
a joint use interexchange data service, or a voice or data service which is ded-
icated to the private communications needs of a user where one end of the facil-
ity used to provide the service is terminated at equipment dedicated to the user,
the contribution charges specified in the Decision will not apply, but the Com-
mission will require evidence that “by reasons [sic] of the technical, economic
or operational characteristics of the service, it is unlikely that the connections
[supplied for the purpose of providing any one of these services] will be used
significantly for joint-use interexchange voice.””‘ 3
The Decision does not contemplate the use of line side access by Unitel in
conjunction with its owned facilities so as to result in contribution being pay-
able at the discounted transitional rates. Accordingly, in order to prevent Unitel
from having contribution on its traffic assessed at the lower contribution rate
applicable to resellers, the Commission has prohibited Unitel from using resel-
lers
‘0 7Decision 92-12, ibid. at 130.
10 See ibid. at 185-90, 194-97. On 19 June 1992 ITN Corporation filed an application with the
Commission which seeks the availability of trunk side access for resellers. See Trunk-Side Access
by Resellers to the Public Switched Networks (23 September 1992), Telecom Public Notice 92-55
(C.R.T.C.) [hereinafter Public Notice 92-55].
109See Decision 92-12, ibid. at 189, as amended by p. 189-R, contained in an errata issued by
the Commission on 28 August 1992. The actual monthly amount applicable in respect of each
Canada-U.S.A. circuit leased by a reseller in the operating territory of each respondent is: $220
(Bell), $245 (B.C. Tel), $220 (Island Tel), $345 (MT&T), $290 (N.B. Tel) and $255 (Nfld. Tel).
10Decision 92-12, ibid. at 196-97.
“‘Ibid. at 189.
“2lbid, at 78-79.
” 31bid. at 189-90. Following Decision 92-12, the Commission stated its intention to prescribe
a method for determining and verifying which circuits will qualify for a contribution exemption
pursuant to this rule. See letter addressed to various parties by the Commission concerning this
matter (29 October 1992). In Applications for Contribution Exemptions ((1 April 1993), Telecom
Decision 93-2 (C.R.T.C.)), the Commission actually prescribed the methodology for determining
and verifying which circuits qualify for a contribution exemption.
REVUE DE DROIT DE McGILL
[Vol. 38
to aggregate or terminate traffic on its behalf using a discounted line-side connec-
tion. Further, during the transitional period, Unitel will be required to pay a con-
tribution rate equal to 85% of the rate for equal access for any line-side connec-
tions obtained. The appropriate rate to be charged to other potential IXCs will
depend on the network of the future applicant. 14
Mixed mode carriers (i.e. carriers who have both the attributes of IXCs and
resellers) who commence operating in the next few years may be subjected to
different treatment for the purpose of making contribution payments depending
on which of the two operating aspects is more dominant.”‘ Those new carriers
who are predominantly IXCs but wish to add some resale operations or are
tempted to employ resellers to aggregate or terminate their traffic will not likely
be allowed to benefit from the lower transitional contribution rates payable by
resellers. Rather, they may be treated like Unitel and required to pay full IXC
contribution on any trunk side interconnecting circuits and eighty-five per cent
of full IXC contribution on any line side interconnecting circuits. On the other
hand, mixed mode carriers who start out predominantly as resellers and gradu-
ally add owned facilities to their operations may be permitted, in the early years
of interexchange competition, to pay the lower transitional reseller contribution
rates on line side interconnecting circuits connected to facilities leased by them
from other carriers. However, it is unclear whether or not such a carrier would
be allowed to pay the lower reseller transitional contribution rates on line side
interconnecting circuits connected to facilities owned by the carrier, or whether
contribution would be charged at eighty-five per cent of full IXC contribution
in such instances. In any event, such carriers would likely be expected to pay
full IXC contribution on any trunk side interconnecting circuits. The Commis-
sion has allowed itself some measure of flexibility in determining what contri-
bution rates will be payable by future IXCs (including mixed mode carriers) by
stating that such determinations will depend on the network characteristics of
the future IXCs.” 6
Since most of the facilities initially employed by BCRL would be primar-
ily leased, the Commission in Decision 92-12 was not concerned about BCRL
obtaining line side connections at the transitional rates. Furthermore, over time,
as the facilities base of BCRL increases, BCRL will be required to pay contri-
bution applicable to trunk side circuits on any equal access connections.” 7
In Decision 90-3, the Commission determined that “no facilities-based car-
rier will be permitted to lease interexchange services directly or indirectly to an
affiliated company for resale for joint use or sharing, except where those ser-
vices would be used only to provide data services or portable communications
services such as mobile satellite and cellular services.””‘ 8 This affiliate rule was
put into place to prevent a facilities-based carrier (such as Unitel) from entering
the long distance market through an affiliated reseller, since this could amount
1141bid. at 130.
115These assessments are based on the discussion, ibid. at 130-31, relating to the contribution
treatment to be afforded by the Commission to Unitel, BCRL and mixed mode carriers.
111bid, at 130.
“7lbid, at 130-31.
’18Decision 90-3, supra note 8 at 39.
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CHRONIQUE DE JURISPRUDENCE
to facilities-based interexchange competition.” 9 One practical effect of this rule
has also been to prevent a telephone company from competing through an affil-
iated reseller. In Decision 92-12, the Commission stated its intention to review
the need for the affiliate rule as a result of the Decision.’
In the interim, since
the Commission determined that applying the transitional period contribution
charge for line side connections to BCRL would not result in substantial reve-
nue erosion, BCRL was granted an exemption from the affiliate rule and from
the prohibition placed on Unitel concerning the use of a reseller to aggregate or
terminate traffic using discounted line side connections.’ 2′
C. General Treatment of Resellers
Insofar as implementation of Decision 92-12 is concerned, the respondents
and Unitel were required to issue tariff pages reflecting the new resale and shar-
ing rules within 60 days of the date of the Decision. 2 However, this implemen-
-tation date was extended to 18 August 1992 by the Commission.’2 1
As in the case of IXCs, resellers will initially be prohibited from: (1) orig-
inating competitive public switched long distance voice services in the operat-
ing territories of any telephone carrier other than a respondent; or (2) providing
pay telephone services.”‘ While the Commission did state that it would only
prohibit IXCs from offering pay telephone service until it has approved a
detailed operator services tariff that incorporates adequate consumer protection
in respect of rates, access and confidentiality of consumer information,”z it is
less clear whether or not the Commission will eventually also allow resellers to
provide pay telephone services as well.
Both IXCs and resellers offering shared tenant services must provide the
respondent in whose operating territory the shared tenant services are offered
with access to tenants who choose to obtain any telecommunications service
from the respondent.2 6 Unlike future IXCs, who will have to apply formally to
the Commission to provide competitive public long distance voice services
(although they will only have to demonstrate a willingness to abide by the terms
and conditions of the Decision and will not be required to demonstrate financial
viability),27 a reseller will merely have to register with the Commission and
with any other federally regulated telecommunications carrier from which it
intends to obtain service. 2 8
191bid. at 37-39.
120 Decision 92-12, supra note 2 at 131. In Review of the Affiliate Rule (25 November 1992),
Telecom Public Notice 92-70 (C.R.T.C.), the Commission initiated a proceeding to review the affil-
iate rule.
121ibid.
1221bid. at 176.
123See letters from the Commission addressed to the Competitive Telecommunications Associ-
ation and Cam-Net Communications Network Inc. (7 August 1992; 14 August 1992).
‘ 24See Decision 92-12, supra note 2 at 179, 187.
1251bid. at 161.
126Ibid. at 179, 187.
127Ibid. at 117.
128Ibid. at 187.
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[Vol. 38
D. Regulatory Status of Resellers
Presently, the Railway Act. 9 provides for the regulation of telecommunica-
tions carriers which meet the definition of “company” set out in section 334 of
that legislation. That definition includes “every company or person within the
legislative authority of Parliament having power to construct or operate a tele-
graph or telephone system or line and to charge telegraph or telephone tolls.”
In Enhanced Services,3′ the Commission concluded that its jurisdiction
extended “only to those companies within federal jurisdiction that may be con-
sidered to be operating a telephone or telegraph system” (and no reference was
made to the term “line” as opposed to “system,” although the former is also
employed in the definition of “company”). Accordingly, the Commission con-
cluded “that its statutory mandate did not require it to regulate a potentially
wide range of enhanced service providers who make use of underlying basic
telecommunications services for the provision of their service offerings.””
In Decision 85-19, the Commission, while refusing to regulate resellers,
concluded that “the resale and sharing market is similar in many respects to the
enhanced services market and that the conclusions reached in Decision 84-18
are also appropriate here.”’32 In addition, the language employed in both Deci-
sions 84-18 and 85-19 suggests that the Commission’s finding was driven by a
belief that competition rather than regulation was appropriate for the enhanced
services and resale and sharing markets.
The Commission’s position concerning the regulation of resellers did not
change when it further liberalized resale and sharing in Decision 90-3.
In Application by TWU –
Status of Resellers under the Railway Act, the
Commission reversed its prior position and held that “where a reseller offers
end-to-end basic telecommunications service by means of interprovincial ser-
vices or facilities that it configures, and where it exercises control over the car-
riage and routing of its traffic, it falls within federal jurisdiction and is operating
a telephone system or line.”’33 Accordingly, such a reseller is a “company”
within the meaning of section 334 of the Railway Act,”M and therefore subject
to the Commission’s jurisdiction. Furthermore, in accordance with the ruling of
the Federal Court of Appeal in T.W.U. v. Canada (Canadian Radio-television
and Telecommunications Commission),’35 any carrier (including a reseller)
which falls within the definition of a “company” must obtain Commission
approval of tariffs for any amounts to be charged in connection with the provi-
sion of its telecommunications services. Accordingly, all resellers who came
’29R.S.C. 1985, c, R-3.
130(12 July 1984), Telecom Decision 84-18 at 31 (C.R.T.C.) [hereinafter Decision 84-18].
t311bid.
132Decision 85-19, supra note 7 at 89.
133(11 June 1992), Telecom Decision 92-11 at 10 (C.R.T.C.) [hereinafter Decision 92-11].
134Supra note 129.
135[1989] 2 F.C. 280, 98 N.R. 93 (F.C.A.), leave to appeal denied by the Supreme Court of Can-
ada (sub non. CNCP Telecommunications v. Telecommunications Workers’ Union) [1989] 1 S.C.R.
vi.
1993]
CASE COMMENT
within the Commission’s ruling in Decision 92-11 were required to file pro-
posed tariffs by 9 October 1992. All resellers who had previously registered
with the Commission as such, but who did not believe that they were required
to file tariffs, were required to show cause by the same date as to why they
should not have been required to do so.
The requirement to file tariffs may be onerous for many resellers of limited
resources. However, to the extent that the Commission is satisfied that the resale
market is sufficiently competitive, the Commission may expedite approval of
reseller tariffs, much as it currently does for cellular telephone companies.
Furthermore, the requirement imposed on certain resellers by Decision
92-11 to file tariffs may disappear in the near future in any event, since the fed-
eral Minister of Communications has indicated that new telecommunications
legislation 36 is not intended to apply to resellers and sharing groups. 37 Thus, the
temporary regulation of resellers pursuant to Decision 92-11 seems particularly
wasteful given the stated policy objectives of the government to promote a fully
competitive (and essentially deregulated) market for resellers. This may have
motivated the Competitive Telecommunications Association (“CTA”), which
represents the resale industry, and ACC Long Distance Ltd., a reseller, to seek
leave to appeal Decision 92-11 to the Federal Court of Appeal. However, the
Court denied leave.’38 CTA subsequently filed a petition pursuant to section 67
of the National Telecommunications Powers and Procedures Act,’39 requesting
the Federal Cabinet to postpone the filing of tariffs by resellers pursuant to
Decision 92-11 until 28 February 1993 (by which time it was thought that the
fate of the Telecommunications Act would become clear). The petition was
denied,1 40 perhaps because of a concern that Cabinet has no legal jurisdiction to
postpone a tariff filing requirement in respect of a carrier (including a reseller)
which must be regulated pursuant to the Railway Act.
In any event, it is interesting to note that the Commission’s description of
the type of reseller which is a “company” pursuant to Decision 92-11 only
extends to a reseller offering basic services. This may resurrect the debate about
what constitutes basic vs. enhanced services, as some resellers attempt to char-
acterize themselves as providers of enhanced services in order to avoid regula-
tion. It is unclear whether or not the distinction is supported by a plain reading
of the Railway Act. However, the distinction made by the Commission may be
necessary upon implementation of the North American Free Trade Agreement,
which prohibits requiring enhanced service providers to file tariffs relating to
136 Telecommunications Act, S.C. 1993, c. 38 (coming into force 25 October 1993).
137See Communications Canada, Telecommunications: New Legislation for Canada (Ottawa:
Communications Canada, February 1992) at 14. The structure of the definitions in s. 2 of the Tele-
communications Act, which will replace the provisions of the Railway Act governing telecommun-
ications, is aimed at excluding resellers from the legislation. It is unclear whether this legislative
objective has been achieved.
138See orders of Mahoney J.A. in Competitive Telecommunications Association v. Telecommun-
ications Workers’ Union (4 September 1992), No. 92-A-4265 (F.C.A.); ACC Long Distance Ltd.
v. Telecommunications Workers’ Union (4 September 1992), No. 92-A-4280 (F.C.A.).
139R.S.C. 1985, c. N-20.
14See Order in Council P.C. 1992-2206 dated 8 October 1992.
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[Vol. 38
such services, unless it becomes clear before then that the Telecommunications
Act does not require resellers to file tariffs. 4′
An interesting side effect of the Commission’s ruling in Decision 92-11 is
that resellers who come under the Commission’s jurisdiction will also come
under federal jurisdiction with respect to other related matters, such as employ-
ment and human rights (irrespective of any tariff filing requirement). Accord-
ingly, it is arguable that as early as 11 June 1992, federal legislation such as the
Canada Labour Code,’42 Canadian Human Rights Act,’43 Employment Equity
Act,” and Pension Benefits Standards Act’45 became applicable to such resel-
lers, thereby displacing any provincial legislation covering the same subject
matter which may have previously applied.
IV. Regulatory Safeguards
A. The Issues
The Commission determined that in a mixed monopoly and competitive
environment, regulatory safeguards needed to be established with respect to: (1)
access to bottleneck facilities; (2) anti-competitive pricing practices; and (3) the
disclosure or use of competitively sensitive information.’ 46 At the same time, the
Commission was concerned that imposition of regulatory constraints on incum-
bent firms not be so burdensome as to mitigate the beneficial effects of compe-
tition. 4
B. Principles Applicable to Regulatory Safeguards
In order to provide a level playing field for all competitors, the Commis-
sion determined that “safeguards should focus on equivalent access to the type
of services and facilities that the telephone companies require in order to pro-
vide their own long distance services.”‘ 4s Thus, since IXCs will be “explicitly
contributing substantial amounts to the recovery of Access and Common cate-
gory costs, new tariffs for facilities and services required for equivalent access
shall not include a mark-up.”‘149
Similarly, the respondents will be required to provide information as to the
existence of alternative suppliers if in the provision of access service (e.g. new
subscribers, moves, changes) they actively promote their own long distance ser-
vices, and will also be required to handle questions and referrals at respondents’
business offices on an impartial basis. Moreover, the respondents will have to
1992), art. 1303(2)(c).
141North American Free Trade Agreement (Ottawa: Minister of Supply and Services Canada,
’42R.S.C. 1985, c. L-2.
143R.S.C. 1985, c. H-6.
144R.S.C. 1985 (2d Supp.), c. 23.
145R.S.C. 1985 (2d Supp.), c. 32.
146Decision 92-12, supra note 2 at 132-33.
1471bid. at 132.
148lbid. at 134.
1491bid. at 136.
19931
CHRONIQUE DE JURISPRUDENCE
provide, on a tariffed basis, weekly reports of the names and addresses of all
new subscribers and those changing their addresses. 50
Furthermore, the Commission required each respondent to establish an
Interexchange Carrier Group (ICG) in order to separate the monopoly and com-
petitive activities of the respondents and to coordinate the delivery of facilities
and services to competitors. 5′
Finally, the Commission, in approving the BCRL application in principle,
stated: “The Commission finds it appropriate that all carriers under its jurisdic-
tion allow access to their facilities and services on a non-discriminatory
basis.”’52 This implies that IXCs, upon bringing appropriate applications, will
have access not only to respondents’ facilities and services (and by extension of
Decision 92-12 to those of Teleglobe and Telesat) for the purpose of providing
competitive telecommunications services, but may also be granted access to the
facilities and services of Alberta Government Telephones (“AGT”), and possi-
bly to those of Northwestel Inc. (“Northwestel”),’53 as well as perhaps even to
those of Rogers Cable T.V. Limited (“Rogers”), which has recently been held
by the Commission’54 to be a “company” within the definition contained in sec-
tion 334 of the Railway Act,’55 since Rogers “offers and provides end-to-end
data, video, and voice telecommunications services using its local distribution
systems located in several provinces, in combination, in some cases, with resold
‘ The rule may, by logical extension, also be applied to
interexchange circuits.
access sought by a competitor (whether it be an IXC or a reseller) to the facil-
ities and services offered by other IXCs and perhaps also to those offered by
other resellers.
Presently, the Commission cannot exercise its jurisdiction over Saskatche-
wan Telecommunications (SaskTel) or the Manitoba Telephone System
(M.T.S.), the Stentor members operating in the Provinces of Saskatchewan and
Manitoba, respectively, due to the status of those companies as provincial crown
agents.’57 Once federal legislation governing telecommunications is made bind-
15Ibid. at 135.
15 11bid. at 137.
1521bid. at 141-42.
153In Decision 90-3, supra note 8 at 39, and in Bell Canada and Northwestel Inc. – Sale of
Facilities in the Northwest Territories (1 May 1992), Telecom Decision 92-6 at 26 (C.R.T.C.), the
Commission refused to extend resale and sharing of private lines for joint use to the operating ter-
ritory of Northwestel, due in part to “differences between Northwestel’s circumstances and those
of other carriers.” It is, therefore, less clear whether the Commission is predisposed to liberalize
competition in the provision of telecommunications services in the operating territory of Northwes-
tel, notwithstanding the Commission’s pronouncements concerning non-discriminatory access to
the facilities and services of carriers under its jurisdiction. On the other hand, due to the difficulties
inherent in providing telecommunications services to the sparsely populated and remote North, it
may be some time before IXCs or resellers develop an interest in competing with Northwestel.
154 In Bell Canada v. Rogers Cable T.V. Ltd. Carrying on Business as Rogers Network Services
to Require the Filing of Tariffs of Tolls by Rogers Cable TV Ltd. (11 June 1992),
-Application
Telecom Decision 92-10 (C.R.T.C.) [hereinafter Decision 92-10].
’55 Supra note 129.
156Decision 92-10, supra note 154 at 25.
157This result derives from the ruling of the Supreme Court of Canada in the AGT case, supra
note 10, that AGT, which at the time the decision was rendered, was an agent of the provincial
