Background
The CRTC has recently issued a number of decisions and letters of interest to providers of long distance services in Canada. This Update will touch on some of the most relevant matters.

Contribution on DALs
Contribution is the term used in Canada to refer to the subsidy from long distance services towards basic dial tone. The level of Contribution varies by province, however, it is generally in the order of 0.5¢ to 2¢ per minute per end of the call, charged in addition to switched access or egress charges. Dedicated Access Lines (DALs) have not attracted Contribution and on July 20, in Telecom Decision CRTC 99-9, the Commission has agreed to continue this exemption, and will continue to apply a surcharge on switched traffic charges. Further, the Commission agreed with London Telecom that carriers which attest to not using DALs should be exempt from the surcharge. The level of the surcharge will be set in the decision associated with a concurrent proceeding (Public Notice 99-5).

International Issues
On July 14, 1999, the CRTC issued a letter to all registered resellers in Canada, as a reminder of the requirement to acquire a license for the provision of international services.

An industry wide task force examined issues associated with the competitive provision of international services and a report was issued on June 23 to the CRTC. The report consists of non-binding recommendations to assist in applying the new rules consistently. Among the more significant issues addressed is an attempt to capture Contribution payments for voice traffic which leaves Canada over non-circuit switched facilities (such as Internet Protocol (IP) or Asynchronous Transfer Mode (ATM)). The task force recommended establishing a new Class C license for carriers of such traffic. Class C licensees would be required to measure the minutes at the point of conversion from circuit switched technology.

Until the CRTC acts on this report, IP and ATM services may continue to be used to carry traffic in and out of Canada, Contribution-free.

Summary
Per minute access and Contribution charges continue to be a significant issue challenging profitability for Canadian carriers. In recent months, AT&T Canada’s decided to exit the residential long distance market, selling its business to Primus, and Sprint Canada continues to bleed red ink associated with carrier charges. It appears clear that further changes will be required in order to rationalize the regulatory environment – providing consumers with choice while leaving profit opportunities for carriers.

Background
Earlier in the year, the CRTC concluded its public consultations under both the Broadcasting Act and the Telecommunications Act regarding the range of communications and information services referred to as “new media.” On May 17, 1999, the Commission agreed that there is no need for it to be involved in regulating the Internet.

Hands Off!
The Commission concluded that the majority of services now available on the Internet consist predominantly of alphanumeric text, and, therefore, do not fall within the scope of the Broadcasting Act and are thus outside the Commission’s jurisdiction. For those new media services that do fall under the definition of broadcasting, the Commission has concluded that regulation is not necessary to achieve the objectives of the Broadcasting Act. It has therefore determined that the CRTC will not regulate new media activities on the Internet under the Broadcasting Act.

Further, the Commision found that there was no apparent shortage of Canadian content on the Internet today. As such, it determined that there is no reason for to impose regulatory measures to stimulate development of Canadian content in the world of new media.

Equal Access
The Commission has set an official policy of providing open access to high speed internet access facilities used by cable companies and telephone companies for their affiliated internet service providers.

Summary
The CRTC has become one of the world’s first regulators to clearly enunciate a “hands off” policy toward the Internet – allowing market forces to drive development of content and increase levels of accessibility for users. While the CRTC has expressed concern about offensive content on the Internet, it concluded that the Broadcasting Act is not the appropriate tool to apply and instead suggests generally-applicable Canadian laws, coupled with self-regulatory initiatives as alternatives to curb the problem.

Background

On March 3, 1999, Bell Canada reached an agreement with MCI WorldCom that provided it with Canadian rights to offer MCI WorldCom’s products and gave the US company broader access to Canada. A day later, AT&T Canada announced that it was merging with Metronet, Canada’s leading Competitive Local Exchange Carrier (CLEC). On March 24, BCE announced that it was selling a 20% stake in its telephone operating company holdings to Ameritech, the US RBOC formed from the former “Baby Bell” companies in the American rust belt states of Michigan, Illinois, Indiana, Ohio and Wisconsin. In May of 1998, Ameritech and SBC (of Texas) announced a $57B (US) merger.

Dialling for Dollars

BCE gets $3.4B (US) for the 20% stake in its telecom portfolio which includes: Bell Canada (including Nexxia, ActiMedia directories and the MTS investment), 65% of BCE Mobility (cellular), 21% of Teleglobe, and holdings in 6 regional companies (including all of the Atlantic provincial companies). Ameritech secures a foothold in Canada, the most significant trading partner for US traffic. The US and Canada exchange more minutes of traffic than any other pair of countries on the planet.Bell’s Nexxia unit already has fiber (acquired from Ledcor Industries) running through Ameritech territory, providing a southern leg to a ring connecting Canada’s west to Bell Canada’s core Ontario markets. Nexxia will be in an interesting position to provide international and inter-LATA services to Ameritech customers, allowing Ameritech a back door into the long distance business in its home territory. The US FCC restricts Ameritech from entering the long distance business in its home market until it satisfies certain requirements for emerging local competition. Indeed, the Bell brand is well known in Ameritech territory; its former telephone company business units all operated under the Bell moniker – Michigan Bell, Illinois Bell, Ohio Bell, etc. While Ameritech only acquires a small stake in Teleglobe through this transaction (indirectly less than 5%), Teleglobe could be a beneficiary of improved relations with Ameritech’s extensive investments in European carriers. The partnership needs global connectivity beyond North America – Teleglobe provides that capability, although the MCI Worldcom alliance raises possible options or conflicts in this area.

Who is next?

Canadian telecom companies are clearly in season for foreign investors. Bell’s former alliance partners in the west, BCT.Telus is already 26% owned by GTE (and Bell Atlantic). Videotron, the largest cable company in Quebec, announced on March 23 that it was seeking an investor partner to exploit its network assets. Rogers, Canada’s largest cable company has been the subject of equity investment talk over the past number of months. Four years ago, in the early days of competition in Canada, many of the telephone companies heralded their Canadian heritage against the foreign new entrants. BCE’s sale of part of Bell Canada “breaks the ice” for the remaining Canadian communications icons to go global. Ironically, among major companies, only government owned Sasktel remains 100% Canadian.

Background
On January 7, 1999, AT&T Canada announced a restructuring resulting in the creation of a trust which removed the former bank shareholders (Scotiabank, TD Bank and Royal Bank of Canada) of AT&T Canada Long Distance. At that time, AT&T Canada integrated ACC Canada into the company and announced that $800M was being allocated to enter the local telephone business. On May 20, 1998, Metronet announced an agreement to acquire Rogers Telecom, in a deal which gave Rogers Communications cash plus 12.5 million shares of Metronet and 2 of the 11 Metronet board seats. As a result of that transaction, Metronet became Canada’s leading Competitive Local Exchange Carrier (CLEC). Both Metronet and AT&T Canada focus on the business market.

A Solid National Player
The AT&T Canada – Metronet deal puts together a national powerhouse, operating coast-to-coast with local, long-distance and data facilities in virtually all of Canada’s biggest cities. AT&T Canada is a national, facilities-based long distance company, having led the regulatory battle to introduce competition in the early 1990’s, when it was operating as Unitel (owned then by Rogers and Canadian Pacific). AT&T Canada traces its roots to the railroad telegraph companies in the 1840’s. The combined company will have revenues of $1.4B, more than 4000 employees and $3.5B in assets (all figures Canadian). It is in the midst of building a new high-speed fibre network.

The merged company will be the first company operating nationally to offer local and long distance voice, data, Internet and electronic commerce services. It is interesting that the announcement also included wireless services through Cantel AT&T. To date, Cantel has been the wireless unit within the Rogers Cable empire, operating under a marketing agreement with AT&T. The recent acquisitions of major US cable companies by AT&T raises the question of whether Metronet is just one step for AT&T.

Bell Canada / MCI Worldcom
The announcement comes on the heels of yesterday’s announcement that Bell Canada has reached an agreement that provides exclusive Canadian rights to offer MCI WorldCom’s products and gives the US company broader access to Canada. That relationship replaces an agreement MCI Worldcom had with the now defunct Stentor alliance.

Summary
AT&T Canada Corp will be a serious national contender, offering a significant portfolio of services to businesses coupled with the world’s most powerful telecom brand name. As a result of this merger, it will be much more difficult for competitors to operate only regionally and compete in the lucrative business market. Further consolidation among wireline and wireless companies can be expected as former Stentor members Bell and BCT.Telus “bulk-up” for the battle in each other’s territory.

Background
On October 1, 1998, the CRTC issued Telecom Decision CRTC 98-17, outlining the process by which companies could obtain licenses to offer international telecom services for Canada. As of January 1, 1999, all companies providing international telecom services to the public must be licensed. The first licensees were just announced. There are two classes of licenses: Class A for service providers which have leased or owned facilities that cross a border; and Class B, for service providers which hand all of their international traffic over to another licensed service provider. Class A licensees are liable for regular reporting of traffic and remittance of contribution. There seems to be confusion about who needs each type of license and inconsistencies are emerging in the apparent interest of administrative efficiency. As will be discussed below, this could lead to holes in the contribution collection mechanism.

Who needs licenses?
It is interesting to begin with an examination of who did not obtain licenses. Many of the companies that had registered as resellers in Canada have not yet obtained licenses, in violation of the Decision. Decision 98-17 explicitly called for licensing switchless resellers, although, as the attached list indicates, many have not yet filed. There are also gaps in the licensing of international pre-paid card providers.

The CRTC has instructed paging companies and independent local telephone companies that there is no need to obtain either type of license, despite the fact that independent telcos are switch-based firms selling international long distance services to their subscribers. This is confusing in light of statements in the October 1 Decision and a previous supreme court ruling that the inter-provincial long distance service being provided by independents was sufficient justification to bring the independents under CRTC regulation. As such, why are Class B licenses not required?

SaskTel has neither applied for nor been granted either class of license, apparently believing that it remains exempt from any application of federal telecommunications law.

Metronet applied for and received a class B license, apparently indicating that it does not operate telecommunications facilities that carry any basic service over the border. This was a surprise in light of its press releases announcing existing and planned cross border fibre routes to major US business centres. This does not seem to have been raised during the CRTC review.

Conditions have changed
No contribution applies on circuits which are unused and not connected, dedicated to transit service (not connected to the Canadian PSTN), dedicated to a private line application, or dedicated to data services. Exemptions from the obligations of contribution require approval from the CRTC on a case-by-case basis.

Basic versus Enhanced Services
It is unclear about how or whether the CRTC will regulate international ATM and Frame Relay services under the licensing regime. The international licenses call for reporting of traffic in “minutes” which is a term that cannot be applied to these technologies. The Commission is also hesitant to regulate Internet Protocol (“IP”) traffic and as such, ISPs are exempt from the regime. This leaves open the possibility for a company to use a contribution-exempt data cross-border service that takes already converted packets from other service providers. Such traffic may continue to be exempt from the cross-border contribution element unless the CRTC clarifies and then enforces its rules.

Summary
Administrative ease may be at the root of the CRTC’s decision not to license local telcos and paging companies. Clarification is required for re-billers and card companies. It would appear that a more inclusive policy, coupled with clear rules would provide better understanding for all industry participants.