Background
Frustrated by what the CRTC perceived was industry-wide foot dragging, on September 14, 1999, in Telecom Decision CRTC 99-11, the CRTC ordered Canada’s cable companies to give Internet Service Providers (“ISPs”) wholesale access to high speed internet connections within 90 days. Alternatively, the cable companies were ordered to provide resellers with a mandatory 25% discount off their best available retail rates for cable internet service in order to provide the ISPs with the opportunity to offer similar services on a resale basis.

Issues
The Decision raises some very interesting policy and operational issues. The Commission did not appear to have costing evidence from which to derive its 25% discount level, nor did the Commission give guidelines on what it would use to distinguish Internet resellers from consumers. On the surface, it would appear that individual consumers could declare themselves to be resellers to benefit from a lower price. The Commission also did not specify whether the customer premises equipment (modems and network interface cards) would be included. The CRTC considered that Canada suffers from an inadequate supply of high speed Internet access services. While Canada enjoys among the highest penetration rates for cable modem Internet access, it has among the lowest penetration rates of DSL technology. Cable companies in Canada have had difficulty properly engineering their networks to meet the monopoly levels of demand and had not yet been prepared to open their networks for competitive access.

Summary – who won?
This decision appears to represent the CRTC venting its frustration on the Cable companies – and cable company stock prices have suffered as a result. Investors are left questioning aspects of Canada’s regulatory regime in the wake of this decision and have pulled back from Canadian cable stocks as a result. Given that cable companies will be left with new ISP sales channels while retaining 75% of the revenues, it is hard to tell if the ISPs really won and the cable companies lost. There is still an outstanding complaint by the ISP community against the phone companies, seeking similar concessions. It will be interesting to see if the CRTC takes the same position in its decision on a similar file in respect of ISP access to telephone company DSL services.

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.