The CRTC’s review of bundled services could further delay any reasonable move toward sustainable facilities-based competition. Whether the interim measures outlined in its public notice released last week are helpful or hurtful is a question for debate. In Telecom Public Notice 2003-8, the commission asks for comments on proposed interim changes to the imputation test and the service bundle pricing rules, as well as a new interim pricing safeguard for volume and term contracts for retailed tariffed services. Comments on final changes to the safeguards are also being requested. Under rules established in Telecom Decision 97-8 and Telecom Decision 2001-737, the imputation test requires an ILEC to show that the revenues from a retail service are equal to or more than the costs of the service. The costs are defined as the sum of Phase II unbundled loop costs plus a 15% mark-up in essential bands; the average Phase II loop cost per band, with no mark-up, in non-essential bands; and the Phase II cost of other service components with no mark-up in all bands. Concerned that the 15% mark-up is too low, the CRTC set out to change the price floor. It is also worried that the floor may prevent CLECs from operating profitably."For example, in non-essential bands, competitors using an unbundled ILEC local loop are required to pay the ILEC the Phase II cost of the loop plus a 15% mark-up," the regulator writes in PN 2003-8. "Under the current imputation test, the ILEC can price a retail tariffed service based on the Phase II cost of the local loop, without mark-up. The lack of a requirement for a mark-up in this latter case provides an opportunity for the ILEC to price a retail service below the input costs of its competitors and thereby eliminate the margin available to competitors. In fact, a competitor would be required to take a loss on this component of the service in order to match the ILEC’s pricing." In response, the CRTC is suggesting it raise the price floor to require a minimum mark-up of 25% on the Phase II costs of service components. One CLEC is happy with that proposal. "The commission has done something in this notice that I’m very pleased about, which is they have a proposed set of interim rules and they have a relatively fast track process to get there," Ian Scott, VP of government affairs for Call-Net Enterprises Inc., tells Network Letter. "They set out a proposal, they set out short time frames and I assume they intend on ruling as quickly as possible after the record closes at the beginning of December, which offers up the hope that we’d see a decision in January. That would be very quick by the commission’s standards and that’s a good thing and I’m glad to see that they’re moving in the direction of addressing problems more quickly, even if it’s on an interim basis. I’d rather they went even further and introduced interim measures while we had these proceedings." One of the main opponents of ILEC bundling has been Rogers Communications Inc. It filed an application with the commission seeking an end to bundling (NL, July 15/03). The paperwork from that Part VII is now being rolled into the record of this public notice. A final decision will be announced as part of the ruling on overall price floor rules. "We think there should be a ban on bundling of monopoly and competitive services. Instead, the CRTC has allowed it and put a 10% limit on the size of the discount," Ken Engelhart, VP regulatory for the cableco, remarks to NL. "So I don’t think that’s an appropriate response because I think that those types of bundles are anti-competitive." One company that finds itself straddling the issue is Telus Corp. It operates as an ILEC in Alberta, British Columbia and Quebec, and as a CLEC in other parts of the country. The telco’s new executive VP of government and regulatory affairs wonders if the CRTC is using the right approach to deal with the problem. "At a high level we agree with the commission’s goal of fostering sustainable, long-term, facilities-based competition. But the question is are these the mechanisms that really focus on the barriers to reaching that objective," Janet Yale tells NL. "Because the commission itself says in the PN that the regulatory framework is only one piece of the puzzle and therefore the pricing and pricing proposals are only one piece of the puzzle. I guess we really believe that this whole issue has to be looked at in the broader context of what is the real state of competition in the market." Engelhart wonders if the current rules are enforced strongly enough. He finds fault with some of the logic in PN 2003-8."The public notice proposes some rules for when the phone companies file tariff applications. But they don’t file tariff applications," he states. "There is no tariff application from Aliant that EastLink is complaining about. We’ve seen bundles at Telus that don’t have tariff applications. We complained in our application about a Bell bundle that doesn’t have a tariff application. So all the rules in the world won’t do any good if the phone companies never file tariff applications and if the CRTC doesn’t enforce that." A recent survey done by Decima Research Inc. for Bell Canada found that most Canadians are satisfied with the amount of competition available in the marketplace today for their personal communications needs (NL, Oct. 15/03). Yale points to moves by cablecos to get into telephony to bolster that belief. "I don’t think we would necessarily agree that it’s a weak state if you look at the market in the broader context of the emerging players," she remarks. "So if you look at the Vonage initiative, if you look at the Microcell flat rate wireless announcement in Vancouver, you look at the Shaw announcement of Voice over IP as being something they’re considering, Rogers is clearly interested in Voice over IP. You’ve got EastLink in the local telephony business on a circuit-switched basis. The question is what’s the right way of looking at the market and defining it and where is the market going. And what are the areas, if any, that should be managed in a holistic way to ensure that there’s sustainable facilities-based competition in the long term." Questions of timing raise concerns for both Yale and Engelhart. The CRTC is asking for initial comments on the pricing safeguard changes to be submitted by November 24, for a public notice that was issued on October 23. "We really believe that in order to provide a meaningful response, including any evidence that we think is necessary, that’s not a very long time frame," the Telus executive remarks. "And if you think about the months and years that it took to put in place the bundling rules and the imputation tests that currently exist, the notion that we can properly analyze and consider this proposal and come up with the kind of evidence we think is necessary to respond to it, 30 days is really not sufficient." Her counterpart at Rogers is more concerned about the migration of his complaint on bundling into the record of this new proceeding. That should delay any final settlement for many months. "We should get a decision on the 10% discount by Q1 of 2004 but a decision on our bundling application I don’t expect until Q1 of 2005," Engelhart speculates, "which is obviously, even if it’s positive, it’s obviously too late to assist us in any local telephone planning." Yale feels some sympathy for her Rogers colleague.She states, "That’s a normal reaction and what the commission has to do is balance all the competing applications and competing requests for relief against each other and figure out which ones have to be dealt with in which order and which ones don’t make sense to deal with unless they’re dealt with together."