From telecom@eecs.nwu.edu Sun May 27 10:38:08 1990 Received: from delta.eecs.nwu.edu by gaak.LCS.MIT.EDU via TCP with SMTP id AA20759; Sun, 27 May 90 10:38:03 EDT Resent-Message-Id: <9005271438.AA20759@gaak.LCS.MIT.EDU> Received: from uunet.UU.NET by delta.eecs.nwu.edu id aa03533; 27 May 90 1:48 CDT Received: from mnetor.UUCP by uunet.uu.net (5.61/1.14) with UUCP id AA22087; Sun, 27 May 90 02:46:53 -0400 Received: by mnetor.UUCP (smail2.3) id AA21183; 27 May 90 02:44:34 EDT (Sun) Received: by becker.UUCP (smail2.5/bdb) id AA14028; Sat, 26 May 90 21:15:38 EDT (-0400) Received: by contact.UUCP (smail2.5) id AA23567; 26 May 90 15:35:33 EDT (Sat) Subject: Unitel - Canadian bid for long distance competition To: telecom@eecs.nwu.edu Date: Sat, 26 May 90 15:35:33 EDT From: woody X-Mailer: ELM [version 2.2 PL13] Message-Id: <9005261535.AA23567@contact.UUCP> Resent-Date: Sun, 27 May 90 9:39:06 CDT Resent-From: telecom@eecs.nwu.edu Resent-To: ptownson@gaak.LCS.MIT.EDU Status: R [The following is the text of Unitel's bid to establish a competing long distance service in Canada. As no statement of copyright appeared, and as this is an application before the Canadian Radio-Television and Telecommunications Commission (CRTC, or sometimes referred to as "the Commission") on public record, it should be permissible to distribute and use, provided Unitel is credited with the publication.] Unitel Long Distance Application - May 1990 ----- UNITEL COMMUNICATIONS INC. APPLICATION TO PROVIDE PUBLIC LONG DISTANCE TELEPHONE SERVICE Executive Summary ---- Introduction Unitel Communications Inc hereby applies to the CRTC for an order requiring the respondents to connect Unitel's telecommunications network to their public switched telephone networks, to allow Unitel to offer public voice long distance telephone service in seven provinces in Canada. Public long distance telephone service is currently provided on a monopoly basis by the six companies names as respondents to this application, Bell Canada, British Columbia Telephone, Island Telephone, Maritime Telegraph & Telephone, New Brunswick Telephone and Newfoundland Telephone. Unitel Communications Inc - The Applicant On December 19, 1846, thirty years before the telephone was patented, the first telegram in Canada was sent from Toronto to Hamilton by a small telegraph company that evolved into Canada's first national facilities-based telecommunications carrier: Unitel Communications Inc. Railways and telecommunications formed a natural partnership in the early days of Canada's development. Unitel's network was formed by combining the telecommunications networks of the two national railways - Canadian National and Canadian Pacific - along whose lines the nation was built. Telegraph lines continued to be the primary medium of communication for business, government and industry until well into the twentieth century. As the Canadian economy and population grew, so did the need for specialized private telecommunications services. National teleprinter service, private line voice and teletype services were added to telegraph. With an escalating demand on a national scale, Canadian National and Canadian Pacific decided to combine their efforts. In 1964, CNCP completed a coast-to-coast analogue microwave network. The network was constructed to a single, uniform set of standards, resulting in transmission performance of exceptionally high quality. In 1967, CNCP introduced Broadband Exchange Service. It was the first Canadian network capable of handling switched voice and high-speed data transmissions. A landmark ruling by the CRTC in 1987 gave Broadband customers full access to the US public telephone network. In the last decade, CNCP introduced VoiceLine discount private line services, Dialcom electronic gateway services, the MACH III family of integrated digital communications products, and FacsRoute service. FacsRoute is one of the most successful services ever introduced by Unitel. It offers customers savings up to 40 percent on their long distance facsimile charges. In 1979, the CRTC granted CNCP the right to connect its private line inter-city voice and data services with the local exchange facilities of Bell Canada. In 1981, the Commission approved a similar network interconnection with BC Tel. In 1982, CNCP applied to the CRTC for the right to interconnect with the facilities of Alberta Government Telephones (AGT), as the next step towards obtaining private line interconnection across Canada. Ultimately, a decision on jurisdiction was rendered by the Supreme Court of Canada, in August 1989. Although an amendment will be required to make the _Railway_Act_ binding on provincial Crown corporations, the AGT case makes it clear that those members of Telecom Canada which are not provincial Crown corporations are subject to CRTC jurisdiction. As a result of that court decision, Newfoundland Telephone, New Brunswick Telephone, Island Telephone, and Maritime Telegraph & Telephone are today regulated by the CRTC. In January 1990, the CRTC ordered these companies to file tariffs for private line interconnection with CNCP. Unitel has in recent years engaged in a steady expansion and upgrading of its national digital telecommunications network and a restructuring of its business operations designed to enhance its ability to compete with the telephone companies. Unitel is uniquely positioned to provide competitive public long distance service across Canada. Unitel combines the corporate and financial strength and historical perspective of Canadian Pacific Limited with the entrepreneurial vigour and diversified communications experience of Rogers Communications Inc. In the past few years, the company has substantially strengthened its management team and introduced a stronger marketing orientation. In May, 1990, to reflect its new ownership and direction, the company adopted the name Unitel Communications Inc. Unitel is planning to invest approximately $1.5 billion to improve and expand its existing facilities and services over the next few years. Of this, approximately $400 million will be invested in long distance public voice service. [executive summary contained a map showing the National Digital Network, with fibre optic link from Vancouver to Edmonton, a U.S. link from Vancouver, microwave links from Edmonton to Calgary, Saskatoon, Winnipeg, Sudbury, connecting to a fibre network from Windsor to Quebec City (via London, Toronto, Kingston, Ottawa, Montreal), with U.S. links at Windsor, the Niagara region, and Montreal) then a microwave link from Quebec City through New Brunswick (including Fredericton), Halifax, to St John's Newfoundland.] Competition and the Canadian Economy The CRTC has over the past decade progressively opened Canadian telecommunications markets to greater competition. These initiatives have been complemented by policies adopted by successive Ministers of Communications. There is now competition in the provision of terminal equipment, private line services, switched data services, cellular mobile telephone services, earth station services, enhanced services, radio paging services and facsimile services. Most recently, the Commission permitted the resale of private line services. Experience demonstrates that wherever competition has been introduced in the field of telecommunications Canadians - residential and business subscribers alike - have found that they are more efficiently served at a lower cost, and benefit from more rapid introduction and diffusion of new services and facilities. However, message toll service and wide area telephone service (MTS/WATS) remain the monopoly preserve of the respondents. As a consequence, Canadians continue to be deprived of the full benefits of long distance telephone competition. These benefits will be realized only if there is direct competition in the provision of public long distance telephone services between Unitel and the telephone companies. Competition and the Changing Global Environment Competition in long distance telephone service has now become the chosen industry structure for three of Canada's major trading partners - the United States, the United Kingdom and Japan. For telecommunications users in these countries, competition has resulted in lower prices, greater innovation and more responsive service providers. Competition has in each case improved the productivity of the previous monopoly carriers. In an increasingly interdependent and competitive global economy, a country's telecommunications infrastructure is one important means by which a national economy succeeds or fails in deriving vital comparative advantage. In order to compete effectively, Canadian businesses must have the same freedom that businesses in these other highly developed economies enjoy to control their telecommunications costs and to take advantage of productivity-enhancing telecommunications services. As Canadian businesses become more efficient, consumers will benefit from lower prices for a wide range of goods and services, and Canada's competitive position internationally will be strengthened. In the final analysis the question, simply put, is whether Canada can continue to afford to forgo the benefits of public long distance telephone competition. In Unitel's view, it cannot. Services It is no longer possible for a single network provider to furnish a full range of telecommunications services to all sectors of the public. In a monopoly environment, some services are not offered at all, and the introduction of other services is delayed. This situation is creating an unsatisfied demand in the Canadian telecommunications market for new services, for wider availability of existing services, and for innovative and competitive pricing of services. This demand is not limited to business customers. It extends to residential customers, who are becoming more aware of pricing and service options available in the competitive long distance environment in the United States. Unitel intends to respond to this demand. The national scope of Unitel's network will enable Unitel to make its service offerings widely available geographically to the Canadian public. Unitel's digital transmission technology will provide Unitel with the capacity and flexibility to serve all sectors of the market, and to offer a consistently high grade of service to the public. Unitel's service portfolio will consist of a combination of conventional long distance services and advanced network services directed to both residential and business customers. Unitel projects that by the end of the year six, 70% of its customers will be residential, increasing to 75% in year fifteen. Unitel intends to offer to subscribers MTS, WATS and international long distance services. Unitel will also offer long distance service through Unitel pay telephones restricted in their use to long distance calls. Unitel will differentiate its services from those offered by its competitors through innovative pricing options, volume discounts and subscription services targeted at specific market niches. Unitel already offers an international long distance telephone service through its US Broadband service. These arrangements will be extended to cover MTS and WATS traffic as soon as Unitel has obtained regulatory approval in Canada. Unitel has also signed a statement of intent with Teleglobe Canada for the interchange of overseas MTS/WATS traffic. It is Unitel's intention to exploit fully the advances offered by new developments in network technology to offer its customers a portfolio of advanced network services. An example that will be of interest to some residential subscribers is the "Call-Me-Card" - a customer calling card which restricts calling to certain numbers and which would permit students, for instance, to charge only calls to home. Unitel will deploy state-of-the-art common channel signalling No. 7 technology (CCS7) to coordinate the transmission and switching on its network. CCS7 will increase network efficiency by reducing call setup and release times; moreover, CCS7 will help provide many new services that rely on faster transmission connection and processing of information. Unitel's digital network and its deployment of CCS7 will also provide it with the capacity to offer a wide range of enhanced services as part of its product portfolio. In the United States, this capability has led to the introduction of a variety of 800, teleconferencing, telemarketing, voice mail and telemanagement services. Telemanagement services have been introduced to enable businesses to manage their own private networking facilities within a carrier's network. Unitel will roll out its service portfolio in phases over a six year period. Unitel intends to begin service with a portfolio of services that includes not only conventional long distance services but also some advanced network services. More sophisticated services in both of these categories will be introduced in years two to six. Market Rollout of Services Unitel's fundamental objective is to provide a long distance telephone service accessible to all Canadians. Unitel will begin to offer service within twelve months after receipt of authority to interconnect its network with the networks of the respondent telephone companies, assuming the respondents provide interconnecting trunk facilities and signalling circuits on a timely basis. Unitel's service will be technically accessible in all regions of Canada served by the respondents on day one of Unitel's operation since the requisite physical interconnection arrangements will be in place as of that date. In order to ensure an orderly rollout of consistently high quality service to all Canadians, Unitel will market its service on a region by region basis over a period of six years. In the first year of operation, Unitel will market its services in four provinces - British Columbia, Ontario, Quebec and Nova Scotia. Service to New Brunswick and Prince Edward Island will be marketed in the second year of service. In its third year of operation, Unitel will market its service in Newfoundland, thereby extending its marketing to all seven of the provinces served by the respondent telephone companies. By the end of year 6, Unitel will market its long distance services to close to 100% of the telephone subscribers who live in these seven provinces. Unitel will apply to the Commission for interconnection with the three principal prairie telephone companies if the _Railway_Act_ is amended to make it applicable to these companies, as proposed by the federal government in Bill C-41. In addition, Unitel will commence negotiations for interconnection arrangements with the independent telephone companies and NorthwesTel as soon as it receives the approvals sought in this application. In the meantime, Unitel requests in this application that the Commission permit calls originated within the operating territories of the respondents to be terminated in areas served by other Canadian telephone companies through use of the respondents' WATS services. Pricing Customers of long distance service are not likely to leave their long standing monopoly supplier in favour of a new competitive entrant unless they are offered a significant incentive. Until the telephone companies are in a position to offer equal ease of access, Unitel's customers will need to dial extra digits. Customers are not likely to accept this inconvenience unless some price differential is offered. While the advent of equal ease of access in Canada will considerably reduce the inconvenience of dealing with an alternative supplier of long distance service, Unitel's position will never be as advantageous as that of the competing carriers in the United States. The respondent telephone companies provide both local and long distance telephone services over integrated networks, and can therefore approach customers as a single source of both services. Unitel will need maximum flexibility in pricing to counter this advantage enjoyed by its competitors. In broad terms, Unitel envisages offering during the initial years of operation prices that are, on average, about 15% less than the rates charged by the respondent telephone companies. Unitel will want the flexibility to price its services in a manner that will meet customer needs. Innovative pricing options will constitute a significant benefit available to customers of Unitel's long distance services. Consumer research indicates that Canadians are not prepared to sacrifice quality of telecommunications service for lower prices. High service quality will make it unnecessary for Unitel to seek customers on the basis of price alone. Network Access Arrangements Unitel requests that two basic forms of interconnection be approved: tandem access to the respondents' class 4 toll offices, and local access connection to class 5 local offices (including local tandem switches). Ideally, Unitel would wish its long distance customers to be able to gain access to the Unitel long distance network with the same ease currently enjoyed by the respondents' customers. This form of dial access would require each Unitel customer to pre-select Unitel as his or her primary long distance carrier. At the present time, the respondents' switches are not equipped to offer this capability at either the class 4 or 5 office level. Software modifications will therefore be required to achieve equal ease of access. Unitel anticipates a staged conversion program for equal ease of access. ============================================================================== Tandem Access Plan [example connection, BC Tel to Bell Canada via Unitel] <-----[BC Tel]----------><-----[Unitel]-----><-----[Bell Canada]-----> *---\ /---* *---- (cl 5) === (cl 4)++++(swt)+++++(swt)+++++(cl 4) === (cl 5) ----* *---/ # # # # \---* # # # # (STP) ### (STP) ### (STP) ### (STP) <-----[BC Tel]----------><-----[Unitel]-----><-----[Bell Canada]-----> Symbol Legend ------ ------ (cl 4) Class 4 office (cl 5) Class 5 office (STP) Gatewat STP (signal transfer point) ---- Network Access Services ==== Toll Connecting Trunks ++++ Digital Inter-Carrier Network Trunks #### Signalling link ============================================================================== Economic and Social Benefits For Unitel to obtain - and retain - a significant share of the competitive Canadian telecommunications market will require a high level of product and service innovation. Innovation will have to be sustained at a level that will only be possible if Unitel implements a carefully planned, and properly funded, program of research and development (R&D). During its first ten years as a competitive provider of public long distance services, Unitel proposes to invest in R&D 2% of the revenues derived from these services, after allowances for bad debts and payments to the respondents and other telephone companies. This represents a significant long term commitment to R&D by Unitel. Unitel has proven its capability to develop innovative products to enhance its competitive position. Unitel will create a new R&D division to develop new cost-effective products and services for Unitel's customers, and to provide technical support to other divisions within Unitel. The objectives of Unitel's R&D program will be accomplished by a combination of in-house and contracted research. Unitel also intends to fund research in the telecommunications field at Canadian universities. Unitel's entry into the market will make available to subscribers a wider range of price discounts, pricing options, and service features than they have known to date in a monopoly environment. Telephone subscribers will become more aware of both existing and new services as Unitel competes head to head with the respondent telephone companies. This combination of lower prices, new service options and increased awareness will result in increase demand for both Unitel's and the respondents' long distance services. The existence of this type of market stimulation has been recognized by the Commission in other recent proceedings. In other telecommunications markets, such as the terminal equipment market and the cellular telephone market, vigorous competition between suppliers has led to stimulation of demand. Stimulation of demand for long distance services as a result of Unitel's competitive entry will result in overall growth in long distance revenues. This will serve to reduce any negative impact that Unitel's entry might otherwise have on the respondents' long distance revenues. The introduction of competition in the public long distance market will provide a strong economic incentive for the respondent telephone companies to increase their own productivity in order to compete more effectively with Unitel and avoid losing market share. This economic incentive is not nearly as strong in a regulated monopoly environment in which the respondents are permitted to recover approved expenses and make a reasonable return on investment. Relatively small productivity gains can have a very dramatic impact on a telephone company's costs. For example, Unitel estimates that an increase of only 1% in the respondents' productivity would result in a cost saving of approximately $2.5 billion over a 15 year period. Increased productivity for the respondent telephone companies therefore represents a very important economic benefit flowin from the introduction of competition in the public long distance market. It will serve to further offset any negative impact on the respondents' revenues that Unitel's entrance might otherwise have and, in the long run, will lead to lower telecommunications costs for all Canadians. Competition will result in lower prices for long distance services. But the benefits of long distance competition extend beyond this. Telecommunications services represent an important business input. A reduction in the cost of this input lowers operational costs and improves profitability. Since most businesses operate in a competitive environment, these cost savings can be passed on to consumers in the form of lower prices for goods and services. Competition will also result in more service development in Canada, thereby stimulating economic activity in the Canadian telecommunications and information technology industries. Domestic consumption will increase, as a result of lower prices. Investment will be stimulated in the telecommunications industry, and in the rest of the economy, as a result of growing demand. Canada's gross domestic product will therefore increase. Increased employment will result from the higher level of investment. The lower overall level of prices in the economy will result in lower export prices. This will in turn improve the international competitiveness of Canadian goods and services, and result in increased exports. In 1988, the Commission considered the macro-economic benefits associated with Bell Canada's proposals to "rebalance" its rates by lowering long distance rates and raising local rates. Notwithstanding the fact that Bell Canada was proposing to raise local rates, the Commission concluded that lowering long distance rates could yield important economic benefits. It was Bell Canada's position that gains to consumers resulting from lower business telecommunications costs would arise from a number of factors including lower prices for goods and services, higher wages and benefits, higher dividends and increased capital expenditures. Unitel's entry into the competitive long distance market will give rise to the same type of macro-economic benefits, without the negative element of rate rebalancing - higher local rates. Unitel will pay tariffed rates to the respondent telephone companies for any facilities it leases that are dedicated to its use. In addition, Unitel will pay for switching Unitel's traffic on the local network and transporting it to Unitel's point of presence. Over and above these payments, Unitel will contribute to defraying the cost of the respondents' access facilities. These facilities consist principally of the local loops which run to every telephone subscriber. Unitel is committed to the regulatory objective espoused in the Commission's decisions and in the policies of promoting universal access to basic telephone service at affordable prices. This is a major commitment by Unitel. It is anticipated that contribution payments for access will constitute Unitel's single largest long distance expense. Together with the increased carrier productivity and stimulation of the long distance market that will result from Unitel's competitive entry, Unitel's contribution payments will ensure that local rates need not increase as a result of this application. It is Unitel's view that contribution should be payable on each inter-office trunk used to connect to Unitel's toll switches to the respondents' class 4 or class 5 switches. The amount of contribution payable per inter-office trunk should be flat rated for administrative ease. It should also be set a lower rate in the early years of operation to reflect both the inferior quality of interconnection anticipated in the first few years of operation and the fact that Unitel's traffic volume per trunk will be lower in the start-up phase of its operation. Canada is a nation of long distance callers. Frequent long distance calling does not appear to be restricted to any geographic location or income level. Residential telephone subscribers with annual incomes of less than $10 000 make significant use of long distance service. Thus, even low income Canadians will benefit from reductions in long distance rates. Competition, and the resulting reductions in long distance telephone rates, will therefore benefit a very broad spectrum of Canadians living in disparate regions of the country. In the long run, all Canadians will benefit from competition in the long distance market both in the form of direct savings in the cost of telecommunications services and indirect savings as competition in telecommunications aids other sectors of the economy.