File No. 8663-C12-200907321

2010 05 25

To: Mr. Robert A. MorinSecretary GeneralCanadian Radio-television and Telecommunications CommissionOttawa, OntarioK1A 0N2

Subject: Usage-based billing on Third Party Internet Access Service – Comments

Dear Ms. Morin,

1 Pursuant to the Commission staff letter dated 13 May 2010, Bell Aliant Regional Communications, Limited Partnership (Bell Aliant) and Bell Canada (collectively, the Companies) are providing their comments on the issue identified in the Commission's letter: whether the cable companies' Third Party Internet Access (TPIA) service should be subject to the same measures regarding equivalent treatment as were found to be appropriate with respect to the Companies' Internet traffic management practice (ITMP) in Telecom Decision CRTC 2010-255, Bell Aliant Regional Communications, Limited Partnership and Bell Canada – Applications to introduce usage-based billing and other changes to Gateway Access Services (Decision 2010-255) dated 6 May 2010.

2 At the outset, the Companies note that the Policy Direction requires that, when relying on regulation, the Commission should use measures that, among other things, "are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the minimum extent necessary to meet the policy objectives". In addition, non-economic regulatory measures are to be "… to the greatest extent possible, implemented in a symmetrical and competitively neutral manner.

3 As will be further described in these comments, the Commission has a well-established light-handed regime with respect to TPIA services offered by the market-leading cable companies, but has now created an overly prescriptive regime with respect to the Companies' wholesale Internet access services. This asymmetrical regulatory paradigm appears to be mired in the sorely outdated perspective where the Commission mandated ISP access to ILEC networks as a simple broadening of its unbundling requirements for voice services. However, without any historical requirement for unbundling of the cable video networks, it applied a much more relaxed regime with respect to ISP access requirements to the cable company networks. The reality of today's technologies and markets is that both the cable companies and the telephone companies compete for the same customers with the same services. Indeed, when it comes to retail Internet services, the cable companies have larger market shares than do the

Bell Aliant Bell CanadaDenis Henry David PalmerFloor 19 Floor 19160 Elgin Street 160 Elgin StreetOttawa, Ontario K2P 2C4 Ottawa, Ontario K2P 2C4

Telephone: (613) 785-6361 Telephone: (613) 785-6280Facsimile: (613) 560-0472 Facsimile: (613) 560-0472regulatory@bell.aliant.ca bell.regulatory@bell.ca

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incumbent telephone companies in their home territories. The continuation of this asymmetrical regulation is indefensible.

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The current asymmetrical regime

4 The concept of equivalent treatment between retail and wholesale customers with regards to the application of Internet Traffic Management Practices (ITMPs) was first established by the Commission in Telecom Order CRTC 2000-789, Terms and rates approved for large cable carriers' higher speed access service (Order 2000-789) dated 21 August 2000. In that ruling, the Commission established the general principle that the cable companies should provide their wholesale TPIA customers "equivalent treatment" to that accorded their retail customers.

5 In Decision 2010-255, the Commission concluded that the Companies should also be required to provide equivalent treatment of their wholesale and retail Internet customers, but in doing so established a much more prescriptive regime for the Companies that includes specific restrictions, over and above the general principle of equivalent treatment that defines the regime currently in effect for the cable companies.

6 In the following, the Companies will describe five areas where the Commission has failed to adopt the Policy Direction requirements of symmetrical regulatory treatment through processes or rulings that skew the operation of competitive market forces.

(i) The "all customers" requirement

7 At paragraph 27 of Decision 2010-255 the Commission stated:

… the Commission concludes that each Bell company may implement its economic ITMP only once it charges UBB rates to all its retail Internet service customers. [Emphasis added]

8 No such requirement was ever imposed on the cable companies, during the course of their introduction of UBB rating plans for their TPIA services. Meanwhile, as the Commission is aware, the Companies' retail customers can only select from rate plans that have usage components and are not treated equivalently to end-users of the Companies' wholesale Internet services, many of whom may still purchase unlimited usage plans from their ISP.

9 This aspect of Decision 2010-255 will be the subject of a forthcoming application to review and vary that decision, which the Companies expect to submit in the coming days.

(ii) Retail Promotions

10 At paragraph 30, Decision 2010-255 specifies that

… to the extent that each company chooses not to charge UBB rates to any existing or new retail customer, it is required to treat GAS ISPs on an equivalent basis.

11 Thus, the Companies cannot introduce so much as a promotional offer in the forborne retail Internet services market without first seeking tariff approval for a corresponding wholesale service offer. Such a requirement clearly interferes with the Companies' ability to react to competitive pressures in the intensely competitive market for retail Internet services, by introducing a regulatory lag (which may be for an extended period, as discussed in section (iv), below) associated with a wholesale filing requirement.

12 There is no corresponding requirement imposed on the cable companies. This aspect of Decision 2010-255 thus not only fails to be symmetrical as between the Companies and the

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competing cable companies, it also significantly interferes with the operation of competitive market forces, contrary to the requirements of the Policy Direction. As a result, the Companies will also be addressing this matter in their application to review and vary Decision 2010-255.

(iii) Rates

13 The Commission has generally approved, as filed, UBB-related rates for TPIA services, often without even demanding the presentation of a cost study (see, for instance, Telecom Order CRTC 2010- 233, which approved rates for a new TPIA service offering by Videotron).

14 By contrast, the Commission delayed the approval of the Companies' UBB rate proposal pending the submission of a supporting cost study. The Commission then adjusted the Companies' costs to reflect assumptions regarding the effects of the Companies' ITMP and to reflect an alternative network structure. The latter adjustment, in particular, led to costs based on a network configuration that would not work. This aspect of the ruling will also be addressed in the Companies' application to review and vary Decision 2010-255.

15 Once the Commission had adjusted the Companies' costs downwards, it then applied the previously unannounced principle of matching the mark-up it would allow on the fixed monthly component of the Companies' UBB rates to that purportedly allowed on the fixed monthly component of TPIA rates. Although this principle is consistent with the notion of regulatory symmetry, the Commission did not extend the application of this principle to its evaluation of the Companies' proposed usage rates. As a result, the Commission approved usage rates for the Companies that reflect a 25% discount to their retail rates, while allowing the cable companies to strike TPIA usage rates that merely match their retail usage rates.

16 Moreover, and as pointed out in the undated application by Electronic Box Inc. in October 2009, cable company TPIA rates do not appear to reflect the consistent application of a single Commission-approved mark-up.

17 In addition, also in Decision 2010-255, the Commission adjusted the costs and applied the same monthly-rate mark-up to a new GAS business service option, which included unlimited usage. The resulting mark-up constraint on the unlimited usage plan is significantly at odds with the regime – established in that same decision – for plans with UBB: for the former, a mandated mark-up above costs is specified while, for the latter, mark-ups that implicitly reflect those applied in the retail market (with or possibly without a 25% discount) are acceptable.

18 The Companies therefore conclude that, in the setting of wholesale rates, the Commission has adopted much more stringent, empirical tests for their proposals than are applied to the cable companies' TPIA services. This, coupled with the concerns discussed in (iv) below, has the effect of skewing the market for these services by introducing uncertainty and delay into the approval process for the Companies' services, while continuing to, in effect, rubber stamp rate and service proposals presented by the cable companies. These rates-related issues will also be addressed in the Companies' application to review and vary Decision 2010-255.

(iv) Regulatory Delay

19 The Commission has been routinely approving tariff applications related to the cable companies' TPIA services within days, typically with effective dates 30 days from filing. Even when the Commission most recently reviewed the merits of UBB for TPIA (resulting in Telecom Decision CRTC 2006-77, Cogeco, Rogers, Shaw, and Videotron - Third-party Internet access service rates), the proceeding lasted only seven months.

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20 By contrast, when the Companies applied to introduce UBB to their corresponding service, the approval process was allowed to drag on for fourteen months! And this is after the Commission had repeatedly found that such billing structures were entirely appropriate for the cable companies' services, as well as its more general conclusion in the recent Telecom Regulatory Policy 2009-657, Review of the Internet traffic management practices of Internet service providers (TRP 2009-657):

… economic ITMPs would generally not be considered unjustly discriminatory, as they link rates for Internet service to end-user consumption. Economic ITMPs also provide greater transparency to users than technical ITMPs, as they are reflected in monthly bills. Furthermore, these practices match consumer usage with willingness to pay, thus putting users in control and allowing market forces to work.

21 Thus, the treatment of the Companies' wholesale tariff applications relative to that accorded to those of the cable companies appears to reflect a mindset that is firmly rooted in the era of the telephone company monopoly. That era is long gone, particularly in the market for Internet services, where the Companies never had a monopoly, in any event, and where the cable companies are the market leaders.

(v) Implementation Delay

22 In their proposal to introduce a UBB structure for their Residential GAS, the Companies noted that they had advised their customers of this plan in December 2008. As a result, the Companies proposed an effective date for the UBB rates that would have provided affected customers a full five months lead time to adjust to the new rating structure. However, with the prolonged approval process discussed above, by the time the Commission had ruled on the tariff proposal, fully nineteen months had elapsed since the Companies advised customers of the planned introduction of UBB.

23 Nevertheless, the Commission determined in Decision 2010-255 that this was still not enough advance notification for affected customers, by requiring that the implementation of UBB by the Companies must be delayed by at least a further six months, with a formal implementation notice being provided at least three months prior to implementation.

24 The Companies have found no evidence of any Commission-imposed delay in the implementation of UBB for the cable companies' TPIA services, nor of any Commission requirement for a waiting period for those cable companies who have not yet implemented a UBB structure in their TPIA tariff.

There should be consistency, but not based on Decision 2010-255

25 In its letter of 13 May 2010, the Commission seeks comments on whether the "equivalent treatment" measures imposed on the Companies in Decision 2010-255 should be imposed on the cable companies, in the interests of regulatory symmetry.

26 In its consideration of that question, the Commission must consider the broader requirements of the Policy Direction, which mandates symmetry but also requires the Commission to:

(i) rely on market forces to the maximum extent feasible as the means of achieving the telecommunications policy objectives, and

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(ii) when relying on regulation, use measures that are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the minimum extent necessary to meet the policy objectives.

27 The Companies submit that the above-noted requirements established by the Commission in Decision 2010-255 fail to comply with the Policy Direction requirements with respect to relying on market forces and using measures that are efficient and proportionate to their purpose. The Commission has established new regulatory measures that, not only are asymmetrical in their application, but which interfere with competitive market forces and, with respect to the precondition regarding the small minority of the Companies' retail customers who continue on grandfathered flat-rated plans, cannot be said to be efficient and proportionate to their purpose.

28 Accordingly, the Companies submit that, although regulatory symmetry can be accomplished by applying the prescriptions of Decision 2010-255 to the cable companies, the Commission should really be asking the question of whether the Decision 2010-255 restrictions should be applied to anyone – in consideration of the requirements of the Policy Direction. Given that the Commission has not felt it necessary to impose any of the measures discussed in sections (i), (ii) and (iii), above, when the cable companies introduced UBB for their TPIA services nearly a decade ago, the Companies question the basis for the application of those restrictions with respect to their services. Further, the Companies are unaware of any market failure that would cause the Commission to now, almost ten years after the fact, introduce such restrictions on the cable companies' TPIA services.

29 The Companies conclude that the Commission should undertake a careful review of the regulatory measures established in Decision 2010-255, with a critical eye on the degree to which they comply with the requirements of the Policy Direction. Thus, rather than simply adopting an approach that may amount to "two wrongs making a right", the Commission can ensure that the resulting regime complies not only with the requirement for regulatory symmetry, but also with the requirements to rely to the maximum extent feasible on market forces and to ensure that any regulatory measures it adopts are efficient and proportionate to their purpose.

30 To that end, as noted above, the Companies will be submitting, in the coming days, an application to review and vary certain aspects of Decision 2010-255. Should the Commission, as a result of this proceeding and in consideration of the application to review and vary, determine that any of these prescriptive measures are indeed appropriate with respect to the Companies' services, then the Policy Direction demands that corresponding measures be symmetrically applied to the cable companies' TPIA services.

Yours truly,

[ Original signed by D. Henry ] [ Original signed by D. Palmer ]

Denis E. HenryBell AliantVice-President – Legal, Regulatory and Government Affairs & Chief of Privacy

David PalmerBell CanadaDirector - Regulatory Affairs

c.c.: Lynne Fancy, CRTCDistribution List per CRTC letter, 13 May 2010

DH/es

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