Telecom/1996-04-telecom-walnutcreek.iso/carriers/unitel-canada.ld.service

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Subject: Unitel - Canadian bid for long distance competition
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Date: Sat, 26 May 90 15:35:33 EDT
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[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.