Search

Telecom Order CRTC 2025-159

PDF version

Gatineau, 27 June 2025

Public record: Tariff Notice 1241

Northwestel Inc. – Tariff Notice 1241 – Addition of Speed Option for Special Assembly #4 Layer 3 IP/VPN Service

Summary

Northwestel Inc. (Northwestel) services a particular customer in the Far North using a dedicated fibre Internet link. Northwestel now proposes to add a new speed option of 40 megabits per second for certain communities. Because this service is provided in the Far North, where telecommunications services remain regulated, Northwestel requires the Commission’s approval of the new speed option and the associated rates.

The affected customer agrees with Northwestel’s proposal, and the Commission did not receive any interventions for this application. Accordingly, the Commission approves Northwestel’s application.

A dissenting opinion by Commissioners Bram Abramson and Claire Anderson is attached to this order.

Application

  1. On 24 January 2025, the Commission received an application from Northwestel Inc. (Northwestel) in which the company proposed changes to Item 755 of its Special Services Tariff, Special Assembly #4 Layer 3 IP/VPN Service. Specifically, Northwestel proposed to add an additional speed option of 40 megabits per second (Mbps) for Type W sites.Footnote 1
  2. This service provides a customized Layer 3 IP/VPN [Internet Protocol/virtual private network] service with class of service options, a service level agreement, and associated equipment to an initial 19 terrestrial sites within Northwestel’s serving area.
  3. Northwestel proposed a monthly rate of $20,000 for the new speed option.
  4. Northwestel noted that the new speed option is being offered to meet the customer’s requirements, and that the customer agrees with the proposed rate.
  5. While Northwestel currently only has a single customer for this service, it indicated that the service, including the additional speed option of 40 Mbps for Type W sites, would be available to other customers in similar circumstances, but has forecasted the demand for the service to be very low. It also indicated that the proposed service has elements that are unique to this arrangement and are not available under its General Tariff. These include custom speed options and serving locations, and a total capacity amount commitment that must be maintained for the life of the contract. For these reasons, Northwestel submitted that it would be appropriate to offer the proposed service under its Special Services Tariff, and not its General Tariff.
  6. As the service is a customer-specific arrangement (CSA), Northwestel indicated that it is categorized as an uncapped service and that, therefore, the proposal would have no impact on its price cap indices.
  7. The company filed a price floor test, which demonstrated that the proposed rates for the new speed option meet the requirements of that test.
  8. Northwestel requested an effective date of 10 February 2025.
  9. The Commission did not receive any interventions with regard to the application.

Commission’s analysis

  1. Based on the results of Northwestel’s cost study, which was filed in confidence, the Commission considers that the proposed rates and charges for this service, which have been agreed to by the customer, meet the requirements for Type 1 CSAs set out in Telecom Decision 2005-27. They also meet the revised price floor test guidelines for Type 1 and Type 2 CSAs set out in a Commission letter dated 13 June 2005.
  2. The new speed option will provide the customer with the telecommunications services it requires to reliably provide services to northern Canadians. The Commission therefore considers that Northwestel’s proposed changes to its Special Assembly #4 Layer 3 IP/VPN Service tariff are reasonable and comply with regulatory policies.
  3. The Commission considers that approval of this application would advance the policy objective set out in paragraph 7(h) of the Telecommunications Act.Footnote 2

Conclusion

  1. In light of all of the above, the Commission approves on a final basis, by majority decision, Northwestel’s application.
  2. Revised tariff pages are to be issued within 10 calendar days of the date of this order. Revised tariff pages can be submitted to the Commission without a description page or a request for approval; a tariff application is not required.

Secretary General

Related documents

Dissenting opinion of Commissioners Bram Abramson and Claire Anderson

  1. With this application, Northwestel seeks approval for the qualification of what, in southern Canada, would be a relatively common enterprise telecommunications service as a customer-specific special services tariff (SST) subject, on that basis, to neither the standardization that accompanies accommodation through its general tariff, nor the constraint on price increases that would accompany its placement into a non-SST basket. In doing so, Northwestel asks us to find that the rate charged is just and reasonable, notwithstanding a mark-up that would not be achievable in a competitive market.
  2. We would have denied that approval and finding for the reasons below, which call for improved robustness, clarity, and market discipline in ways which, in our view, would streamline regulatory review and respond to the economic and social requirements of the Far North.

A tale of two systems

  1. Parliament, acting through the Telecommunications Act (the Act), tasks the Commission with ensuring that every rate charged by a facilities-based telecommunications carrier in Canada for any telecommunications service is just and reasonable.Footnote 1
  2. This precautionary principle aims to protect consumer, business, and institutional users from market actors unchecked by disciplining forces save the regulator’s—but is incompatible with a competitive environment, or a dynamic one. Indeed, it sits at one end of a continuum whose opposite end is defined by permissionless innovation. Recognizing this, the Act provides the Commission with tools to navigate the continuum between the precautionary principle and permissionless innovation.
  3. Key among these tools is the power and responsibility to forbear. Where a service, or class of them, is subject to enough competition to protect users’ interests, we are to forbear, to the degree appropriate, from regulating. Even where there is not enough competition, we may still forbear, provided doing so would be consistent with telecommunications policy objectives. We have reached for these tools frequently. For 2023, Commission staff estimated that about 97 percent of Canadian telecommunications revenues were generated from forborne services.Footnote 2
  4. Our vigil over the justness and reasonability of rates for the services generating the remaining three percent is split between two systems.
  5. The older system follows what might be described as a public switched telephone network (PSTN)Footnote 3 structural approach. Carriers that are not incumbent local exchange carriers (ILECs) are presumed not to have market power. Outside of basic interconnection obligations and other marketplace rules, they are therefore granted a blanket exception from rate regulation and dubbed “non-dominant carriers”.Footnote 4 ILEC rate regulation under this model is, in turn, organized into two sub-systems:
    • One sub-system is a price caps model. Services are assigned to baskets. The ILEC’s price-setting flexibility is limited by blanket constraints that apply to that basket, as well as more finely-tuned constraints that apply to particular services within a basket. For instance, Northwestel’s services are assigned to one of nine baskets. In the related decision, the Commission stated that this framework “involves individualized basket constraints, as well as, in some instances, specific rate element constraints.”Footnote 5
    • The other sub-system consists of those services not assigned to the price cap, and which are therefore not placed in any basket. Rates are reviewed and regulated for each non-price-capped service on its own.
  6. The newer system follows a market power approach. It identifies particular markets, like fixed broadband and mobile services, as priorities. It carves these markets out from the PSTN structural model as exceptions to the blanket non-dominant carriers exception. Rather than presume that the ILEC is dominant and that everyone else is not, market power is analyzed both in the carved-out retail market and in upstream wholesale markets. Based on this analysis, the Commission then considers the minimum viable form of rate regulation necessary to discipline market power across those markets. Generally, this focuses on regulating rates in the upstream wholesale market as a point of leverage, lowering entry barriers, and encouraging competition as a way to discipline downstream market power.
  7. The newer system, with its market power approach built on an exception to the exception, is more readily understood. The older system, with its structural presumption and the blanket exception that flows from it, is obscured substantively by an underbrush of PSTN tariffs at various degrees of impending obsolescence, and procedurally by the streamlined opacity in which their regulatory process is encased.Footnote 6 Yet if higher costs of telecommunications services in the Far North have negative consequences not only for northerners as individuals but also for northern communities, economies, and opportunities,Footnote 7 many of those costs are ones passed on and approved as just and reasonable through the older price-caps-focused system that continues to regulate Northwestel’s market power.
  8. The Commission’s recently-concluded years-long review of Northwestel’s regulatory framework considered certain elements of that price caps system raised by Northwestel itself.Footnote 8 Yet a review from first principles of that system, which remains at the heart of telecommunications regulation in the Far North, is still wanting. In our view, decisions such as this one, and the resulting economic impacts on the Far North, are hallmarks of this absence.

Reading today’s special

  1. A tariff is, in a domestic regulated industries setting, a particular form of standing contractual offer made, and made publicly available, to all eligible comers. It includes all the essential terms and conditions for the offer of a service or facility.Footnote 9 It is a tool for imposing consistency, transparency, and fairness on the supply of a service or facility that, given its supplier’s market power, would otherwise be the object of unequal bargaining.
  2. SSTs, special assembly tariffs, special facilities tariffs, or customer-specific tariffs, as they are variously known, stand at a curious place within the tariffing repertoire. If the very purpose of a tariff is to standardize and create uniform terms, a customer-specific SST is its undoing—a residual category under which to resist that standardization and uniformity in favour of terms that it negotiates from a position of bargaining power. Regulated carriers are therefore incented to resist a standard tariff in favour of an SST: it is the closest thing to avoiding a tariff altogether.
  3. In Northwestel’s case, there is a second incentive to prefer delivering a service or facility as an SST rather than as a general tariff item. The Business Services basket is constrained to a 10 percent increase per year. The Other Capped Services basket is constrained to inflationary increases with, within that, a rate element constraint of 10 percent increase per year. But SSTs fall into the Uncapped Services basket.Footnote 10
  4. Northwestel’s argument for designating as an SST the Layer 3 IP/VPN [Internet Protocol/virtual private network] service at issue in this application—with class-of-service options, service level agreement, and associated equipment, delivered to 19 terrestrial sites including a heretofore-unlisted speed option (40 megabits per second)—is seated in the two types of customer-specific arrangement tariff outlined by the Commission in Telecom Decision 94-19 that may be acceptable “subject to certain conditions”, which include “being generally available to other customers” and “resale being permitted”.Footnote 11
  5. Those two types are (1) where the service provided “involves service features or technology that differ from those covered by the general tariff”; and (2) where it is “a bundle of services tailored to a particular customer's needs, primarily involving elements available from the general tariff, where the purpose is to customize the offering in terms of rate structure or levels in its application”.Footnote 12
  6. In our view, it is not clear that this guidance suffices to create an expectation, much less to fulfill such an expectation, that a relatively common telecommunications service, delivered with relatively standard terms to customer sites, ought to qualify as an SST.
  7. From a service-delivery standpoint, applying such general guidance to a relatively standard service would have an absurd result. Indeed, were those accounts of the two types of customer-specific arrangement a complete formula as to when an SST ought to be permitted, there would be little to constrain a regulated carrier from always seizing its incentive to structure its services as negotiated SSTs. Is not every service delivered to a customer’s premises tailored, in so doing, to that customer’s needs? Does the carrier not always have the ability to customize the offering’s rate structure and levels in ways that can be said to fall outside what has been included in the general tariff description—indeed, would withholding those rates and levels not, by definition, create the opportunity to hold them back for an SST?
  8. However, the Commission has had more to say on the matter, having noted that “as a general principle, services should be offered under general tariffs whenever feasible, since the use of these tariffs ensures that customers of comparable services will be treated uniformly”.Footnote 13 In particular, Telecom Decision 94-19 preceded the foregoing identification of two types of customer-specific arrangement, subject to the conditions noted, with the following reservations:


    [C]ustomer-specific tariffs present a greater risk that unjust price discrimination will arise. Even if a policy is adopted that customer-specific tariffs must be available to customers with similar requirements under similar circumstances, such a policy could result in disputes over, or delays in, the provision of the arrangement to particular customers, given the judgment involved in determining whether there are similar circumstances and requirements. The Commission considers that this aspect of customer-specific tariffs may impede access by customers, and in particular by resellers, to similar tariffs, thereby curtailing the extent to which resale would limit the potential for unjust discrimination. The Commission notes that tariffs that are not customer-specific but rather provide for the general availability of services, by making explicit the conditions necessary to qualify for the service, avoid this problem, even in the case of services that relatively few customers would qualify for or find attractive.Footnote 14

  9. In our view, a more robust review framework is required in order to distinguish the supply of services and facilities that can and ought to be standardized as general tariff items from those whose unusual character, configuration, and status—including material differences from the services and facilities most commonly made available in competitive markets away from the regulated carrier’s market power—ought to justify SST status. This is all the more true for carriers, like Northwestel, for which this difference in characterization also represents a difference in regulatory price constraints in its favour—to the detriment of the buyer subject to the constrained supply that gives rise to the continued regulation in the first place.
  10. Without such a framework, the record is not sufficient to grant the SST. We would not have done so.

Just and reasonable rate

  1. While basket assignment of the telecommunications service arrangement before us is part of the decision that the Telecommunications Committee, on behalf of the Commission,Footnote 15 was asked to agree with on Northwestel’s application, the more impactful part of that decision is whether to agree that the rate proposed is just and reasonable.
  2. In considering that decision, the Telecommunications Committee benefitted from the imputation test the applicant was required to file, demonstrating that the proposed rate would recover the service’s Phase II costs plus a margin,Footnote 16 and thereby meeting a price floor that would prevent the arrangement from squeezing out competitive supply. Among other things, the imputation test places on the record information, generally confidential to the applicant and the Commission, as to the mark-up being charged. However, the imputation test’s purpose is only to ensure the price floor has been respected. It does not impose any price ceiling or cap on the proposed item.
  3. We have elsewhere underlined the importance of taking seriously the commitment not to constrain nascent competition.Footnote 17 At the same time, Northwestel’s market power in the Far North—even based on a structural presumption—is the reason it is tariffed. Particularly given the mark-up imputed to the service, which is materially in excess of what one might expect in a competitive market, we saw no evidence that competition is sufficient to protect the interests of enterprise IP/VPN users in the Far North nor, particularly given the economic impact of high telecommunications input costs in the Far North, that failing to constrain this pricing would advance Canadian telecommunications policy objectives. We disagree, therefore, with the majority’s conclusion that supranormal pricing responds to the economic and social requirements of users of telecommunications services, as set out in paragraph 7(h) of the Canadian Telecommunications Policy embedded in the Act.
  4. We acknowledge that, in the past, the Commission has frequently adopted a more permissive approach. It has taken a permissive approach to granting the opportunity to act on the incentive to qualify customer-specific arrangements as SSTs—even where the service arrangement would be relatively common or off-the-shelf in competitive telecommunications markets. It has likewise taken a permissive approach to allowing supranormal mark-ups that could not be sustained in a competitive market—in favour of the hope that competition may develop eventually to constrain enterprise pricing. We are not of the view that this permissive approach is the better approach to fulfilling the Canadian Telecommunications Policy, as informed by the policy directions to which the Commission is subject,Footnote 18 in the Far North.
  5. Nor is the resulting deadweight loss captured by Northwestel in line with the broader interpretation of these policy objectives, including economic reconciliation, for which we are, following the United Nations Declaration on the Rights of Indigenous Peoples, to have regard in the Far North.Footnote 19 To be expected to repeatedly confirm as “just and reasonable” rates that apply triple-digit markups to non-forborne services, knowing that these services are essential inputs for the broader economy of the Far North, is surely a problem that needs resolving. Yet with the conclusion in Telecom Regulatory Policy 2025-9 of the Commission’s major policy activity in respect of telecommunications regulation in the Far North, the issue of the justness and reasonability of uncapped pricing permitted under the PSTN-structural system of regulation in the Far North remains substantially unresolved. Without relief on the horizon, we would tack in another direction.
Date modified: