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Telecom Public Notice CRTC 2006-1
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Ottawa, 17 January 2006 |
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Review of regulatory framework for Northwestel Inc.
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Reference: 8663-C12-200600066 |
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In this Public Notice, the Commission
initiates a proceeding and invites comments on establishing a new
regulatory framework for Northwestel Inc. that will go into effect in
2007. The proceeding will include a public hearing to be held in
Whitehorse, Yukon in July 2006. |
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Background
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1. |
In Review of regulatory framework,
Telecom Decision CRTC 94-19,
16 September 1994 (Decision 94-19),
the Commission developed a regulatory framework for the telecommunications
industry intended to allow all Canadians, over time, ubiquitous and
affordable access to an increasing range of competitively provided
telecommunications services. The framework for rate regulation involved
three key, interrelated initiatives: |
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- the replacement of rate base/rate of return regulation with price
regulation;
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- the splitting of the rate bases of the incumbent telephone
companies into Competitive and Utility segments to facilitate the
transition to price regulation; and
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- a significant reduction in the subsidy of local access services
paid by users of long distance services.
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2. |
In Decision 94-19,
the Commission adopted a different regulatory regime for Northwestel
Inc. (Northwestel). At that time, Northwestel had no major competitor
in its long distance market, and there was limited competition in
Northwestel's private line services and terminal equipment markets.
The Commission considered, therefore, that there would be little benefit
in splitting the company's rate base. Accordingly, the Commission
decided that Northwestel would remain under rate base/rate of return
regulation. |
3. |
In Telephone service to high-cost serving
areas, Telecom Decision CRTC 99-16,
19 October 1999 (Decision 99-16),
the Commission noted that the territory of Northwestel presents unique
and difficult challenges because it is large, sparsely populated and
subject to severe climatic conditions. In light of these unique circumstances,
the Commission considered that Northwestel might not have the means
to achieve the Basic Service Objective (BSO)1
without supplementary funding. In Decision 99-16, the Commission directed
Northwestel to propose the amount of supplemental funding it would
require to meet the BSO, to recover its contribution requirement and
to provide the company with a reasonable opportunity to earn a fair
return on common equity (ROE). |
4. |
In Decision 99-16,
the Commission stated that, to be eligible for any supplemental funding,
Northwestel would have to demonstrate that it could not meet the BSO
using the traditional funding mechanisms relied upon by companies
in southern Canada. The Commission further stated that, if Northwestel
was able to demonstrate that it needed supplementary funding, any
such funding would come from the portable subsidy mechanism. |
5. |
In Changes to the contribution regime,
Decision CRTC 2000-745,
30 November 2000 (Decision 2000-745),
the Commission introduced, effective 1 January 2001, a new regime
to subsidize the high cost of local service in rural and remote areas.
In that Decision, the Commission established a new national contribution
mechanism based on revenues from telecommunications service providers
that replaced the per-minute mechanism that was in existence. The
Commission determined, however, that Northwestel would remain on a
per-minute mechanism. |
6. |
In Long-distance competition and improved
service for Northwestel customers, Decision CRTC 2000-746,
30 November 2000 (Decision 2000-746),
the Commission established, effective 1 January 2001, the terms and
conditions for long distance competition in Northwestel's territory.
The competitive framework for Northwestel included a bundled, subsidized
carrier access tariff (CAT) rate of $0.07 per minute. The Commission
determined that it would continue regulating Northwestel on a rate
base/rate of return basis and set the company's ROE at 10.5 percent.
The Commission approved a four-year service improvement plan (SIP)
for the years 2001 to 2004 to extend and improve service in the North.
The Commission also approved supplemental funding from the National
Contribution Fund (NCF) of $15.1 million for 2001 and determined
that it would conduct annual reviews of the supplemental funding required
by Northwestel. |
7. |
In Northwestel Inc. – Initial annual
review of supplemental funding, Telecom Decision CRTC 2003-39,
20 June 2003, the Commission considered that the regulatory framework
that was established in Decision 2000-746
continued to respond to the unique challenges of telecommunications
services in the North. The Commission further considered that, given
the significance of the company's SIP in the context of the regulatory
framework established in Decision 2000-746,
Northwestel's regulatory framework should remain in place at least
until the completion of the SIP. The Commission stated that it would
determine at that time whether the current form of regulation continued
to be appropriate or needed to be replaced by either a transitional
regime or a direct move to price regulation. |
8. |
In Northwestel Inc. - Supplemental funding
requirement for 2003, Telecom Decision CRTC 2004-64,
30 September 2004, as amended by Telecom Decision CRTC 2004-64-1,
18 October 2004, the Commission found that it would be appropriate
to extend the current regulatory regime to the end of 2006 and the
SIP to the end of 2005. In Northwestel Inc. - Supplemental funding
requirements for 2004 and 2005, Telecom Decision CRTC 2005-54,
15 September 2005 (Decision 2005-54),
the Commission announced that it would issue a public notice
shortly to initiate a proceeding to review Northwestel's regulatory
framework. In addition, the Commission initiated a proceeding
to finalize the appropriate amount of supplemental funding for 2006.
The decision on the matter of supplemental funding for 2006 is expected
to be released during the first quarter of 2006. |
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Scope of the proceeding
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9. |
The Commission hereby initiates a
proceeding to consider the appropriate regulatory framework for
Northwestel that would be put into effect in 2007. Northwestel is
requested to file its proposed regulatory framework, which should, among
other matters, address the issues set out below in this Public Notice,
and provide supporting evidence and rationale where appropriate. |
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Price regulation
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10. |
The Commission wishes to examine whether
Northwestel's current rate base/rate of return regulatory framework
should be replaced with a price regulation framework. Under such a
framework, the services that are subject to price regulation would be
grouped into one or more service baskets, each of which would be subject
to pricing constraints. Under such a framework, the rates for individual
services within a basket could be changed as long as they conformed to
the pricing constraints established for that basket. |
11. |
In the context of establishing a price
regulation framework for the small incumbent local exchange carriers,
the Commission has previously identified the following objectives:2 |
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- provide companies with incentives to be more efficient and
innovative;
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- ensure that companies' customers continue to have access to
reliable and affordable services;
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- provide companies with a reasonable opportunity to earn a fair
return; and
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- reduce the regulatory burden.
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12. |
Northwestel is requested to provide its
view on moving to a price regulation framework in 2007, as well as the
appropriate objectives for such a framework in light of its operating
circumstances. |
13. |
Should Northwestel propose to implement a
regulatory framework that focuses on prices rather than on earnings, the
proposal should address, among other things, the appropriate parameters
for a price regulation regime, including: |
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- the tariffed services that would be subject to the price
regulation regime and the associated pricing constraints, including
the appropriate measure of inflation, the level and applicability of a
productivity factor, and the treatment of any exogenous events;
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- the length of the initial price regulation period;
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- the appropriateness and type of self-correcting mechanism as a
measure of protection for consumers against possible errors in setting
price regulation parameters;
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- any proposed changes to Northwestel's current filing and reporting
requirements; and
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- any ancillary reporting requirements that may be necessary to
monitor the effectiveness of a price regulation regime in
Northwestel's territory.
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14. |
In the event that Northwestel proposes a
transitional period, the company is to identify if and how this
transition period could be implemented prior to or during the price
regulation regime. |
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Funding for provision of service to high-cost serving areas
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15. |
As noted earlier, Northwestel requires
supplemental funding from the NCF to, among other things, meet the BSO
and earn a fair ROE. |
16. |
In Decision 99-16,
the Commission found it appropriate that a portion of Northwestel's
switching and aggregation facilities be considered an extension of
its local network. This finding recognized that Northwestel faces
unique circumstances in that it has unusually long toll connecting
trunks throughout its territory, and its ability to maintain and upgrade
these facilities affects whether customers will have access to quality
toll service. |
17. |
In Decision 2000-745,
the Commission considered that it would be appropriate to calculate
the annual total subsidy requirement for the high-cost serving areas
(HCSAs) of the large incumbent local exchange carriers (ILECs) using
a cost-based approach. The Commission determined that, in general,
the subsidy requirement for HCSAs would consist of the following:
annual primary exchange residential service revenue, plus an annual
target implicit contribution amount from other local residential services,
less the annual Phase II costs plus an appropriate mark-up. |
18. |
Northwestel is to provide its view as to
whether any changes are required to the methodology used to determine
the level of funding required from the NCF. The company is further
requested to provide its views as to whether a cost-based subsidy
approach similar to that established in Decision 2000-745
would be appropriate for Northwestel. If the company considers that
changes are required, its proposal should include the amount of funding
required, the service elements to be eligible for funding, the methodology
to be used, the supporting cost studies, and the rationale. |
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Financial review
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19. |
The Commission intends to undertake a
financial review to assess the company's financial position at the start
of the new regulatory framework. |
20. |
Northwestel is to provide its view as to
whether it continues to be appropriate to assess the company's financial
position on a total-company basis. Alternatively, given that long
distance competition is present in Northwestel's operating territory,
the company is to provide its view as to whether it would be appropriate
to split the company's rate base between Utility and Competitive
segments in assessing the company's financial position. If Northwestel
considers that it is appropriate to split its rate base, the company is
to provide its proposed methodology for splitting its rate base. |
21. |
In Decision 2000-746,
the Commission approved for Northwestel an ROE of 10.5 percent and
a common equity ratio of 55 percent on a total-company basis. Northwestel
is to provide its view as to whether it considers these financial
parameters to be appropriate for assessing the financial position
of the total company or alternatively the Utility segment of the company.
If Northwestel considers that changes are required to these financial
parameters, the company is to provide supporting evidence for its
proposed changes. |
22. |
The Commission notes that the level of
funding required by Northwestel from the NCF could increase
substantially depending on the company's proposal regarding its
regulatory framework, its financial position and parameters, and the
other issues raised in this Public Notice. Northwestel is to provide its
view as to whether rate changes should be implemented to ensure that the
company achieves an appropriate ROE at the start of the new regulatory
regime in the event that the funding from the NCF increases
substantially. |
23. |
The Commission wishes to examine as part of
this financial review, the sum of any incremental revenue requirement
impacts arising from material changes that the company proposes. The
changes could include, but would not be limited to: |
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- changes resulting from any proposed changes to the financial
parameters;
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- any additional depreciation expense resulting from proposed
changes to asset service lives; and
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- net annualized revenue impacts of planned and pending tariff
items.
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Long distance competition and CAT rate
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24. |
In Decision 99-16,
the Commission stated that, in order to permit long distance competition,
the Commission would have to establish sustainable rates for the switching
and aggregation component, as well as the toll contribution (subsidy)
component, of the CAT. The Commission considered that Northwestel
might not be able to propose a cost-based switching and aggregation
rate that would be sustainable and might not be able to recover the
associated costs in a competitive long distance environment. Accordingly,
in Decision 2000-746,
the Commission approved a bundled, subsidized per minute CAT rate
of $0.07 per minute that includes switching and aggregation, contribution
and equal access start-up rates applicable on all toll traffic originated
and terminated by competitors in Northwestel's territory. |
25. |
The Commission notes that in moving to the
revenue-based contribution mechanism in Decision 2000-745,
the contribution rate element was removed from the large ILECs' CATs.
Further, the remaining elements of the CAT, namely the rates for switching
and aggregation and for equal-access start-up costs, were based on
Phase II costs. |
26. |
The Commission seeks comments on the status
of long distance competition in Northwestel's territory. Northwestel
should address whether any changes are required to the level of the
CAT rate and whether the CAT rate should be developed using an approach
similar to that used for the large ILECs taking into account the
company's market conditions and costs where equal access is available. |
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Other issues
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Revenue deferral account
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27. |
In Decision 2000-746,
the Commission stated that, due to the substantial reduction in toll
rates and the introduction of toll competition in 2001, there would
be uncertainty with respect to Northwestel's long distance market
share and revenues. The Commission further stated that this could
result in large deviations between the actual and forecast toll, settlement,
and CAT revenues, and consequently could affect the required amount
of any supplemental funding. The Commission directed Northwestel to
accumulate the differences between forecast and actual toll, settlement,
and CAT revenues in a deferral account. Any amount accumulated in
the revenue deferral account would be disposed of in the following
year. |
28. |
The Commission seeks Northwestel's view as
to whether there is a continued need for the revenue deferral account
mechanism in light of its proposed regulatory framework. |
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Local competition
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29. |
In Decision 2000-746,
the Commission stated that competition in local access services remained
a matter for future consideration. The Commission seeks comments as
to whether local competition should be permitted in Northwestel's
operating territory and under what conditions. |
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Other
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30. |
As part of its proposal, Northwestel is invited
to submit comments on other relevant issues including, but not limited
to, issues of quality of service, the requirement for further SIPs
and the follow-up items identified in Decision 2005-54. |
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Procedure
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31. |
Northwestel is made a party to this proceeding.
Interested parties wishing to participate in this proceeding must
notify the Commission of their intention to do so, by 27 February 2006.
These parties should contact the Secretary General by mail at CRTC,
Ottawa, Ontario, K1A 0N2, by fax at (819) 994-0218, or by
email at procedure@crtc.gc.ca. They are to indicate in the notice
their email address, where available. If interested parties do not
have access to the Internet, they are to indicate in their notice
whether they wish to receive disk versions of hard copy filings. The
Commission will issue, as soon as possible after the registration
date, a complete list of interested parties and their mailing address
(including their email address, if available), identifying those interested
parties who wish to receive disk versions. |
32. |
Any person who wishes merely to file written
comments
in this proceeding, without receiving copies of the evidence filed,
may do so by writing to the Commission, at the address noted in paragraph
31 by 30 June 2006. |
33. |
By 30 January 2006, the Commission
will address interrogatories to Northwestel regarding the issues set out
in this Public Notice. Northwestel is directed to file responses to the
interrogatories with the Commission and serve copies on all interested
parties by 20 March 2006. |
34. |
Northwestel is to file with the Commission,
serving copies on all interested parties, its proposal, along with its
supporting evidence, on all matters within the scope of this proceeding.
All such material is to be filed with the Commission and served on all
interested parties by 20 March 2006. |
35. |
Interested parties may address
interrogatories to Northwestel. Any such interrogatories must be filed
with the Commission and served on Northwestel by 10 April 2006.
Responses to these interrogatories are to be filed with the Commission
and served on all interested parties by 1 May 2006. |
36. |
Requests by interested parties for further
responses to their interrogatories, specifying in each case why a
further response is both relevant and necessary, and requests for public
disclosure of information for which confidentiality has been claimed,
setting out in each case the reasons for disclosure, must be filed with
the Commission and served on all interested parties by 8 May 2006. |
37. |
Written responses to requests for further
responses to interrogatories and for public disclosure must be filed
with the Commission and served on all interested parties by 15 May
2006. |
38. |
The Commission will issue a determination
with respect to requests for further information and public disclosure
as soon as possible, and intends to direct that any information to be
provided pursuant to that determination will be filed with the
Commission and served on all interested parties by 29 May 2006. |
39. |
Interested parties may, by 5 June 2006,
file submissions with the Commission, serving copies on Northwestel and
all interested parties. |
40. |
Northwestel and interested parties may
address interrogatories to any party who files submissions. Any such
interrogatories must be filed with the Commission and served on
Northwestel and all interested parties by 16 June 2006. Responses
to interrogatories are to be filed with the Commission and served on
Northwestel and all interested parties by 27 June 2006. |
41. |
Where a document is to be filed or served
by a specific date, the document must be actually received, not merely
sent, by that date. |
42. |
All parties may file their submissions
electronically or on paper. Submissions longer than five pages should
include a summary. Each paragraph of all submissions should be numbered. |
43. |
Where the submission is filed by electronic
means, the line ***End of document*** should be entered following the
last paragraph of the document as an indication that the document has
not been damaged during electronic transmission. |
44. |
The Commission also encourages all parties
to monitor the record of this proceeding (and/or the Commission's
web site) for additional information that they may find useful when
preparing their submissions. |
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Public hearing
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45. |
The Commission will hold an oral hearing
commencing on 10 July 2006 at the Convention Centre of the High
Country Inn, 4051 - 4th Avenue, in Whitehorse, Yukon. It is
expected that the first day will be reserved for comments from the
general public, with the formal public hearing commencing thereafter.
The Commission expects the hearing will last no longer than two weeks.
The details of the hearing will be provided at a later date. |
46. |
Interested parties wishing to appear at the
oral hearing shall file notice of their intention to participate no
later than 31 May 2006. Prior to the commencement of the oral
hearing, the Commission will issue further directions on procedure with
respect to the oral hearing, including the scope of the issues to be
examined during the oral hearing. |
47. |
Persons requiring communications support
such as assistive listening devices and sign language interpretation are
requested to inform the Commission at least twenty (20) days before the
commencement of the oral hearing so that necessary arrangements can be
made. |
48. |
In addition to, or instead of, presenting
oral final argument, Northwestel and interested parties may file written
final argument with the Commission with a copy served on Northwestel and
interested parties by the later of 21 July 2006, or the end of
the oral hearing. |
49. |
Northwestel may file reply argument with
the Commission serving a copy on all interested parties by 4 August
2006. |
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Notification of subscribers
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50. |
Northwestel is to mail billing inserts
notifying its subscribers that: (i) Northwestel has filed its proposal
to establish a new regulatory framework in its operating territory (a
summary of its proposal should be included); (ii) this proposal will be
available for public inspection during normal business hours at the
business offices of the telephone company, at the offices of the
Commission and on the Commission's web site at www.crtc.gc.ca;
(iii) subscribers may provide comments by writing to the Commission by
30 June 2006 and/or by making representations at the hearing;
and, (iv) persons wishing to participate at the hearing are to notify
the Commission by 23 June 2006, indicating in which official
language they intend to participate. Billing inserts should be received
by all subscribers no later than 1 June 2006. Northwestel is
directed to file its proposed billing insert for Commission approval by
20 March 2006. |
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Important notice
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51. |
Note that all information that you provide
as part of this public process, except information granted
confidentiality, whether sent by postal mail, facsimile, e-mail or
through the Commission's web site at www.crtc.gc.ca, becomes part of a
publicly accessible file and will be posted on the Commission's web
site. This information includes your personal information, such as your
full name, e-mail address, postal/street address, telephone and
facsimile number(s), and any other personal information you provide.
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52. |
Documents received electronically or
otherwise will be put on the Commission's web site in their entirety
exactly as you send them, including any personal information contained
therein, in the official language and format in which they are received.
Documents not received electronically will be available in PDF format.
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53. |
The personal information you provide will
be used and may be disclosed for the purpose for which the information
was obtained or compiled by the Commission, or for a use consistent with
that purpose. |
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Location of CRTC offices
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54. |
Submissions may be examined or will be made
available promptly upon request at the Commission offices during normal
business hours: |
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Central Building
Les Terrasses de la Chaudière
1 Promenade du Portage, Room 206
Gatineau, Québec J8X 4B1
Tel: (819) 997-2429 - TDD: 994-0423
Fax: (819) 994-0218 |
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580 Hornby Street, Suite 530
Vancouver, British Columbia V6C 3B6
Tel: (604) 666-2111 - TDD: 666-0778
Fax: (604) 666-8322 |
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Secretary General |
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This document is available in alternative
format upon request, and may also be examined in PDF
format or in HTML at the following Internet site: http://www.crtc.gc.ca
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