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Telecom Decision
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Ottawa, 19 October 1999 |
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Telecom Decision CRTC 99-16 |
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TELEPHONE SERVICE TO HIGH-COST SERVING
AREAS |
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File No.: 8665-C12-04/97 |
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Table of contents |
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Summary |
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The plan for high-cost areas |
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The Decision Paragraph |
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The industry players 1
Purpose of the proceeding 2 |
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Basic service: how the market has evolved
3 |
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Canadians enjoy a high level of
telecommunications service 11
The exception: high-cost areas 14 |
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The challenge: balancing priorities for
high-cost areas 18 |
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The basic service objective 23 |
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Achieving the basic service objective in
southern Canada 30
Extending and upgrading service 31
Incumbent local exchange carriers retain their obligation to
serve 31
Service improvement plans have proven effective in the past 37
Directing effort where effort is needed: requirements for filing
service improvement plans 40
Service extension obligations 49
Proposal for bidding to provide new services denied 54 |
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Achieving the basic service objective
in the far north 58 |
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Maintaining established levels of high
quality, basic service in southern Canada 71 Restructuring costing
bands 71
Redistributing the explicit subsidy 79
Quality of service indicators
Long distance service
Proposal to de-average switching and aggregation rates denied
82
Addressing the quality of long distance service 84
Long distance competition for O.N. Tel 87 |
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Participants in this "high-cost
areas" proceeding 88 |
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Appendix 1 - Reference documents |
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Appendix 2 - Further details on the
public process |
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Appendix 3 - Consideration of service
improvement applications |
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Summary |
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The level of telecommunications
service in Canada is generally very high. However, in some areas
carriers face high operating costs to provide service. With some
exceptions, the level of service in such high-cost serving areas,
which generally occur in remote, rural regions and in the far north,
is lower than the level of service generally available elsewhere in
Canada. |
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This decision sets out the Commission's
determinations and initiatives resulting from an extensive public
process it conducted to determine how Canadians in all regions may
have access to affordable, high quality telecommunications service.
Among other things, this process included regional consultations
held across the country in May and June 1998. Further details about
the public process are set out in Appendix 2. |
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The Commission is setting three goals for
high-cost areas, over time:
* To extend service to the few areas that are unserved.
* To upgrade service levels where customers do not currently
have access to the basic services enjoyed by Canadians in other
areas (i.e., in underserved areas).
* To maintain service levels, and ensure that existing levels
do not erode under competition. |
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In addressing these goals, the Commission
must balance competing priorities, such as improving service,
keeping rates reasonable, and minimizing subsidies in order to
foster fair competition. |
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The plan for high-cost areas |
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Although the Commission encourages
competition for the provision of telecommunications service,
high-cost serving areas may not benefit soon from such competition.
To address this challenge, the Commission is implementing the
following plan: |
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a. The Commission is establishing a
basic service objective that reflects the level of service currently
available to most Canadians. |
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b. The Commission is maintaining
incumbent local exchange carriers' existing obligation to serve.
This means that such carriers must provide service to subscribers in
their service territory at a reasonable price without unjust
discrimination. The obligation to serve helps ensure that Canadians
have reasonable access to telecommunications service. |
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c. The Commission will address
limits in the existing obligations that hinder customers from
obtaining basic service. For example, in unserved areas, certain
"unusual" construction expenses as part of an approved
service improvement plan (see below) will not be charged to the
subscriber requesting service. |
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d. All incumbent local exchange
carriers not meeting the basic service objective must submit
multi-year service improvement plans designed to achieve this
objective in their entire service territory. The timing for
submitting these plans will vary and the plans will generally be
considered in previously announced proceedings. |
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e. The Commission will establish a
monitoring program to track service improvement plans as they are
implemented. |
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f. In a future proceeding, the
Commission will provide an opportunity for incumbent local exchange
carriers to redefine their costing bands. This should result in more
narrowly defined bands that will better identify high-cost areas.
The Commission anticipates two benefits: |
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* Subsidies to achieve the
basic service objective will eventually be targeted only to
high-cost areas. |
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*The price of local loops in less
remote areas should decrease, thus providing cost reductions and
incentives for competitive local exchange carriers to provide local
telephone service. |
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g. The Commission will monitor
complaints regarding the quality of long distance service to certain
remote communities, and expects incumbent local exchange carriers to
correct problems in service quality. |
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h. The territory of Northwestel Inc.
(NWTel) presents unique and difficult challenges because it is
large, sparsely populated and subject to severe climatic conditions.
In light of its unique circumstances, NWTel may not have the means
to achieve the basic service objective under similar terms and
conditions as those for southern Canada. Accordingly, the Commission
is beginning a public proceeding that will, among other things,
assess NWTel's means to achieve the basic service objective, address
the terms and conditions that may permit long distance competition
in its territory and determine if any supplementary funding is
required, and, if it is, the manner in which any such funding will
be collected from the portable subsidy mechanism. |
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(Note : This summary is provided for
the convenience of the reader and does not constitute part of the
Decision). |
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Telephone service to high-cost serving
areas |
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The industry players |
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1. In this decision, the Commission
uses the following terminology: |
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*Incumbent local exchange carriers (ILECs
or incumbent local carriers): These companies have had (and in some
cases continue to have) a monopoly on local telephone service for a
certain region or area.
*Competitive local exchange carriers (CLECs or competitive local
carriers): These companies are new competitors in a market for local
telephone service.
*Former Stentor companies: Canada's major incumbent local exchange
carriers formed an alliance referred to as "Stentor" that
was disbanded in late 1998. This alliance included the
federally-regulated companies BC TEL, Bell Canada (Bell), Island
Telecom Inc. (Island Tel), Maritime Tel & Tel Limited (MTT), MTS
Communications Inc. (MTS), NBTel Inc. (NBTel), NewTel Communications
Inc. (NewTel) and TELUS Communications Inc. (TCI). Saskatchewan
Telecommunications (SaskTel) is a former Stentor company but this
decision does not apply to it as it is not federally regulated at
this time.
*Independent telephone companies: These incumbent local exchange
carriers were not part of the Stentor alliance. |
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Purpose of the proceeding |
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2. The Commission has concluded a
public process regarding the provision of telecommunications service
to high-cost serving areas (high cost areas) throughout Canada. With
the increasing presence of competition in the industry, the
Commission has examined how best to continue to foster reliable,
high quality, affordable service for Canadians in all regions. |
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Basic service: how the market has
evolved |
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3. For many years the
telecommunications industry consisted of companies that were
regionally-based regulated monopolies. Regulators ensured that rates
were just and reasonable while providing the companies with the
opportunity to earn a reasonable rate of return (profit). This
regulatory approach, coupled with price averaging and value of
service pricing, were used to set affordable rates while, at the
same time, allowing incumbent local carriers to extend, improve and
maintain service. |
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4. Profitable areas (usually urban)
and profitable services (long distance, optional services)
subsidized local service and areas with high operating costs
(usually rural or remote). The industry was thus able to provide
affordable, high quality service in a relatively consistent manner
across most regions, including those areas with high operating
costs. |
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5. Under this regime, regulators
established "quality of service indicators" which enabled
both regulators and the industry to monitor the level of service
being provided. Companies also submitted plans to extend and improve
service over time, within their territories. |
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6. The Commission first began to
foster competition in long distance. More recently, it has done so
with respect to local service. As well, the Commission no longer
regulates certain rates. As a result, subsidies are being driven out
of the system. This creates a concern that the level of service to
some areas may suffer as profits in competitive markets decline, as
well as a concern that some areas could remain unserved. |
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7. For this reason, when it
permitted competition for toll (long distance) service markets, the
Commission created a system of explicit subsidies. Competing long
distance companies were required to pay a set amount (contribution)
to the incumbent local carrier which continues to provide local
service at subsidized rates. |
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8. Where it subsequently permitted
competition for local markets, the Commission made the contribution
portable. Any local exchange carrier (ILEC or CLEC) could therefore
use it to subsidize local rates. |
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9. The territories of major
incumbent local carriers are subdivided into exchanges (the
geographic area associated with one or more switching centres).
Where local competition is permitted, these exchanges are classified
into bands based primarily on the cost to provide telephone service
in these exchanges. Residential service in certain bands is eligible
for a subsidy. Local exchange carriers receive a subsidy based on
the number of residential lines they serve in those bands. Bands in
higher cost areas generally receive more subsidy on a per subscriber
line basis. |
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10. Although the Commission has
permitted competition in most regions of Canada, long distance
competition is still not permitted in the operating territories of
NWTel and O.N. Tel. As well, local service competition is not yet
permitted in the operating territories of the independent telephone
companies. |
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Canadians enjoy a high level of
telecommunications service |
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11. The level of telecommunications
service in Canada is very high. During this proceeding, the
Commission heard evidence that Canada is one of the best-served
countries in the world with respect to telecommunications. |
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12. Based on the record of this
proceeding, it is estimated that over 18 million telephone lines are
connected to the public switched telephone network. Over 99 per cent
of these lines represent "single line" service. More than
97 per cent are connected to a digital switch, provide touch-tone
telephone service, and can connect, via low speed data transmission,
to the Internet without incurring long distance charges. Some
telephone companies offer this level of service in 100 per cent of
their lines. These figures indicate the success of Canadian
telecommunications, which has grown steadily over the last century,
in providing millions of Canadian residences and businesses with
high quality service. |
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13. Existing service improvement
programs will enhance the level of basic telephone service to about
90,000 more Canadians. The Commission notes that when these existing
programs are complete, it is estimated that only 7,700 currently
served customers will not have access to single line service. As
well, incumbent local carriers have identified, in total,
approximately 13,000 residences and/or businesses, in over 700
locations, that will still not have any access to telephone service. |
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The exception: high-cost areas |
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14. High-cost areas occur primarily
in remote, rural regions and in the far north. |
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15. In the territories of the
incumbent local carriers other than NWTel, there remain small
pockets of unserved or underserved areas. Unserved areas have no
telecommunications service while those in underserved areas receive
service that is more limited than that enjoyed by most other
Canadians. Telephone service to these areas generally costs more to
provide and is often of lower quality than service in other regions. |
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16. Parties suggested various
definitions of a high-cost area:
*Some defined a high-cost area as one where costs of providing
service are above those in an urban area.
*Others defined it as an area where costs are a certain percentage
higher than the company's average costs of providing service.
*Still others defined it as an area where it would be
difficult for customers to afford residential rates high enough to
cover the costs of delivering service. |
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17. After considering all comments,
the Commission is adopting the following definition of a high-cost
area: |
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a clearly defined geographical area
where the incumbent local exchange carrier's monthly costs to
provide basic service are greater than the associated revenues
generated by an affordable rate as approved by the Commission. Costs
are estimated using Phase II or Phase II-like costs, plus an
appropriate mark-up. (Phase II costs are long-run, incremental costs
calculated in accordance with directives established by the
Commission.) |
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The challenge: balancing priorities
for high-cost areas |
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18. The Commission has set three
goals for high-cost areas, over time:
*To extend service to the few areas that are unserved.
*To upgrade service levels where customers do not currently have
access to the basic services enjoyed by Canadians in other areas
(i.e., in underserved areas).
*To maintain service levels, and ensure that existing levels do not
erode under competition. |
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19. In assessing the options
available to achieve these goals, the Commission must consider the
sometimes competing policy objectives that are set out in section 7
of the Telecommunications Act (the Act), such as: |
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(a) to facilitate the orderly
development throughout Canada of a telecommunications system that
serves to safeguard, enrich and strengthen the social and economic
fabric of Canada and its regions; |
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(b) to render reliable and
affordable telecommunications services of high quality accessible to
Canadians in both urban and rural areas in all regions of Canada; |
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(c) to enhance the efficiency and
competitiveness, at the national and international levels, of
Canadian telecommunications; |
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(f) to foster increased reliance on
market forces for the provision of telecommunications services and
to ensure that regulation, where required, is efficient and
effective; and |
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(h) to respond to the economic and
social requirements of users of telecommunications services. |
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20. As the industry moves towards
increased competition, the Commission wants to ensure, to the extent
possible, that all Canadians benefit from competition. Nevertheless,
competition may not soon reach Canadians in remote or rural areas.
As well, incumbent local carriers currently serving high-cost areas
may find that subsidy erosion in more competitive markets, within or
outside their serving territories, reduces their ability to provide
quality services at affordable rates. |
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21. For example, competitors may
choose to operate only in lower cost areas. Incumbent local carriers
might then concentrate their efforts in lower cost areas as well, to
better compete with new providers. To remain competitive, incumbent
local carriers would perhaps reduce their rates in lower cost areas
or cut their costs over all. Either of these strategies would reduce
the funds available to subsidize their services to high-cost areas. |
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22. The Commission's challenge is to
establish a reasonable level of service and to determine how, in a
competitive era, all Canadians may gain access to that service. To
fulfil the requirements of the Act, the Commission must balance
social policy objectives (for example, high quality, affordable
service) with competitive ones (for example, minimizing subsidies).
It must weigh the cost of any programs to improve service against
the financial burden placed on those paying for these programs. This
is especially important given the Commission's goal of ensuring
affordable basic service. |
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The basic service objective |
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23. Incumbent local carriers
continue to improve service to their customers. These improvements,
in turn, raise Canadians' expectations of what should constitute
basic service. However, the Commission found evidence that some
companies provide lower levels of service in high-cost areas. |
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24. The Commission considers that
the level of service now available to the vast majority of Canadians
should be extended to as many Canadians as feasible in all regions
of the country. Accordingly, the Commission is hereby
establishing the following basic service objective for local
exchange carriers: |
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*Individual line local service with
touch-tone dialling, provided by a digital switch with capability to
connect via low speed data transmission to the Internet at local
rates;
*Enhanced calling features, including access to emergency services,
Voice Message Relay service, and privacy protection features;
*Access to operator and directory assistance services;
*Access to the long distance network; and
*A copy of a current local telephone directory. |
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25. The basic service objective is
independent of the technology used to provide service, and may
change over time as service expectations evolve. |
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26. During the proceeding, several
groups representing consumer interests suggested that basic service
should include a telephone line capable of local and interexchange
data transmission at a modem speed of 28.8 kb/s or higher. Several
carriers noted that it would be difficult to provide any guarantee
of data transmission rates. They added that such network changes are
prohibitively expensive and provide almost no additional revenue to
offset the costs. |
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27. The Commission considers that
the benefits of upgrading the local network must be balanced against
the subscribers' ability to pay for these upgrades. For a higher
level of basic service, subscribers would have to pay more and costs
to provide the service in remote areas would increase. These costs
could, in turn, affect subsidy rates levied on profitable markets,
which would distort the competitive nature of those markets. |
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28. The Commission expects that,
over time, competitive pressures and improvements in network
technology will permit basic service to include faster transmission
speeds. |
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29. In light of these
considerations, the Commission will not include line speed as part
of the basic service objective. |
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Achieving the basic service objective
in southern Canada |
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30. In this Decision, when the
Commission refers to southern Canada it means all areas other than
the territory served by NWTel. NWTel provides service in the Yukon,
Nunavut, the Northwest Territories and the northern portion of
British Columbia. The Commission considers that NWTel's territory
presents unique challenges and more complex problems than
territories in the rest of Canada. This Decision will address
NWTel's concerns separately in a later section. |
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Extending and upgrading service |
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Incumbent local carriers retain their
obligation to serve |
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31. Currently, incumbent local
carriers have an obligation to serve in their territories. This
means that an incumbent local carrier must provide service to
subscribers in its service territory at a reasonable price without
unjust discrimination. The Commission requested comments on whether
this obligation should change, in view of the advent of competition
among carriers providing basic local services. |
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32. The concept of an
"obligation to serve" developed within the context of a
traditional, regulated monopoly in telecommunications services.
Where customers in unserved areas have applied for basic service,
the carrier's tariffs, including the Terms of Service, define its
obligations to extend service beyond the limits of its existing
facilities and the prices it can charge to customers for such
extensions. |
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33. Presently, incumbent local
carriers extend or upgrade their existing plant as part of normal
provisioning, at the request of individuals or groups, and through
specific service improvement plans, either in response to the
Commission's decisions or as initiated by the carriers themselves. |
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34. Generally, parties considered
that where one carrier (typically the incumbent local carrier)
provides basic service to an area, the obligation to serve should be
retained. Some parties submitted that this obligation should remain
until local competition ensures service on demand. Other parties
maintained that competition will not ensure that providers will
offer service in all locations to all customers now served.
Conversely, some parties argued that this obligation to serve should
be eliminated or compensation provided. |
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35. In determining this matter, the
Commission must weigh, among other things, the objective of fair
competition against the need for an efficient, effective means to
achieve the basic service objective in high-cost areas. |
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36. Effective local service
competition will not likely occur in the short term. The
Commission therefore determines that, at this time, incumbent local
carriers must retain their obligation to serve. |
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Service improvement plans have proven
effective in the past |
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37. Encouraging incumbent local
carriers to develop service improvement plans proved very successful
through the monopoly era. The Commission is of the view that,
despite the arrival of competition, such programs can continue to
provide effective means to extend and improve service to high-cost
areas. The Commission does not, however, expect the industry to
extend and improve service to all areas immediately. |
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38. According to the former Stentor
companies and the independent telephone companies, just over 11,000
premises in southern Canada will not have access to any telephone
service once existing service improvement plans have been completed.
As a result, the Commission anticipates that incumbent local
carriers in southern Canada have the ability to fund service
improvement programs through the existing regulatory framework. This
could be accomplished in various ways, such as reducing costs,
raising rates, using existing explicit subsidies from long distance
services, and generating additional profits from the sale of special
calling features. |
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39. Multi-year plans to improve
service, developed by incumbent local carriers and filed for
approval with the Commission, provide other benefits as well. They
are administratively simple to implement and they allow for comment
by the public. Such programs can also allow communities or regions
to participate in proposed service upgrades. For instance, if a
telephone company begins construction in an area, it may be able to
offer inexpensive service improvements beyond the basic service
objective to other nearby homes or communities. Knowing in advance
the timetable for construction projects near their area,
individuals, communities or regions may choose to take advantage of
any cost-saving opportunities. They may be able to budget their own
resources or obtain government grants to enhance services. |
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Directing effort where effort is
needed: requirements for filing service improvement plans |
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40. In some areas where service is
not at an acceptable standard, work is already underway to improve
service. The Commission notes, however, that several telephone
companies stated that they currently have no plans to extend or
upgrade service to those unserved or underserved within their
territories. |
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41. The Commission directs all
incumbent local carriers to file service improvement plans for
Commission approval, or to demonstrate that the basic service
objective has been and will continue to be achieved in their
territory (Appendix 3 sets out the filing and implementation
schedule). Plans filed should indicate how incumbent local carriers
will reinforce their existing networks where necessary to improve
service or to extend service to unserved areas. Subject to network
design and cost limitations, these plans should: |
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*Incorporate least-cost technology.
*Target larger communities or areas first.
*Serve unserved areas prior to providing upgrades.
*Serve permanent dwellings before seasonal ones. |
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42. Plans must also include
proposals to fund such improvements. When funding proposals include
rate increases, a reasonable balance should be achieved between the
speed and cost of implementation and the need to maintain affordable
rates. With their service improvement plans, incumbent local
carriers must file a proposed tracking plan that will monitor the
progress of all service extension and upgrade programs and will
ensure that these programs are carried out. As a consequence, the
Commission will no longer require Bell to file its existing annual
"Access to Service Report," which contains the same kind
of information, once Bell has approval for its first tracking plan
pursuant to this Decision. |
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43. Incumbent local carriers should
consult stakeholders prior to preparing their service improvement
plans. In addition, communities and other organizations will have an
opportunity to comment on the reasonableness of the carriers'
proposals before the Commission rules on them. |
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44. Many former Stentor companies
have significant programs underway to improve service during their
current price cap period. In the proceeding to review price caps,
the Commission will consider these companies' proposals for
additional upgrades and improvements. These improvements should be
set to begin no later than 1 January 2002. |
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45. Québec-Téléphone and
Télébec ltée (Télébec) are not currently regulated by price
caps. The Commission is conducting a public proceeding, announced in
Time-Frame for the Implementation of Price Cap Regulation And Any
Further Required Rate Rebalancing For Québec-Téléphone And
Télébec ltée, Telecom Public Notice CRTC
99-15, 27 May 1999 to determine the timeframe for implementing
price caps. After the Commission makes its determinations in that
matter, it will initiate a process to implement price caps. The
Commission directs Québec-Téléphone and Télébec to include
their service improvement plans in the proceeding to implement price
caps. The Commission expects service improvements to begin at the
same time as the implementation of the price cap regime. |
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46. In Review of Contribution
Regime of Independent Telephone Companies in Ontario and Quebec,
Telecom Decision CRTC
99-5, 21 April 1999 (Decision 99-5), the Commission directed
certain small independent telephone companies to increase local
rates in stages before the end of 2001. The Commission directed
these companies to file, by 1 January 2000, productivity improvement
plans reducing the subsidy they require to less than 25 per cent of
their total revenue requirement. This must take effect no later than
the year 2002. |
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47. The Commission notes that any
service improvements would create additional costs for the
independent telephone companies and that additional costs will not
be allowed to increase the contribution requirement (subsidy) above
the 25 per cent target set by the Commission in Decision 99-5. In
the Commission's view, the costs of service improvements can be
incurred over a period of years so as not to increase the
contribution requirement beyond this maximum amount or the capped
contribution requirement established in Decision 99-5. In addition,
the Commission expects that rates will remain affordable. |
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48. To meet the determinations of
Decision 99-5, in addition to those in this Decision, the small
independent telephone companies, including O.N. Tel,
Abitibi-Consolidated, Cochrane Public Utilities Commission, and
Prince Rupert City Telephone, must file these plans by 1 March 2000.
Each service improvement program proposed by the independents should
be set to begin no later than 1 January 2001. |
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Service extension obligations |
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49. The incumbent local carriers'
obligation to serve and the terms for extension of service are set
out in their approved tariffs. The terms include the portion of the
cost for extending service to be paid by the company and the portion
to be paid by the customer. |
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50. In the current tariffs,
including the Terms of Service, provisions for service extensions
vary from one incumbent local carrier's territory to another with
respect to the dollar or distance construction allowances the
carrier pays on behalf of a customer, the amount a customer must pay
beyond these allowances, and the maximum costs the carrier will
assume. Many tariffs state that a carrier is not required to extend
service if, by doing so, it would incur unusual expenses that
customers are unwilling or are unable to pay. |
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51. Given the unique circumstances
of each company, the Commission considers it reasonable that these
terms vary from one telephone company territory to another. The
Commission finds that no change is warranted to the tariffs or the
Terms of Service with regard to the handling of ongoing service
extension requests. |
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52. The Commission further finds
that where construction is taking place in a specific area pursuant
to an approved service improvement plan, and construction to extend
facilities is undertaken to meet the basic service objective, the
customer's contribution shall not exceed $1,000 per customer
premises. This modification is to be reflected in the incumbent
local carriers' tariffs. |
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53. The Commission notes that, in
their tariffs, a number of incumbent local carriers permit customers
to pay in instalments for service extensions. Where such plans are
not available in the tariffs, the Commission directs carriers to
file, with their service improvement plans, proposed tariffs giving
customers the option to pay for extensions on a reasonable
instalment basis. |
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Proposal for bidding to provide new
services denied |
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54. Some parties proposed that
incumbent local carriers and other service providers be permitted to
bid on providing new service to a high-cost area. The successful
bidder would then receive funding to recover capital costs and
operational costs for providing service. |
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55. The Commission sees some merit
to a bidding process to implement service to high-cost areas. Such a
process could provide opportunities and incentives for interested
providers to establish a presence in a particular area, and
encourage companies to operate more efficiently, using more
cost-effective technologies. In addition, a subsidy to the
successful bidder would limit service providers' risk to acceptable
levels and provide for competitive equity among incumbent and
competitive local carriers. |
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56. The Commission considers,
however, that a bidding process would make administration more
complex, and would unduly slow the implementation of basic service
in certain high-cost areas. Given the small number of Canadians
without access to telephone service, the Commission is of the view
that establishing a new bidding mechanism to provide basic service
is not warranted. In the Commission's view, incumbent local
carriers, with their widespread infrastructures, will likely be the
only providers of service to these areas in the foreseeable future. |
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57. Given the relatively small
number of Canadians in scattered locations who do not have access to
service that meets the basic service objective, the Commission finds
that the most appropriate approach in high-cost areas is for
incumbent local carriers to provide service over a reasonable time
period. The Commission is of the view that extending service to
those now unserved is generally the responsibility of the incumbent
local carrier providing service in that territory. |
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Achieving the basic service objective
in the far north |
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58. The incumbent local carrier,
NWTel, serves the Yukon, Nunavut, the Northwest Territories and part
of northern British Columbia. As such, it has the largest operating
territory in Canada, but the territory's population is only about
110,000, representing less than one half of one per cent of the
country's total population. |
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59. NWTel delivers service to as
many as 96 communities, providing them with about 68,000 telephone
lines. More than 80 per cent of these communities scattered over
NWTel's operating territory have fewer than 500 telephone lines.
Many communities are accessible only by air. As a result, NWTel has
the lowest telephone line density in the country. This low density,
combined with the size and severe climatic conditions of its
territory, requires NWTel to operate and maintain a network without
the efficiencies available to companies in southern Canada. |
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60. Providing reasonably priced
access to high-quality long distance service is a further challenge
for NWTel. The Commission has received complaints regarding the
quality of long distance service in NWTel's territory. As well,
NWTel's rates for long distance are much higher than those elsewhere
in Canada to generate the revenues necessary to provide local
service throughout its territory. While the Commission has permitted
competition and refrained from regulating long distance services in
most telephone companies' operating territories, it has not yet set
terms and conditions allowing for long distance competition in
NWTel's territory. |
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61. Because of the high rates
charged by NWTel, some northern customers have engaged in "toll
bypass" by conducting long distance telephone calls in a manner
that avoids high charges from NWTel. Revenue from long distance
calls contributes a significant amount in subsidy towards its cost
of providing local service throughout its territory. Toll bypass
erodes this important source of revenue. The Commission, therefore,
has an immediate concern about the financial impact of toll bypass
on NWTel's ability to maintain and improve telecommunications
service in northern Canada. |
|
62. In light of the unique
circumstances listed above, NWTel may not have the means to achieve
the basic service objective under similar terms and conditions as
those for southern Canada. Accordingly, the Commission has begun a
public proceeding (NWTel proceeding) Northwestel Inc.
Implementation of Toll Competition and Review of Regulatory
Framework, Quality of Service and Related Matters, Telecom Public
Notice CRTC
99-21, 1 October 1999, that will, among other things, assess
NWTel's level of revenue and contribution required to achieve the
basic service objective, address the terms and conditions that may
permit long distance competition in its territory, and determine if
any supplementary funding is required. |
|
63. The Commission directs NWTel, as
part of the NWTel proceeding, to file for Commission approval a
service improvement plan by which it will achieve the basic service
objective over time, including upgrading the quality of long
distance service. This plan must address the same priorities as the
plans that the Commission requires from the other incumbent local
carriers. The Commission will consider the merits of NWTel's plan in
relation to its service benefits, costs and impact on rates. In
addition, the Commission determines that NWTel should retain its
obligation to serve, as do incumbent local carriers elsewhere in
Canada. It also considers that the factors regarding obligation to
serve addressed earlier in this Decision should also apply to NWTel. |
|
64. Further, as part of the NWTel
proceeding, and in order to permit long distance competition, the
Commission will have to establish sustainable rates for the
switching and aggregation component, as well as the toll
contribution (subsidy) component, of the Carrier Access Tariff
(CAT). To achieve this, NWTel is to propose, with supporting
rationale, a sustainable CAT that would encourage long distance
competition. |
|
65. As well, NWTel is to propose the
amount, if any, of supplementary funding it may require to meet the
basic service objective, recover its contribution requirement and
provide the company with a reasonable opportunity to earn a fair
rate of return. NWTel's proposal for a sustainable CAT and
supplementary funding should reflect the Commission's findings set
out below. |
|
66. Switching and aggregation
facilities include the trunks connecting NWTel's toll switches
(Access Tandem switches) to its local switches, as well as a portion
of the switches themselves. The Commission notes that the costs of
these toll connecting trunks are distance and usage sensitive. |
|
67. NWTel 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.
The Commission considers that NWTel may not be able to propose a
cost-based switching and aggregation rate that is sustainable and
thus may not be able to recover the associated costs in a
competitive long distance environment. |
|
68. The Commission finds it
appropriate in these circumstances that the company's switching and
aggregation facilities be considered an extension of the local
network. Accordingly, the associated costs are to be assigned to the
Monopoly Access category as opposed to the competitive toll category
as is the case with other telephone companies. The Commission is
satisfied that this change is appropriate in order to facilitate the
provision of competitive long distance service to subscribers
throughout NWTel's territory. Notwithstanding this change, the
Commission notes that the portion of NWTel's toll switches used to
provide the inter-toll portion of long distance service, along with
the trunks used to connect those switches, would remain in the
Competitive Toll category. |
|
69. To be eligible for any
supplementary funding, NWTel will have to demonstrate that it cannot
meet the basic service objective using the traditional funding
mechanisms relied upon by companies in southern Canada. If NWTel is
able to demonstrate that it needs supplementary funding, any such
funding will come from the existing portable subsidy mechanism
within the former Stentor companies' operating territories. The
Commission considers that the existing portable subsidy collection
mechanism is appropriate for any such funding as a short-term
measure since the existing mechanism is currently under review in a
separate proceeding. |
|
70. In the NWTel proceeding, the
Commission will also determine the manner in which any supplementary
funding will be collected from the portable subsidy mechanism. |
|
Maintaining established levels of high
quality, basic service in southern Canada |
|
Restructuring costing bands |
|
71. In Final Rates for Unbundled
Local Network Components, Telecom Decision 98-22, 30 November
1998, the Commission established rates for unbundled local loops,
based on the existing definition of bands. Local loops are used to
connect the subscriber's telephone to the serving switch.
"Unbundling" separates the cost for this item from the
whole cost for local service. The cost of providing local service
varies with the loop length and densities within each band. The
portable subsidy made available partially offsets the cost of
providing residential local service within each band. Former Stentor
companies suggested revising the costing band structures to better
isolate the high cost portions of their serving territories. |
|
72. The Commission shares the view
of most parties that refining the current banding structure based on
switching centres would better focus subsidies to higher cost
regions. |
|
73. The Commission considers that it
may be helpful to develop costs by smaller geographical areas such
as enumeration areas. However, the Commission is concerned about
determining average costs using boundaries of enumeration areas
since these boundaries change for various reasons with every census
undertaken by Statistics Canada. As well, if companies develop new
bands, local loop rates for each band will have to be adjusted at
the same time as any change to bands. |
|
74. Independent telephone companies,
including NWTel, do not currently have costing bands within their
territories. However, when local competition is permitted in the
territories of independent telephone companies, the Commission will
have to establish a mechanism for distributing portable subsidies.
Because costs vary within each territory, it may be necessary to
identify costing bands to accurately direct the portable subsidy to
high-cost areas. |
|
75. Early in the year 2000, the
Commission will begin a proceeding to examine the former Stentor
companies' proposals for new bands. Proposals may base new bands on
costs to provide residential service within switching centre
boundaries, enumeration area boundaries, and/or some reasonable
alternative. The Commission considers that any proposal to refine
bands must be based on costs, be unambiguous and readily identify
the band(s), and be administratively simple. |
|
76. Several parties to the
proceeding raised their concern that it costs more to provide single
line business service in high-cost areas than it does in other
regions. Most proposed that a "high-cost subsidy" be
provided for those businesses to support the local rural economy.
However, information regarding the number of business lines in each
band and the associated costs and revenues was not available in this
proceeding. As part of the re-banding proceeding, the Commission
will consider whether to make subsidies available for single line
business service in high-cost areas. |
|
77. The Commission will therefore
require the former Stentor companies, in their submissions as part
of the re-banding proceeding, to: |
|
*comment on the provision of subsidies to
business lines in high-cost areas;
*comment on the implementation of expanded indicators for quality of
service specific to high-cost areas; and
*propose revised rates for local loops for each band. The Commission
expects that the associated loop cost estimates should be developed
based on the costing methodologies relied upon in the determination
of the rates approved in Decision 98-22. |
|
78. The Commission expects to render
its decision in the proceeding on re-banding prior to the review of
price caps, with changes to bands and loop rates to take effect 1
January 2002. |
|
Redistributing the explicit subsidy |
|
79. Once companies refine their
costing bands, the Commission anticipates that the existing explicit
subsidy will be used specifically to maintain the basic service
objective in high-cost areas. Accordingly, the Commission makes
the following rulings regarding the distribution of explicit
subsidies for ongoing operational shortfalls: |
|
a) Prior to 1 January 2002 (the
timeframe of the current price cap period), the existing explicit
subsidy mechanism will continue. |
|
b) After 1 January 2002, given that
the obligation to serve is maintained for incumbent local carriers
in this Decision, the explicit subsidy will be available to
incumbent local carriers that file an approved service improvement
plan indicating how they will achieve the basic service objective.
Competitive local carriers will be eligible to receive the subsidy
for those customers receiving a level of service that meets the
basic service objective. In addition, if a service provider other
than an incumbent local carrier offers service in an otherwise
unserved area, that service provider must offer service at an
affordable rate to be eligible to receive the subsidy. |
|
Quality of service indicators |
|
80. This proceeding addressed
whether the Commission should regulate the quality of service in
high-cost areas, and if so, how it should implement that regulation.
Some parties proposed adding "high-cost area" categories
to some of the quality of service indicators in Appendix A of
Quality of Service Indicators for Use in Telephone Company
Regulation, Telecom Decision 97-16, 24 July 1997. Other parties
proposed relying on the complaints process. Still others proposed
that the Commission hold a separate proceeding to address quality of
service for high-cost areas. |
|
81. The Commission considers that,
in the context of the re-banding proceeding, it would be appropriate
for former Stentor companies to identify those quality of service
indicators where the standards should vary in high-cost serving
areas, and to propose what standards would be appropriate for those
areas. The Commission considers that existing quality of service
indicators are adequate for the independent telephone companies.
However, the Commission may re-examine this issue at some future
point. |
|
Long distance service |
|
Proposal to de-average switching and
aggregation rates denied |
|
82. Some parties proposed
de-averaging switching and aggregation rates as an alternative to
subsidies for long distance routes that do not cover their costs.
Switching and aggregation typically refers to the carrying and
connecting of calls between the local exchange and the long distance
networks. Carriers pay a fee based on the average cost to the
incumbent local carrier for the provision of this service.
"De-averaging" would allow the incumbent local carrier to
charge different rates in different local exchanges based on costs. |
|
83. The Commission notes that
sustainable long distance competition exists in the former Stentor
companies' operating territories and that its own policy is to
refrain from regulating rates for long distance service. It
considers that the parties addressing this matter did not
demonstrate a need for de-averaging or that de-averaging would
address the problems associated with access to toll services in
high-cost areas. Accordingly, the Commission concludes that
de-averaging of switching and aggregation rates is not appropriate
at this time. |
|
Addressing the quality of long
distance service |
|
84. Throughout this proceeding, the
Commission received numerous complaints from subscribers about the
quality of long distance service in certain northern communities.
Some complained that they did not have reasonable access to long
distance service. Others indicated that the network frequently
dropped their long distance calls, or that they were unable to get a
dial tone to place calls. |
|
85. In Forbearance - Regulation
of Toll Services Provided by Incumbent Telephone Companies,
Telecom Decision CRTC
97-19, 18 December 1997, the Commission refrained from
regulating long distance services in the territories of former
Stentor companies, as well as those of Télébec and
Québec-Téléphone, subject to certain conditions established to
protect the interests of users. Although these conditions are not
specifically geared towards ensuring high quality toll services, the
Commission's view in refraining from regulating was that competition
and choice of providers would ensure acceptable quality of long
distance service in all areas. |
|
86. The Commission therefore expects
that, in areas where limited competition has not ensured a high
quality of long distance services, incumbent local carriers will
continue to work to remedy the situation. The Commission will
monitor complaints on the poor quality of long distance service, as
well as the incumbent local carriers' actions in addressing this
matter. |
|
Long distance competition for O.N. Tel |
|
87.In Regulatory Framework-Ontario
Northland Transportation Commission,Telecom Decision CRTC
98-14, 1 September 1998, the Commission determined that it would
consider terms and conditions for toll competition in O.N. Tel's
territory in light of the findings in this Decision. The Commission
considers that O.N. Tel's current customers already pay long
distance rates comparable to those in areas where competition takes
place. In view of this, and the determinations made in this
Decision, the Commission will initiate a public proceeding in the
year 2000 that will establish the terms and conditions under which
long distance competition can be introduced in O.N. Tel's territory. |
|
Participants in this "high-cost
areas" proceeding |
|
88. To consider the issues
associated with service to high-cost areas, the Commission issued Service
to High-Cost Serving Areas, Telecom Public Notice CRTC
97-42, 18 December 1997. It received written submissions which
were subject to queries by interested parties and the Commission.
The Commission also heard oral final argument and received written
final and reply arguments. At regional consultations conducted
across the country, the Commission heard over 250 presentations. The
Commission also received over 300 written comments. (Further details
on the public process are included in Appendix 2.) |
|
89. The Commission made all
federally-regulated, incumbent local carriers parties to the
proceeding. SaskTel, the only non-federally regulated incumbent
local carrier, also participated fully in this proceeding. In a
future proceeding, the Commission will consider how this Decision
applies to SaskTel once it comes under CRTC jurisdiction. |
|
90. In arriving at its
determinations set out in this Decision, the Commission has
carefully considered all of the submissions received throughout this
proceeding. |
|
The Commission wishes to thank the
parties and all those who participated in the proceeding. The
Commission also thanks those telephone companies who provided video
and audio links used to support the regional consultations held in
their operating territories. |
|
Secretary General |
|
This document is available in
alternative format upon request, and may also be viewed at the
following Internet site: http://www.crtc.gc.ca |
|
Reference documents |
|
Legislation |
|
Telecommunications Act, S.C. 1993,
c. 38, as amended CRTC Telecommunications Rules of Procedure,
SOR/79-554, as amended by SOR/86-832 |
|
Public Notices |
|
Service to High-Cost Serving Areas,
Telecom Public Notice CRTC
97-42, 18 December 1997 |
|
Service to High-Cost Serving Areas -
Amendment to PN 97-42, Telecom Public Notice CRTC
98-5, 6 March 1998 |
|
Service to High-Cost Serving Areas -
Amendment to the Procedures in PN 97-42, Telecom Public Notice CRTC
98-18, 30 July 1998 |
|
Time-Frame For The Implementation of
Price Cap Regulation and Any Further Required Rate Rebalancing for
Québec-Téléphone and Télébec, Telecom Public Notice 99-15,
27 May 1999 |
|
Review of Contribution Collection
Mechanism and Related Issues, Telecom Public Notice 99-6, 1
March 1999 |
|
Decisions |
|
Regulatory Framework for the
Independent Telephone Companies in Québec and Ontario (Except
Ontario Northland Transportation Commission, Québec-Téléphone and
Télébec Limitée), Telecom Decision CRTC
96-6, 7 August 1996 |
|
Local Service Pricing Options,
Telecom Decision CRTC
96-10, 15 November 1996 |
|
Local Competition, Telecom
Decision CRTC
97-8, 1 May 1997 |
|
Quality of Service Indicators for Use
in Telephone Company Regulation, Telecom Decision CRTC
97-16, 24 July 1997 |
|
Implementation of Price Cap Regulation
- Decision Regarding Interim Local Rate Increases and Other Matters,
Telecom Decision CRTC
97-18, 18 December 1997 |
|
Forbearance - Regulation of Toll
Services Provided by Incumbent Telephone Companies, Telecom
Decision CRTC
97-19, 18 December 1997 |
|
Northwestel Inc.- Interconnection Of
Interexchange Carriers And Related Resale And Sharing Issue,
Telecom Decision CRTC
98-1, 11 February 1998 |
|
Regulatory Framework - Ontario
Northland Transportation Commission, Telecom Decision CRTC
98-14, 1 September 1998 |
|
Final Rates for Unbundled Local
Network Components, Telecom Decision CRTC
98-22, 30 November 1998 |
|
Review of Contribution Regime of
Independent Telephone Companies in Ontario and Quebec, Telecom
Decision CRTC
99-5, 21 April 1999 |
|
Orders |
|
Telecom Order CRTC
99-357 - 19 April 1999 |
|
Other Documents |
|
Preparing Canada for a Digital World,
Final Report of the Information Highway Advisory Council,
1997 10 08 |
|
Telecom CRTC Letter Decision, 26 March
1998, regarding an application, dated 6 February 1998, from AT&T
Canada Long Distance Services Company, ACC TelEnterprises Ltd.,
Call-Net Enterprises Inc. and Fonorola Inc. |
|
Appendix 2 |
|
Further details on the public process |
|
Regional consultations held during May
and June 1998 |
|
Whitehorse, Yukon with video or audio
links to sites at (i) Dawson City, Yukon, (ii) Fort Nelson, British
Columbia, (iii) Haines Junction, Yukon, (iv) Old Crow, Yukon and (v)
Watson Lake, Yukon; |
|
Prince George, British Columbia with
video links to sites at Prince Rupert and Vancouver; |
|
Prince Albert, Saskatchewan with video
links to sites at Regina, Saskatoon, Swift Current and Yorkton; |
|
Grande Prairie, Alberta with video links
to sites at Calgary and Edmonton; |
|
Timmins, Ontario with video links to
sites at Haileybury, Hearst, Kapuskasing, Kirkland Lake, Moosonee,
Ottawa, Temagami and Toronto; |
|
Thompson, Manitoba with video links to a
site at Winnipeg; |
|
Val d'Or, Quebec with video links to
sites at Baie-Comeau, Ville de Bécancour, Chicoutimi, Chisasibi,
Gaspé, Montréal, Québec, Rimouski, Saint-Georges, Sainte-Marie
and Sept-Îles; |
|
Deer Lake, Newfoundland with video links
to sites at (i) Moncton, New Brunswick and (ii) St. John's,
Newfoundland; and, |
|
Iqaluit, Northwest Territories with audio
or video links to sites at Cambridge Bay, Hay River, Inuvik, Rankin
Inlet and Yellowknife. |
|
Oral argument: |
|
Hull, Quebec on 25 and 26 January 1999 |
|
Interested Parties |
|
The following persons registered as
interested parties or were made parties to this proceeding. Some of
these parties filed submissions, comments, and/or argument:
Abitibi-Consolidated (formerly Abitibi-Price Telephone Inc.)
ACA/CAC/ARC/NAPO/RDC, ACC TelEnterprises, Action-Réseau
Consommateur, Amtelecom Inc., Angus Oliver, Angus TeleManagement
Group Inc., Association des Compagnies de Téléphone du Québec
inc., AT&T Canada Corp., B.C. Old Age Pensioners' Organization,
BC TEL, Bell Canada (Bell), Brooke Telecom Co-operative Limited,
Bruce Municipal Telephone System, BRULYN Management Consulting,
Call-Net Enterprises Inc., Campbell Ryder Consulting Group Ltd.,
Canadian Business Telecommunications Alliance, Canadian Cable
Television Association, Canadian Wireless Telecommunications,
Chisasibi Telecommunications Association, Christopher A. Taylor,
Clearnet Communications Inc., Cochrane Public Utilities Commission
(Cochrane), Cogeco Câble Inc., Consumers Association of Canada
(Manitoba) & Manitoba Society of Seniors Inc., CoopTel, Dan
Hammond & Associates, David Stinson Consulting Inc., Dryden
Municipal Telephone System, Ecoanalysis Consulting Services Inc.,
Fundy Cable Ltd./Ltée., Globalstar Canada Co., Gosfield North
Communications Co-operative Limited, Gouvernement du Québec,
Government of British Columbia, Government of Manitoba, Government
of the Northwest Territories, Government of Saskatchewan
(Saskatchewan), Hay Communications Co-operative Limited, Huron
Telecommunications Co-operative Limited, Hurontario Telephones
Limited, Industry Canada, Island Telecom Inc. (Island Tel), Johnston
& Buchan, Keewatin Municipal Telephone System, Keewaytinook
Okimakanak, Kenora Municipal Telephone System, KVM Consulting, La
Cie de Téléphone de Courcelles Inc., La Compagnie de Téléphone
de Lambton Inc., La Compagnie de Téléphone de St. Victor, La
Compagnie de Téléphone de Warwick, La Compagnie de Téléphone
Nantes Inc., La Compagnie de Téléphone Upton Inc., La Corporation
de Téléphone de La Baie (1993), Lansdowne Rural Telephone Co.
Ltd., Le Téléphone de St-Éphrem Inc., Le Téléphone de
St-Liboire de Bagot Inc., London Telecom Network, Inc., Manitoba
Keewatinowi Okimakanak Inc., Maritime Tel & Tel Limited (MTT),
MetroNet Communications Group Inc., Microcell Telecommunications
Inc., Mobility Canada, Mornington Communications Co-operative
Limited, MTS Communications Inc. (MTS), NBI/Michael Sone Associates,
NBTel Inc. (NBTel), Nelligan Power, NewTel Communications Inc.
(NewTel), Nexicom Telecommunications Inc., Nexicom Telephones Inc.,
North Frontenac Telephone Company Limited, North Renfrew Telephone
Co. Ltd., Northern Ontario Infrastructure Working Group/Wawatay
Native Communications Society, Northern Telephone Limited
(Northern), Northwestel Inc. (NWTel), O.N. Tel, Ontario Telephone
Association, People's Telephone Company of Forest Ltd., Prince
Rupert City Telephone (Prince Rupert), Quadro Communications
Co-operative Inc., Québec-Téléphone, Rogers Cantel Inc.,
Roxborough Telephone Company Limited, RSL COM Canada Inc., SaskTel,
Société d'administration des tarifs d'accès des
télécommunicateurs, Sogetel inc., South Bruce Rural Telephone
Company Limited, Tatlayoko Think Tank, Télébec Itée. (Télébec),
Téléphone Guèvremont Inc., Téléphone Milot Inc., Telesat
Canada, TELUS Communications Inc. (TCI), TELUS Communications
(Edmonton) Inc., The Corporation of The City of Thunder Bay (Thunder
Bay), The Federation of Alberta Gas Co-ops Ltd.,
Timiskaming-Cochrane Telecommunications Infrastructure Improvement
Committee, Total North Communications Ltd., Tuckersmith
Communications Co-operative Limited, Utilities Consumers' Group,
Vidéotron Télécom Itée., Wall Communications Inc., Westport
Telephone Company Limited, Wightman Telephone Limited, and Yukon
Government. |
|
Notes: |
|
In final argument, Northern Ontario
Infrastructure Working Group represented Wawatay Native
Communications Society, originally an interested party, and
Keewaytinook Okimakanak. |
|
Keewatin Municipal Telephone System gave
notice that it was represented by The Corporation of The City of
Thunder Bay. |
|
Appendix 3 |
|
Consideration of service improvement
applications |
|
Company |
Submission of Plans |
Expected implementation Start Dates
|
Bell
BC TEL
TELUS
MTS
MTT
Island Tel
NewTel
NBTel |
Price cap review proceeding
| 1 January 2002
|
QuébecTel
Télébec
| Price cap implementation proceeding |
No later than the implementation of price caps
|
NWTel |
Proceeding to implement toll competition
| No later than 1 January 2001
|
Other Independents
| 1 March 2000 |
No later than 1 January 2001
|
|