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Thirty-nine small incumbent telephone companies, serving less
than 2% of the Canadian population in generally rural communities,
will be regulated under a framework that focuses on prices, rather
than earnings.
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Effective 1 January 2002, this new framework will allow for
annual price increases based, primarily, on inflation and will
incorporate the new contribution mechanism as established in
Decision 2000-745, Changes to the contribution regime, dated
30 November 2000.
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In order to reduce the regulatory burden of these small incumbent
telephone companies, they will be allowed to use a proxy approach to
determine their subsidy requirements, thereby eliminating the need
to perform detailed costing studies. Since this proxy approach
includes a residential local rate of $22.75 per month, they will be
allowed to increase residential local rates to that level, effective
1 January 2002, subject to a maximum monthly increase of
$4.
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A four-year transition period will reduce the possible financial
impact on those companies that will receive less subsidy under the
new contribution mechanism than they do under the current mechanism.
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Since no immediately workable proposals were brought forward with
respect to the calculation and recovery of direct toll and network
access costs, a consultative process led by Commission staff will
begin during the first quarter of 2002 to address the issue. Until
the consultative process is complete, the direct toll and network
access costs and rates will be frozen at the 2001 levels and the
corresponding rates made interim.
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1. |
There are currently 39 small incumbent local exchange carriers
(ILECs) in Canada, which are listed in the attached appendix. Most
are dispersed throughout Ontario and Quebec with one located in
British Columbia. Most serve mainly rural areas and almost all have
less than 25,000 subscribers. Twenty-two have less than 5,000
subscribers and four have less than 1,000. Overall, the small ILECs
serve less than 2% of the total Canadian population.
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2. |
The small ILECs would have received approximately $37.9 million
in contribution (subsidy) in 2002, based on Phase III costs,
and recovered an additional $24.4 million for direct toll from
inter-exchange toll providers.
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3. |
In Decision CRTC 2000-745, Changes to the contribution regime,
dated 30 November 2000, the Commission determined that, as
of 1 January 2002, the small ILECs will be part of the new
contribution mechanism and will use a Phase II costing approach to
determine their subsidy requirements.
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4. |
In New regulatory framework for small independent telephone
companies and related issues, Public Notice CRTC 2001-61, dated
30 May 2001, the Commission expressed the preliminary view
that a simplified form of price regulation would be appropriate for
the small ILECs. Accordingly, the Commission has decided to adopt a
price regulation for all the small ILECs. The proceeding included
the Commission's consideration of written submissions as well as
comments gathered during a round table consultation that the
Commission conducted in Hull, Quebec on 9 July 2001.
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5. |
The primary objectives of this proceeding included establishing a
new regulatory framework for the small ILECs that would focus on
prices rather than earnings, and develop a methodology to calculate
the small ILECs' subsidy requirements using a Phase II costing
approach. The Commission also examined whether it should modify the
existing method of identifying, quantifying and recovering direct
toll and network access costs. The Commission also sought comments
on whether companies with service improvement plans (SIPs) should be
required to maintain their special reserve accounts and on the need
for on-going reporting requirements.
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New regulatory regime for small ILECs
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6. |
Only O.N.Telcom and Northern Telephone Limited were not in favor
of adopting a regulatory regime of price regulation. The Commission
considers that an appropriate pricing regime would encourage
efficiency and innovation, ensure access to affordable and reliable
services, provide the small ILECs with the opportunity to earn a
fair return and reduce the regulatory burden. |
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7. |
Price regulation usually incorporates three basic components and
determines the maximum allowable change in prices, on an annual
basis, for services subject to pricing constraints. These components
are an inflation factor, an exogenous factor and a productivity
offset.
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8. |
Generally, the small ILECs favoured the use of an inflation
factor as a component of an overall price regulation regime. This
factor would account for changes to the input costs of the operator.
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9. |
While some of the parties proposed the Consumer Price Index
(CPI), most parties favoured the Gross Domestic Product Implicit
Chain Price Index (GDP-PI) as the preferred measure of inflation.
The main reasons given were:
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a) it is a much more broadly based index than other measures
such as CPI;
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b) it is already being used by the Commission for the large
ILECs subject to price regulation; and
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c) it is more focused on input prices that a business would be
expected to deal with.
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10. |
The Commission considers that the CPI is narrow in scope when
compared to the GDP-PI. The CPI relates to the retail market where
telecommunications operators only incur a portion of their costs.
The GDP-PI takes into account more than just the retail sector; it
includes government and business investment in fixed capital, as
well as imports and exports of goods and services.
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11. |
While each of these two inflation factors is a legitimate measure
of inflation, taking into consideration the broader nature of the
measure, the Commission determines that the use of the GDP-PI is
appropriate for the small ILECs.
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12. |
The Commission directs that the GDP-PI inflation factor be
measured using year-to-year changes in order to avoid the problems
associated with seasonality. In general, the Commission does not
deem it necessary for the small ILECs to adjust for revisions in
GDP-PI, made by Statistics Canada.
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13. |
In Telecom Decision CRTC 97-9, Price cap regulation and
related issues, dated
1 May 1997, the Commission determined that an exogenous factor
adjustment, for the large ILECs, will be considered for events which
satisfy the following criteria:
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a) they are legislative, judicial or administrative actions
which are beyond the control of the company;
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b) they are addressed specifically to the telecommunications
industry; and
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c) they have a material impact on the Utility segment of the
company.
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14. |
Most parties agreed that an exogenous adjustment should be
included as a component of the price regulation regime.
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15. |
Several of the companies submitted that the existing criteria
determined in Decision 97-9, and set out above, are appropriate.
Others considered that the criteria be expanded to encompass
"Acts of God". The Ontario Telecommunications Association
(OTA) and Northern stated that the measurement of any exogenous
factor should be based on actual costs where available.
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16. |
As noted above, some of the parties proposed that the criteria
used for the large ILECs should be expanded to include "Acts of
God". The Commission is of the view that these types of events,
while beyond the control of the companies, would not be specific to
the telecommunications industry and should not be considered
exogenous.
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17. |
The Commission is of the view that the criteria in Decision 97-9
applied to the small ILECs would capture events that should be
considered to be exogenous. The Commission recognizes that
modifications to the definition of an exogenous factor may arise as
a result of the determinations of the proceedings initiated by
Public Notice CRTC 2001-36, Implementation of price cap
regulation for Québec-Téléphone and Télébec, dated
13 March 2001, and Public Notice CRTC 2001-37, Price cap
review and related issues, dated 13 March 2001. If modifications
are made to the criteria for the large ILECs as a result of these
processes, the Commission will consider if it is appropriate to
implement similar modifications to the criteria, for the small ILECs
at a later date.
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18. |
The Commission agrees that the actual financial impact should be
used to measure the exogenous factor where available, and that it be
determined on a company-wide basis and assigned on a cost-causal
basis between capped and other services. The Commission also
considers that the small ILECs should be required to file for
approval of exogenous treatment for all events that meet the
criteria, regardless whether the factor would be positive or
negative.
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19. |
The proposed exogenous adjustments are to be filed by the small
ILECs as part of the annual update process or by other parties at
any time through the filing of a Part VII application under the CRTC
Telecommunications Rules of Procedure.
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20. |
Some of the parties to this proceeding submitted that a
productivity offset is required as a component of the price
regulation regime. The productivity offset is normally set based on
an operator's expected productivity increases over the relevant
period of time.
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21. |
The OTA advocated that the productivity gains in the initial
period should flow directly to the shareholders. It submitted that
there is little opportunity to capture productivity gains. Action
Réseau Consommateur, the Consumers' Association of Canada, and the
Fédération des associations coopératives d'économie familiale du
Québec (ARC et al.) submitted that the new regime must include some
expectation of efficiency improvements and rejected the position
taken by OTA.
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22. |
The Société d'administration des tarifs d'accès des
télécommunicateurs (SATAT) stated that its proposed schedule to
gradually increase the deemed implicit contribution from other local
services (such as optional services) is the only productivity
measure required. The Canadian Alliance of Publicly-Owned
Telecommunications Systems (CAPTS) advocated that the benefits of
productivity should flow equally to the shareholders and
subscribers.
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23. |
The Commission notes that cost structures of the small ILECs vary
significantly, resulting in major differences in such areas as
depreciation, interest charges and operating expenses. Given the
majority of the small ILECs will receive less subsidy under the
Phase II proxy developed herein, the Commission will implement a
transition period of four years to help deal with the impact of lost
contribution revenue and give the companies time to find alternate
source of revenue and/or cost reductions. It would be unreasonable
for these companies to suffer a further loss in revenue through the
application of a productivity offset. The Commission considers that
the pricing flexibility discussed below, along with any productivity
gains achieved by these companies, will help offset the loss of
contribution revenues during the transition period. Accordingly, no
productivity offset will apply during the transition period.
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24. |
The Commission acknowledges that a minority of the small ILECs
will receive more subsidy under the Phase II proxy. However, a
productivity offset will not be applied to these companies in order
to achieve the benefits of a common approach and to reflect
uncertainty about whether or not significant productivity will be
achieved by the small ILECs during the transition period. Once the
transition period has expired, it may be appropriate to apply an
explicit productivity factor in any revised price regulation regime.
This issue will be revisited during the regulatory framework review. |
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25. |
In order to determine appropriate price changes under price
regulation, services are generally grouped into baskets based on
criteria such as homogeneity and/or similarity in demand price
elasticities. Prices for services within each basket may increase or
decrease provided that they conform to the pricing constraint for
that basket.
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26. |
The Commission has determined that the small ILECs should be
subject to a simplified form of price regulation. As such, the
Commission does not intend to develop a complex basket structure.
However, the Commission considers that certain services should be
subject to upper pricing constraints to protect consumers. The
Commission considers that this objective can be achieved by grouping
services into four separate baskets, each with their own pricing
constraints.
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27. |
The first basket comprises residential primary exchange service
(PES), both single line and party line, including all mandatory
local services such as touch-tone. Rates for each of these services
will be permitted to increase each year by no more than inflation in
the absence of any exogenous factors.
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28. |
The second basket comprises business PES for single line,
multi-line and party line, including mandatory local services. Rates
for each of these services will be permitted to increase each year
by no more than inflation in the absence of exogenous factors. |
29. |
The Commission notes that unused portions of a possible rate
increase for any given year may be accumulated and requested in a
following year. To allow for this option, the small ILECs are
directed to identify as part of an annual filing whether or not
allowable rate increases under the price regime were implemented.
The annual filing should also include the GDP-PI for the previous
calendar year and the existing and proposed rates (i.e., where price
changes are requested) for any residential and business PES basket
services. |
30. |
The small ILECs are directed to submit, by 1 April each year
commencing in 2002, their annual filing. The Commission notes that
it expects that rate increases on any individual rate element in
these two baskets of services will generally be proposed once in a
12 month period.
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31. |
In paragraph 61 of this decision, the Commission approves monthly
residential local rate increases to reach $22.75. The Commission
considers that monthly business rates should, at a minimum, be no
less than the monthly residential rates in the same serving
territory.
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32. |
Accordingly, the Commission directs all companies, whose monthly
business rates are below $22.75, to file for approval, as soon as
possible, proposed increases in business rates to reach a minimum of
$22.75. In the event that any company considers a monthly business
rate of $22.75 or that its existing rate is too low, it may file,
for approval, proposed monthly business rates beyond the level of
$22.75. All such proposals should be accompanied by supporting
rationale and will be considered on a case by case basis. The
Commission notes that any rate increases allowed under this option
would be in addition to increases permitted under the price
regulation regime as discussed in paragraph 28.
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33. |
The third basket will comprise 9-1-1, message relay service and
toll restriction. For the same policy reasons enunciated in Decision
97-9, the Commission considers it appropriate to freeze, at the
existing tariffed rates, the rates for these services provided
directly by the small ILECs. For those small ILECs where the service
is provided on their behalf by a large ILEC (i.e., the rate is
simply a pass-through), the Commission will give expedited treatment
to tariff filings submitted by a small ILEC to reflect any rate
changes for these services approved by the Commission.
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34. |
The fourth basket comprises all other services offered by the
small ILECs, such as optional services, multi-element service
categories, special facilities tariffs and competitor access
tariffs. Rates for these services will generally be permitted to
increase up to any already approved rate for the same service.
Tariff applications may be submitted at any time and should
reference when and where the Commission approved the rate. For rate
increases that go beyond this, an economic study must accompany the
application.
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35. |
All of the small ILECs, with the exception of Northern and
O.N.Telcom, submitted that it would be inappropriate to implement an
earnings-sharing mechanism as a component of the price regulation
regime. Those opposed to an earnings-sharing mechanism submitted
that (a) it would be contrary to a simplified form of regulation,
(b) it would be complex to monitor, and (c) it would not facilitate
the stated goals of the proceeding.
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36. |
O.N.Telcom submitted that, as it was advocating earnings-based
regulation, an earnings-sharing overlay should be reviewed at a
later date. Northern did not oppose an earnings-sharing mechanism as
it fits with the regulatory regime that it proposed for the
transition period.
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37. |
The small ILECs are moving to a regime where they assume more
risk while attaining more pricing flexibility. An earnings-sharing
mechanism would address the concern that the actual outcome might
differ materially from the expected results under this regime. The
Commission must balance the interests of all stakeholders and assess
the benefits and drawbacks of implementing an earnings-sharing
mechanism.
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38. |
The Commission also considers that the new regime will provide
the small ILECs with more incentive to increase efficiencies and
reap the rewards through increased earnings, and views these
incentives as an element of the regulatory bargain entered into when
moving to price regulation. The Commission notes that
earnings-sharing reduces the incentive for cost reductions, which is
contrary to the incentive to be more efficient, and fails to provide
for streamlining of regulation. The Commission, therefore, does not
consider it appropriate to overlay an earnings-sharing mechanism
over the price regulation regime.
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39. |
CAPTS submitted that a price regulation period longer than four
years would be too long, while Northern indicated that four years
was appropriate. Both SATAT and OTA submitted that five years was
appropriate with a review after four years. OTA also wanted no
modifications to the framework during the four-year transition
period unless industry conditions changed significantly.
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40. |
As the Commission views the length of the price regulation period
as the only self-correcting mechanism to be implemented, it is
important to select a period of time that is not too long, to allow
adjustments as required to the price regulation regime, and not too
short, to ensure that there is sufficient time for the small ILECs
to achieve the efficiencies that should result from this regime.
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41. |
The Commission notes that there will be a four-year transition
period for those companies receiving a reduced subsidy. The
Commission is of the view that the length of the price regulation
period should not be shorter than the transition period.
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42. |
The Commission is also of the view that the initial period should
not be too long in order to ensure that any correction of the price
regulation regime, if needed, can be done in a timely manner. As
this is the initial price regulation regime for the small ILECs, it
is even more important to minimize the impact of any errors that
could occur in establishing the price regulation regime.
Consequently, a shorter period rather than a longer one is
appropriate.
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43. |
In light of the above, the Commission has determined that a price
regulation period of four years is warranted and that a review of
the price regulation regime should be initiated in year four of the
regime.
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Contribution mechanism
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44. |
Since 1 January 2001, all telecommunications service providers
(TSPs), with the exception of the small ILECs, have been required to
contribute a percentage of their contribution eligible revenues to a
National Contribution Fund in accordance with Decision 2000-745. The
small ILECs were exempted from the new revenue-based regime for 2001
to allow the Commission time to address the necessary modifications
required to include them under the revenue-based regime in 2002.
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45. |
All TSPs are required to remit contribution based upon a
percentage of contribution-eligible revenues to an independent third
party, the Central Fund Administrator (CFA), on a monthly basis if
their contribution-eligible revenues for the previous year exceed
$10 million.
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46. |
Contribution-eligible revenues for the purposes of the
contribution regime are defined as Canadian telecommunications
service revenues (CTSR) less revenues from the following exempted
services and products: retail Internet services; retail paging;
terminal equipment and less deductions for the following:
contribution revenues received; and inter-carrier payments made to
other TSPs to earn contribution-eligible revenues.
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47. |
Based on current estimates, the following small ILECs are
expected to be required contributors in 2002, as their CTSR in 2001
are expected to exceed the $10 million threshold:
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- Amtelecom Inc.; |
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- Northern; |
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- O.N.Telcom; |
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- Sogetel inc.; and |
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- Thunder Bay Telephone. |
48. |
In accordance with Decision 2000-745, each year the Commission
will identify required contributors, based on financial information
(for the previous fiscal year), which is to be filed on or before 31
March.
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49. |
Consistent with Decision 2000-745, the Commission considers that
the small ILECs who are required contributors will be able to
recover the revenue-percentage charge on capped services through an
exogenous adjustment.
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50. |
In Decision 2000-745, the Commission indicated that, as of 1
January 2002, all small ILECs must use a Phase II costing approach
to calculate their total subsidy requirements (TSR). The Commission,
however, recognized that developing their own Phase II costs might
be burdensome.
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51. |
In order to mitigate the regulatory burden of Phase II costing
studies, the Commission proposed in PN 2001-61 to use a TSR proxy
rate for tax-paying and tax-exempt companies, determined on the
following basis:
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a) a national weighted-average monthly residential PES cost
based on the high-cost serving areas (HCSAs) of the large ILECs
for the cost component;
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b) a national weighted-average monthly residential local rate
of $22.75 based on the local rates in HCSAs of the large ILECs;
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c) a mark-up of 15% on the cost component; and
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d) a $5 per month deemed revenue from other local services.
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52. |
In order to determine which network access service (NAS) are
eligible for subsidy, the Commission also proposed to exclude the
loop length criterion to determine the small ILECs' TSR in wire
centres or exchanges with greater than 1,500 and less than 8,000
total NAS.
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53. |
The majority of the small ILECs accepted the use of a proxy for
the calculation of their TSR as proposed in PN 2001-61. However,
several of the small ILECs indicated that the PES cost component
proposed by the Commission should be increased to recognize the size
of their operations; their lack of economies of scale and purchasing
power; their financing structure; and the particulars of their
network configuration in comparison to the large ILECs.
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54. |
Bell Canada and TELUS Communications Inc. (TCI), on the other
hand, supported using the large ILECs' national weighted-average
monthly residential PES costs without any adjustment.
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55. |
In addition to the above, the Commission also recognizes that
there is a lack of cost advantages and/or savings available to the
small ILECs in comparison to the large ILECs. Consequently, the
Commission has made an upward adjustment to the proposed PES cost
component of 7.5% to recognize cost differences.
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56. |
The Commission considers that, this new regulatory framework
which includes this adjustment to the PES cost component, in
conjunction with (a) the pricing flexibility available to these
companies, discussed at paragraphs 25 to 34, (b) the adjustment to
the banding structure discussed below, and (c) the retention of
productivity gains during the new regulatory regime period, will
provide all of the small ILECs with the necessary incentives to
reduce costs while giving them a reasonable opportunity to earn a
fair rate of return on their investment.
|
57. |
The Commission notes that all parties agreed that the only way to
capture the small ILECs' actual residential PES costs for subsidy
calculation purposes, is if company-specific Phase II cost studies
were developed. Therefore, the Commission will allow the small ILECs
to file company-specific Phase II cost studies at any time. The
Commission notes, however, that once company-specific Phase II
costs are submitted to the Commission, the approved costs will be
incorporated on a going-forward basis in the company's TSR
calculation, regardless of whether it is lower or higher than the
proxy cost.
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58. |
Most small ILECs supported using the proposed $22.75 residential
PES revenue component, for TSR calculation purposes, for the
duration of the transition period, as proposed in PN 2001-61, as
long as they could increase their residential rates to that level on
1 January 2002. Northern proposed to use its actual residential
local rates in conjunction with its own Phase II costs. CAPTS
submitted that the $22.75 residential PES revenue component should
be discounted for the public utilities commissions to account for
their tax-exempt status. Bell Canada favoured adjusting the
residential PES revenue component annually to reflect the prevailing
national weighted-average monthly residential PES rates for the
large ILECs' HCSAs and to bring the small ILECs' residential rates
closer to the prevailing rates in the rest of Canada. ARC et al.
submitted that residential local rates should not be allowed to
increase to $22.75 unless the increases were required to offset
subsidy reductions.
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59. |
The Commission notes that a degree of rate rebalancing was
allowed for the large ILECs before the Commission established price
cap regulation. Many small ILECs' local rates still lag behind those
of the large ILECs. The Commission considers that the required
contributors of the National Contribution Fund would unduly
subsidize some small ILECs if the current actual rates were used to
determine the subsidy requirements. Also, consistent with the
Commission's decision to use the large ILECs' national
weighted-average monthly residential PES costs, as adjusted, to
determine the small ILECs' PES cost component, the Commission finds
that the residential PES revenue component should be determined on a
similar basis. Accordingly, the Commission approves a fixed revenue
rate of $22.75 per residential NAS per month (including touch-tone)
for TSR calculation purposes for the duration of the transition
period.
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60. |
Given that residential local rates for the small ILECs are
currently as low as $10.20 per month, the Commission is concerned
with possible residential rate shock if rates were allowed to be
increased to $22.75 per month immediately. The Commission considers
that limiting the monthly residential local rate increases to $4
would mitigate rate shock.
|
61. |
In light of the above, the Commission allows the small ILECs to
make monthly residential local rate increases to reach $22.75 per
NAS, effective 1 January 2002, for those small ILECs whose
residential local rates are currently between $18.75 and $22.74. For
those companies whose residential local rates are below $18.75, the
companies can only increase the monthly residential local rates by a
maximum of $4. This increase would be over and above the increases
allowable under the price regulation regime.
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62. |
In order for rates to become effective 1 January 2002, companies
must issue their tariff pages on or before 31 December 2001. Rate
increases for tariff pages issued after 1 January 2002 will take
effect on or after the date of issue. In all cases, subscribers are
to be advised of local rate increases by notification on their bill
or by billing insert, as soon as possible.
|
63. |
The Commission notes that even with a maximum $4 rate increase in
2002, some companies may still have local residential rates below
$22.75 per month. These companies may raise local residential rates
on 1 January of subsequent years by a maximum of $4 per month until
$22.75 is reached. Companies must issue tariff pages on or before 1
December of the preceding year. Subscribers are to be advised of
local rate increases by notification on their bill or by billing
insert.
|
64. |
In Decision CRTC 2001-583, O.N.Telcom – Implementation of
toll competition and related matters, dated
13 September 2001, the Commission directed O.N.Telcom to
raise its monthly residential local rates to $19.85, effective
1 January 2002.
|
65. |
Given the size of the local rate increases that O.N.Telcom's
residential subscribers will already experience, the Commission
considers that O.N.Telcom should not be allowed to further raise its
monthly rates to $22.75 until 1 January 2003.
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|
66. |
Some small ILECs agreed with the 15% mark-up of the PES cost
component proposed in PN 2001-61, while others proposed a larger
mark-up to account for their higher fixed and common costs. Bell
Canada and TCI submitted that if the Commission approved a greater
mark-up for the small ILECs than the large ILECs, it would
implicitly admit that the approved mark-up in the large ILECs'
territories was insufficient.
|
67. |
The Commission notes that there was no quantitative evidence
submitted on the record of this proceeding to support a finding that
a 15% mark-up is insufficient to recognize a small ILEC's fixed and
common costs.
|
68. |
The Commission considers that a 15% mark-up on the PES cost
component, for TSR calculation purposes, is appropriate. The
Commission also considers that a 15% mark-up will ensure an
appropriate level of recovery of the small ILECs' fixed and common
costs and at the same time encourage the efficient provision of
basic local residential service in HCSAs.
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|
69. |
In PN 2001-61, the Commission proposed that it would use $5 per
month per NAS in revenues from other services in the calculation of
the TSR.
|
70. |
Bell Canada and TCI submitted that, in Decision 2000-745, the
Commission required the large ILECs to generate $5 per month from
other local services in HCSAs as an incentive to increase margins
from those services. In Bell Canada's and TCI's view, this
conclusion should also apply to the small ILECs.
|
71. |
The small ILECs submitted that they could not generate $5 per
month per NAS in revenues from other local services in light of the
nature of their customer base (seasonal and rural customers) and the
additional projected local rate increases proposed in this
proceeding. In support of their position, the small ILECs indicated
that their average revenues from other services are lower than those
of the large ILECs. They also submitted that increasing rates for
those other services would negatively impact the penetration rate of
such services.
|
72. |
While there are variations in the average optional service
revenues among the small ILECs, the Commission notes that some of
these revenue differences are due to differences in marketing and
pricing strategies among the small ILECs.
|
73. |
In light of the above, the Commission deems an amount of $5 per
month per NAS, from other local services, be used for the
calculation of the TSR.
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74. |
In Decision CRTC 2001-238, Restructured bands, revised loop
rates and related issues, dated 27 April 2001, the
Commission determined that the band structure for the large ILECs
would consist of the following three HCSA bands, based on wire
centre and/or exchange classification:
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a) wire centres or exchanges with less than or equal to 1,500
total NAS;
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b) wire centres or exchanges with greater than 1,500 and less
than 8,000 total NAS, and where the average loop length is greater
than four kilometres; and
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c) remote wire centres or exchanges (e.g., without year-round
road access or found in remote parts of a company's serving
territory).
|
75. |
In PN 2001-61, the Commission proposed that the small ILECs
adopt the HCSA banding criteria established for the large ILECs in
Decision 2001-238, modified to exclude the loop length criterion as
set out in paragraph 74 b) above.
|
|
|
76. |
CAPTS, Prince Rupert City Telephones (CityTel) and OTA submitted
that all small ILECs' NAS should be eligible for a subsidy,
regardless of the size of the wire centre.
|
77. |
In particular, CAPTS submitted that actual small ILEC costs, not
network architecture, should determine the extent to which NAS
qualify as high-cost. Further, CAPTS submitted that Telecom Decision
CRTC 99-16, Telephone service to high-cost serving areas,
dated 19 October 1999, identified that a high-cost area is
a clearly defined geographical area where the ILEC's monthly costs
to provide basic service are greater than the associated revenues
generated by an affordable rate.
|
78. |
The Commission notes that Decision 99-16 also found that
high-cost areas occur primarily in remote, rural regions and in the
far north. The advantages identified in Decision 2001-238 for the
use of a wire centre and/or exchange classification band structure
included (a) it does not require an identification of technology or
costs, and (b) it has a uniform definition and criteria for all ILECs.
|
79. |
Therefore, the Commission considers that it remains appropriate
to use wire centres to define high-cost areas. The determinations in
this decision have generally addressed the issue of the small ILECs'
higher costs.
|
|
|
80. |
By letter dated 24 May 2001, Commission staff clarified
the definition of a wire centre for the small ILECs, based on the
Commission's determinations as set out in Decision 2001-238.
|
81. |
The Commission finds that areas served by an outside plant module
(e.g., a DMS-1U) are not considered to be wire centres, unless the
device is used to replace a switch and/or supporting evidence
demonstrates that the area should be considered a wire centre. The
Commission notes that a remote line concentrator module is similar
to a DMS-1U.
|
82. |
Based on the criteria set out above, the Commission approves 144
of 150 wire centres proposed by the small ILECs. The six exceptions
are as follows:
|
|
a) The Lake Temagami NAS in O.N.Telcom's territory should be
included as part of its Temagami wire centre;
|
|
b) The Lithium and MacKenzie NAS in Thunder Bay Telephone's
territory should be included as part of its Court wire centre; and
|
|
c) The Kakabeka, Neebing and Slate River NAS in Thunder Bay
Telephone's territory should be included as part of its Vickers
wire centre.
|
|
|
83. |
In PN 2001-61, the Commission proposed to eliminate the loop
length criterion for the small ILECs' 1,501 to 7,999 NAS band
because a larger portion of their operational and maintenance costs
are directly related to switching equipment, than is the case for
the large ILECs.
|
84. |
Bell Canada maintained that the exclusion of the loop length
criterion would result in proportionate higher subsidy requirements
for the small ILECs as opposed to the large ILECs because (a) wire
centres and NAS would receive a subsidy that they would not
otherwise be eligible for with the loop length criterion, and (b)
the proxy costs would be overstated because they were developed
using loop lengths in excess of four kilometres.
|
85. |
The Commission continues to be of the view that the small ILECs
high-cost band structure should be determined with no loop length
criterion because a larger portion of the small ILECs' ongoing
operational and maintenance costs are directly related to their
switching equipment than is the case for the large ILECs.
|
|
|
86. |
In PN 2001-61, the Commission proposed to adopt the same band
structure for the small ILECs as it had approved for the large
ILECs.
|
87. |
Several parties proposed minor changes to the band structure
approved for the large ILECs in Decision 2001-238. For example, Le
Téléphone St-Éphrem Inc., La Compagnie de Téléphone de
St-Victor and La Compagnie de Téléphone de Lambton Inc. proposed
expanding the first band to include up to 2,000 NAS, while
CityTel proposed a subsidy for more than 8,000 NAS.
|
88. |
While parties proposed minor changes to the band structure, no
party proposed to adjust the corresponding PES cost component to
account for larger band sizes.
|
89. |
The Commission is not persuaded that it would be appropriate to
change the basic band structure identified in Decision 2001-238,
except for the elimination of the loop length criterion as outlined
above.
|
90. |
Therefore, the Commission approves the following band structure
for the small ILECs:
|
|
a) Band E - wire centres or exchanges with less than or equal
to 1,500 total NAS;
|
|
b) Band F - wire centres or exchanges with greater than 1,500
and less than 8,000 total NAS, with no loop length criterion; and
|
|
c) Band G - remote wire centres or exchanges (e.g., without
year-round road access or found in remote parts of a company's
serving territory).
|
91. |
Both OTA and SATAT were concerned with the steep drop in subsidy
as a wire centre grows beyond 1,500 NAS. OTA also noted that there
is no corresponding drop in costs, as a wire centre grows, but
rather there is gradual reduction in the cost per NAS.
|
92. |
To address this issue, OTA proposed a straight-line declining
subsidy approach where each additional NAS would result in a
slightly lower per NAS proxy rate, while SATAT proposed a step
declining subsidy approach where each step would contain 500 NAS.
|
93. |
Northern stated that both the OTA and SATAT proposals would be
acceptable because they resulted in a more gradual reduction in
subsidy as a wire centre grows.
|
94. |
While ARC et al. agreed with the need for a "sliding
scale", they submitted that any modifications must be tempered
by the fact that the small ILECs can, if necessary, develop their
own Phase II cost estimates. Therefore, while the proxy rates should
be reasonable, they do not have to account for all of the
differences between the small ILECs and the large ILECs.
|
95. |
Bell Canada submitted that both the OTA and SATAT proposals would
provide the OTA and SATAT members with higher total subsidies than
under the Commission's proposed proxy, and the total subsidies would
be above their current entitlement pursuant to Telecom Decision CRTC
99-5, Review of contribution regime of independent telephone
companies in Ontario and Quebec, dated 21 April 1999.
Further, should the Commission determine that some form of
"sliding scale" should be implemented for the small ILECs,
then the total subsidy for the small ILECs, as a group, should be no
greater than the total subsidy calculated on the basis of the
approved HCSA band definitions and cost levels.
|
96. |
Due to the increased CFA administrative work that would be
required, the Commission does not consider that the OTA or SATAT
proposals provide a workable alternative to correct the steep drop
in subsidy. Further, the Commission considers that economies of
scale would occur in larger steps rather than one or 500 NAS at a
time.
|
97. |
The Commission considers that a step methodology has merit and
could be used to develop a workable model. The Commission is of the
view that limiting the number of sub-bands to a maximum of four,
would address the steep drop in subsidy issue, while at the same
time acknowledge that a company gains economies of scale as a wire
centre grows in size. This approach would also be easier for the CFA
to implement than either the OTA or SATAT proposal.
|
98. |
To develop the four sub-bands, the Commission considered the
sizes of the wire centres, how the sizes are grouped in relation to
one another and the possible gains a company could make through
economies of scale as a wire centre grows in size.
|
99. |
Therefore, the Commission approves four sub-bands in the
1,501-7,999 NAS band. Taking into consideration all the components
of the subsidy proxy and the adjustment to the proposed PES cost
approved by the Commission, the following per NAS proxy rates are to
be used to determine the small ILECs' subsidy requirements:
|
|
Proxy subsidy rates per NAS
|
|
Wire centre classification
|
Tax-paying company
|
Tax-exempt company
|
|
0 to 1,500 NAS (Band E)
|
$16.57 |
$8.98 |
|
1,501 to 2,500 NAS (Band F-1)
|
$15.93 |
$8.46 |
|
2,501 to 4,000 NAS (Band F-2)
|
$14.35 |
$7.17 |
|
4,001 to 6,000 NAS (Band F-3)
|
$12.12 |
$5.37 |
|
6,001 to 7,999 NAS (Band F-4)
|
$ 8.31 |
$2.27 |
|
Remote NAS (Band G)
|
$37.87 |
$27.30 |
100. |
Each small ILEC's proxy subsidy amount is identified in the
"2005" column in the Appendix to this decision.
|
101. |
The Commission notes that the total amount of subsidy
(contribution) paid to the small ILECs will decrease from an
estimated $37.9 million in 2002, under the previous
Phase III methodology and Decision 99-5, to approximately $25.8
million in 2005, under the Phase II proxy approach as a result of
the determinations in this decision.
|
|
|
102. |
In Decision 2000-745, the Commission identified that, in the
event that a Phase II costing methodology leads to a considerable
reduction in the small ILECs' subsidy requirements, a transition
period may be required to adjust to the new mechanism.
|
103. |
In PN 2001-61, the Commission requested comments on whether a
transition period would be required and, if such was the case, the
duration of the transition period and how it should be implemented.
|
|
|
104. |
All parties agreed on the need for a transition period.
|
105. |
Based on the Commission's determinations in this decision, the
small ILECs' total annual subsidy (contribution) will decrease by
approximately $12.1 million.
|
106. |
The small ILECs submitted that if the subsidy proxy includes a
deemed residential local rate of $22.75 per month, then they should
be allowed to increase their residential local rates to that level.
|
107. |
As indicated above, the Commission is concerned with possible
residential rate shock, for some companies, if rates were allowed to
be increased to $22.75 per month immediately.
|
108. |
The Commission considers that a transition period is required to
allow the small ILECs time to increase residential local rates
without causing undue rate shock for some customers and to introduce
other measures to adjust to possibly lower subsidy levels.
|
|
|
109. |
Proposals for the duration of the transition period ranged from
three to five years.
|
110. |
The Commission considers that a four-year transition period for
those companies whose subsidy is being reduced would be appropriate,
as it would allow the small ILECs sufficient time to adjust to lower
subsidy levels, by generating new revenue and/or finding expense
reductions, and allow for residential local rate increases without
causing undue rate shock.
|
|
|
111. |
Under the four-year transition period, the Commission considers
that annual subsidy reductions, where required, should occur at a
rate of 25% of the total subsidy reduction per year.
|
112. |
The Commission also considers that the estimated revenues
generated from an increase of residential local rates to $22.75 per
month should be offset with corresponding subsidy reductions, until
the proxy subsidy amount is reached.
|
113. |
In order to ensure that the decreasing subsidy amounts are
reduced in a timely manner, the Commission assumes that the small
ILECs will have increased residential local rates by the maximum
amount allowed, regardless of whether or not the small ILECs
actually raise their residential local rates. Each small ILEC will
have to determine the extent to which it will raise residential
local rates towards $22.75 per month.
|
114. |
Therefore, for those small ILECs requiring a transition period,
the annual transition subsidy amounts have been calculated by
deducting, from the previous year's subsidy amount, the greater of
(a) 25% of the total subsidy reduction, or (b) the estimated revenue
that would be generated from the allowed residential local rates
increases to bring rates to $22.75. The Commission notes that a
company's subsidy will not be reduced below the proxy subsidy amount
calculated in accordance with the proxy subsidy rates in paragraph
99.
|
115. |
For the year 2002, the previous year's subsidy amount is the
lower of (a) the approved 2001 contribution requirement, or (b) the
forecast 2002 contribution requirement calculated using the 25%
contribution cap in Decision 99-5.
|
116. |
As determined above, O.N.Telcom is not allowed to raise its
monthly residential local rates to $22.75 until
1 January 2003. Therefore, O.N.Telcom's 2002 transition
subsidy amount has been calculated by deducting 25% of its total
subsidy reduction from its forecast 2002 contribution requirement.
|
117. |
The Appendix to this decision identifies the annual transition
subsidy amounts for each small ILEC for the 2002 to 2005 transition
period.
|
|
Direct toll and network access
|
|
|
118. |
In PN 2001-61, the Commission noted that, as a result of the
change in methodology for calculating subsidy requirements, using
Phase III costs and originating and terminating toll minutes to
estimate the small ILECs' direct toll (DT) costs and rates may no
longer be appropriate. Participants were invited to submit proposals
to modify the existing method of identifying, quantifying and
recovering DT costs in the small ILECs' territories.
|
|
|
119. |
OTA and SATAT proposed the continued use of an embedded cost
methodology or Phase III-like methodology in the determination of
DT, while CAPTS and O.N.Telcom supported the use of Phase II costing
methodology (plus an appropriate mark-up). CityTel indicated that
the Phase III methodology remained appropriate pending development
of Phase II costing.
|
120. |
Northern stated there was no requirement to change the DT
methodology at this time and indicated that changing from Phase III
to Phase II would result in the company incurring a revenue
shortfall.
|
121. |
The Commission notes that O.N.Telcom, Northern and Cochrane
Public Utilities Commission have unbundled direct connect (DC)
charges and equal access (EA) rates in lieu of DT rates. These
unbundled rates were determined in Decision 2001-583, are to be
effective 1 January 2002 and are to be settled on the basis of
conversation minutes.
|
122. |
The Commission is of the view that no immediately workable
proposals or alternatives were brought forth in this proceeding by
the small ILECs with respect to the determination of DT.
|
123. |
In final argument Bell Canada proposed that the switching and
aggregation rates of the small ILECs should be set for 2002 based on
proxy Phase II costs and the current Commission-approved mark-up of
25%.
|
124. |
Bell Canada further proposed that any difference arising from the
implementation of Phase II-based switching and aggregation rates,
and the already approved 2001 DT rates, should be recovered through
the national subsidy plan. In Bell Canada's view, this subsidy could
be eliminated over a transition period, consistent with the approach
being taken for the TSR.
|
125. |
In reply argument, Bell Canada proposed the establishment of a
combined DC and EA start-up rate for all the small ILECs that, in
Bell Canada's view, would be no higher than $0.005 per minute. It
would include an average start-up rate component to be used by all
of the small ILECs.
|
126. |
The Commission is of the view that, although Bell Canada's
proposals may have merit, neither the other parties nor the
Commission have had the opportunity to challenge the methodology and
data provided by Bell Canada in support of its proposals. The
Commission considers that the determination of what constitutes an
appropriate DT cost recovery methodology and the requirement for a
transition mechanism cannot be determined based on the record of
this proceeding.
|
127. |
Therefore, the Commission is of the view that this issue would
best be addressed within the context of a follow-up proceeding.
|
128. |
The Commission notes that most parties indicated a willingness to
participate in a further process to review alternative costing
models, in conjunction with Commission staff.
|
129. |
Several parties to the proceeding either proposed or indicated
support for the freezing of DT requirements at the forecast or
actual 2001 levels.
|
130. |
The Commission is of the view that none of the proposals relating
to freezing of DT costs provided sufficient detail on the factors or
conditions necessary to support the freezing of DT costs as a
suitable long term alternative to Phase III or Phase II costing. As
noted below, the Commission will establish a consultative process to
examine this issue.
|
|
|
131. |
Parties did not agree on the appropriate method of recovering the
DT costs. Some parties proposed that costs could be recovered using
trunks rather than minutes, while others preferred the continued use
of minutes or even a combination of both.
|
132. |
The Commission notes that where parties supported using trunks
instead of minutes to calculate DT, they all provided qualifiers
that such a change would require further investigation and analysis.
The Commission concurs with comments such as the need to properly
define a trunk and its components, assess its usefulness in a
multi-carrier environment and determine allocations of trunk usage
for toll or local traffic.
|
133. |
The Commission is therefore of the view that a further review of
alternatives to minutes for the allocation of DT costs should be
undertaken as part of a follow-up proceeding.
|
134. |
In consideration of the lack of details surrounding the proposals
to replace the current DT costing and allocation mechanism, the
Commission has determined that a CRTC Interconnection Steering
Committee (CISC)-like consultative proceeding will be initiated in
the first quarter of 2002. The Commission anticipates that such a
proceeding will review all aspects of DT costing in the small ILECs'
territories, with a view to establishing a final methodology for
determining DT cost recovery and allocation of costs, in time for 1
January 2003 implementation.
|
135. |
In view of the follow-up proceeding noted above, the Commission
has determined that for the small ILECs, other than O.N.Telcom,
Northern, and Cochrane, which will have DC rates in effect for 2002,
the DT costs for 2002 are to be frozen at approved 2001 levels
pending the outcome of the above proceeding. The costs frozen at
2001 levels are subject to any one-time adjustments allowed for 2001
that must be removed in 2002. In addition, the Commission has also
determined that the 2001 approved DT rates be made interim for 2002.
|
136. |
Given the DT costs and rates are frozen at the 2001 levels, the
Commission considers that the 2001 approved proxy minutes should
continue to be used during 2002, for the billing and collection of
DT, pending the outcome of the above proceeding.
|
137. |
As a result of the above determination to freeze the DT costs and
rates of the small ILECs, except for O.N.Telcom, Northern, and
Cochrane, the Commission considers that any of these three companies
may be disadvantaged by their earlier conversion from DT Phase III
based costing to DC and EA Phase II based costs. The Commission has
therefore determined that the DC and EA rates indicated in paragraph
64, of Decision 2001-583, for Northern, O.N.Telcom and Cochrane, be
made interim effective 1 January 2002.
|
138. |
The Commission further notes that, although the DC and EA rates
have been made interim for Northern, O.N.Telcom and Cochrane, the
Commission clearly does not envisage significant changes to the
terms and conditions of toll competition that would in any way
hinder the rollout of inter-exchange toll competition in the
territory of O.N.Telcom.
|
|
|
139. |
OTA and SATAT proposed the continued use of an embedded cost
methodology in the determination of the network access tariff (NAT),
while CAPTS and O.N.Telcom supported using a Phase II costing
approach.
|
140. |
Bell Canada stated that, in the future, the NAT should move to
market-based levels. Bell Canada was of the view that the Commission
should direct the small ILECs to file their NATs based on Phase II
costs with an appropriate mark-up.
|
141. |
The Commission is of the view that most of the issues and
concerns raised in relation to DT are equally applicable to network
access costs.
|
142. |
In light of the above, the Commission has determined that the
follow-up consultative proceeding noted above for DT, will include
network access costs in order to determine a final methodology for
cost recovery and allocation in time for 1 January 2003
implementation.
|
143. |
Pending the outcome of the above proceeding, the Commission has
determined that each company's network access/¼ mile costs will be
frozen at approved 2001 levels, subject to any one-time adjustments
allowed for 2001, that need to be removed in 2002. As well, the
Commission has determined that the 2001 approved NAT/¼ mile rates
of the small ILECs be made interim for 2002.
|
144. |
The Commission is also of the view that in small ILECs' serving
areas, a true-up mechanism may be required for 2002, to account for
any over payments or under payments of network costs, based on the
outcome of the follow-up proceeding.
|
|
|
145. |
In Telecom Decision CRTC 96-6, Regulatory framework for the
independent telephone companies in Québec and Ontario (except
Ontario Northland Transportation Commission, Québec-Téléphone and
Télébec ltée), dated 7 August 1996, the Commission decided to
regulate quality of service issues through complaints, for small
ILECs with less than 25,000 NAS. Only Northern and Thunder Bay
Telephone, which have more than 25,000 NAS, must file quality of
service reports on a quarterly basis.
|
146. |
While OTA proposed expanding the 25,000 NAS limit to 30,000, the
Commission does not find it necessary or appropriate to do so at
this time. The Commission notes that only Amtelecom may exceed the
25,000 NAS limit in the foreseeable future. In the Commission's
view, Amtelecom's concerns can more effectively be addressed in the
review of the price regulation regime in year four or when the
company reaches the 25,000 NAS threshold, whichever comes first.
|
147. |
While the Commission, for the small ILECs with less than 25,000
NAS, will continue monitoring quality of service through complaints,
the Commission would like to ensure that the existing level of
service is not affected under the new price regulation regime. The
Commission finds it appropriate that the small ILECs with less than
25,000 NAS are to report to the Commission, on 31 March of each year
starting in 2002, the following information for the previous
calendar year:
|
|
a) the number of customers to whom service was not
provided within 10 days from the date of the customer's request;
|
|
b) the total of initial out-of-service trouble reports
not cleared within 24 hours;
|
|
c) the number of customers who reported a trouble with
their service;
|
|
d) the number of customers who reported that their
listing in the white pages was either omitted or erroneous; and
|
|
e) the number and nature of written and verbal
complaints addressed to officers and/or department heads of the
telephone company and/or to the Commission.
|
|
|
148. |
The Commission required the small ILECs with SIPs to file
tracking reports to ensure that the work was completed as projected.
The Commission also required that these companies maintain a special
reserve account to track their associated SIP expenses and revenues.
The Commission, in PN 2001-61, stated that it would examine in this
proceeding whether the small ILECs would need to maintain their
special reserve accounts after 2001.
|
149. |
The Commission is of the view that maintaining the special
reserve accounts will allow the Commission to monitor whether the
revenues generated by the small ILECs' rate increases (approved for
their SIPs), are in line with the realized expenses.
|
150. |
Accordingly, the Commission directs Amtelecom, North Frontenac
Telephone Corporation Ltd., Northern and
O.N.Telcom to continue to account for the revenues and expenses
associated with their SIP programs in a special reserve account to 2005.
|
|
|
151. |
The Commission asked parties to this proceeding to list their
current reporting requirements under rate of return regulation and
to outline the reporting requirements that should be kept, modified
or eliminated.
|
152. |
Both OTA and CAPTS commented that if the Commission establishes a
price regulation regime, neither Phase III nor depreciation filings
would be required. However, all other filings should be retained.
|
153. |
SATAT indicated that depreciation studies and Phase III studies
for contribution purposes should be avoided and all other current
reporting requirements should be maintained. However, actual
modified-Phase III or a new embedded cost model results may be
necessary for direct toll and network access cost calculations.
|
154. |
Northern suggested that the current filings be maintained, as it
proposed to continue being regulated under the rate of return/rate
base regime for the next four years.
|
155. |
O.N.Telcom stated that it would not be in a position to provide
its comments until it has reviewed Decision 2001-583 and that its
analysis of that decision would not be completed prior to the close
of the record of the current proceeding.
|
156. |
St-Victor, St-Éphrem and Lambton suggested eliminating all
reports except annual audited financial statements.
|
157. |
The Commission considers that neither Phase III forecasts nor
depreciation filings are required under price regulation.
|
158. |
Regarding the remaining filings, the Commission considers that,
since the change from rate of return regulation to price regulation
entails a transition period, these filings should be retained for
monitoring purposes for the duration of the first price regulation
period. Further, these filings are in addition to the annual filing
requirements listed in paragraphs 29 and 30.
|
|
|
159. |
Pursuant to Decision 2000-745, paragraph 141, the small ILECs
will be included under the revenue-based contribution mechanism
beginning 1 January 2002.
|
160. |
Under the revenue-based contribution mechanism, each TSP that has
been determined by the Commission to contribute to the National
Contribution Fund (required contributor) is required to become a
party to the National Contribution Fund Administration Agreement
(NCFA) through the execution and delivery to the CFA of a Required Contributor Accession Agreement. In addition, each TSP that has been
determined by the Commission to be eligible to receive subsidy
requirement from the National Contribution Fund (eligible recipient)
is required to become party to the NCFA through the execution and
delivery to the CFA of an Eligible Recipient Accession Agreement.
|
161. |
Each TSP that becomes a party to the NCFA is bound by all of the
provisions of the Agreement and agrees to perform each and every
covenant and obligation, including compliance with the Procedures
for operation of the revenue-based contribution regime. These
procedures set out the rules for the operation of the National
Contribution Fund.
|
162. |
The revenue-based regime also requires all TSPs, including the
small ILECs that are determined to be eligible recipients, to become
a member of the Canadian Portable Contribution Consortium (CPCC) by
entering into the Unanimous Shareholders Agreement. TSPs that are
required to pay into the fund, but are not eligible recipients, may
become a member of the CPCC, but are not required to do so.
|
163. |
All TSPs (including small ILECs) are required to report to the
Commission on an annual basis and to the CFA on a monthly basis. The
reporting obligations are set out in Decision 2000-745 and in the
Procedures for operation of the revenue-based contribution regime. The Commission has established, in Order CRTC
2001-876, Interim 2002 revenue-percent charge, national subsidy
requirement and procedures for the revenue-based contribution regime,
dated 14 December 2001, interim procedures to ensure a smooth
transition of the small ILECs to the new regime.
|
|
|
164. |
The various agreements and procedures currently in place for the
administration of the contribution fund were developed and agreed to
by the members of the industry, to ensure the efficient operation of
and compliance with the revenue-based regime.
|
165. |
SATAT suggested that, since these documents were developed by
large corporations for their own needs, a follow-up process, similar
to the supplemental CISC process that the large ILECs had after the
release of Decision 2000-745, would make sure that the
implementation issues are adequately modified to accommodate the
small ILECs.
|
166. |
Northern submitted that the small ILECs should sign amended
versions of these documents and suggested that the detailed approach
towards reporting, fund remittance and other measures should be
dealt with through a specific implementation committee where the
small ILECs would work with existing members of the CPCC and the CFA
to define the appropriate interim and permanent methodologies to be
used.
|
167. |
CAPTS suggested that these documents, as they are today, are for
private companies, not public utility commissions, and reserved the
right to make further comments.
|
168. |
The Commission expects that most small ILECs will be eligible
recipients under the new regime. The only reporting requirement
currently expected from eligible recipients, other than the annual
filing with the Commission required by all TSPs in accordance with
Decision 2000-745, is the monthly reporting of their respective
contribution eligible NAS, necessary for the monthly distribution of
the subsidy. However, the subsidy has been predetermined for each of
the four years and therefore no monthly reporting of NAS is
required.
|
169. |
For those small ILECs that will be identified as required
contributors, they will be required to report their
contribution-eligible revenues to the CFA on a monthly basis and to
make the annual filing with the Commission required by all TSPs in
accordance with Decision 2000-745.
|
170. |
Consequently, the Commission has concluded that the reporting
requirements and procedures established by the industry working
group and approved by the Commission do not impose any additional
regulatory burden on the small ILECs and therefore no modifications
will be necessary to the current agreements and procedures.
|
|
|
171. |
Under the approved Unanimous Shareholders Agreement, a
shareholder, which may hold only one share in the CPCC, is required
to pay a one-time subscription price of $10 for the share. A
shareholder is also required to contribute to the CPCC a one-time
contribution of $2,500 called a non-recoverable shareholder
contribution.
|
172. |
SATAT suggested that associations should be able to subscribe as
shareholders in the name of their respective members, thus paying
only one non-recoverable shareholder contribution on behalf of all
its members.
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173. |
OTA suggested that the non-recoverable shareholder contribution
amount should be adjusted to better reflect the size of the OTA
member companies as shareholders.
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174. |
The Commission notes that it regulates TSPs, not the
agencies/associations set up by the companies.
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175. |
Since most small ILECs will be eligible recipients under the new
revenue-based contribution regime, the efficient administration and
operation of the fund is of significant importance. The Commission
considers the one-time amount of $2,500 to be just and reasonable.
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176. |
Accordingly, the Commission determines that no change is
necessary to the current application of the non-recoverable
shareholder contribution.
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177. |
As previously stated, each TSP is required to file with the
Commission on or before 31 March of each year a calculation of
its CTSR and a calculation of its Contribution-Eligible Revenues
based on the financial data of the fiscal year ending in the
immediate prior calendar year. Each filing is to be accompanied by
the appropriate supporting documents including financial statements.
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178. |
SATAT and CityTel requested that the filing date for the annual
financial information be changed from 31 March to 31 May.
|
179. |
The Commission notes that this and other related issues are
currently under consideration
by the Commission in the proceeding initiated by PN 2001-37.
A determination on any changes to the filing dates will be issued at
a later date. Until such a determination is made, companies are
directed to file their annual financial information by 31 March.
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180. |
The OTA indicated that its members would require full subsidy
payments on a monthly basis for cash flow purposes, and that any
fund shortfall that may occur may be financially detrimental to the
small ILECs.
|
181. |
Under the revenue-based contribution regime, the TSR collected on
a monthly basis may not equal the amount to be distributed each
month. A true-up mechanism is built in as part of the revenue-based
contribution regime to ensure any under collection of the TSR in the
current calendar year (beginning 2002) is carried over and adjusted
for in the following calendar year.
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182. |
The Commission notes that although the true-up process ensures
every TSP will receive the total subsidy amount it is due, there
could be a delay in receiving full payment that could extend to the
following year.
|
183. |
The Commission acknowledges that the timely receipt of the total
monthly subsidy for the small ILECs is important to their financial
viability. Therefore, the Commission directs the CFA to remit the
total monthly subsidy allocation payable to the small ILECs prior to
the normal distribution of subsidy to the remaining LECs, but
subsequent to payments of the administration costs of the CFA and
CPCC and payments to Northwestel Inc. As a result, no true-up
mechanism for the small ILECs will be necessary.
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Secretary General
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This document is available in alternative format upon request and
may also be examined at the following Internet site: http://www.crtc.gc.ca |