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Telecom Public Notice CRTC 2005-4
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Ottawa, 13 May 2005 |
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Proceeding to consider extending the price regulation regime for
Télébec and TELUS
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Reference: 8678-C12-200505737
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In this Public Notice, the Commission
invites comments on extending the current price regulation regime for
Télébec and TELUS. |
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Background
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1. |
In Review of regulatory framework,
Telecom Decision CRTC 94-19,
16 September 1994 (Decision 94-19),
the Commission developed a regulatory framework for the telecommunications
industry intended to allow all Canadians, over time, ubiquitous and
affordable access to an increasing range of competitively provided
telecommunications services. At the time of its release, the Decision
94-19 framework
applied to certain large incumbent local exchange carriers (ILECs). |
2. |
In 1994, following the release of the Supreme
Court of Canada's decision in Attorney-General of Quebec et al.
v. Téléphone Guèvremont Inc, Québec-Téléphone (now TELUS Communications
Inc. (TCQ)) and Télébec ltée (now Société en commandite Télébec (Télébec))
began to be regulated by the Commission under the Telecommunications
Act. An initial question faced by the Commission was whether
Télébec and TCQ (collectively, "the Companies") should be
subject to the regulatory regime outlined in Decision 94-19. |
3. |
In Regulatory Framework for Québec-Téléphone
and Télébec ltée, Telecom Decision CRTC 96-5,
7 August 1996, the Commission decided that the regulatory framework
set out in Decision 94-19
would apply to the Companies. Under that framework, the Companies
would eventually be subject to, among other things, price regulation. |
4. |
In Implementation of price regulation
for Télébec and TELUS Québec, Telecom Decision CRTC 2002-43,
31 July 2002 (Decision 2002-43),
the Commission established the principles, components and framework
for the price regulation for the Companies. |
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Objectives of the Current Regime
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5. |
In Regulatory framework for the second
price cap period, Telecom Decision CRTC 2002-34,
30 May 2002 (Decision 2002-34),
the Commission set out, among other things, the second price regulation
regime for the other large ILECs. In light of the Commission's view
in Decision 2002-43
that the Companies should be subject to the same general regulatory
regime as the other large ILECs, the Commission considered it appropriate
to set the same objectives for the Companies' price regulation regime
as for the regime applicable to the other large ILECs. Those objectives
were as follows: |
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1) to render reliable and affordable services of high quality,
accessible to both urban and rural area customers;
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2) to balance the interests of the three main stakeholders in
telecommunications markets, i.e., customers, competitors and incumbent
telephone companies;
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3) to foster facilities-based competition in Canadian
telecommunications markets;
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4) to provide incumbents with incentives to increase efficiencies
and to be more innovative; and
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5) to adopt regulatory approaches that impose the minimum
regulatory burden compatible with the achievement of the previous four
objectives.
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6. |
To further these objectives, the Commission
also decided to adopt a regulatory framework for the Companies which
closely resembled the regime established in Decision 2002-34
for the other large ILECs. The price regulation regime for the Companies
is sufficiently flexible to accommodate their unique operating circumstances.
In addition, the basket structure and pricing constraints ensure that
the benefits of productivity gains are equitably distributed across
the services offered by the Companies. They also indirectly help foster
local competition by ensuring that the Companies cannot reduce prices
in a competitive market and recoup the lost revenues by raising prices
in a market where competition is weak or absent. |
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Basket structure, local competition and the application of a
productivity offset
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7. |
The price regulation regime includes eight
baskets or groups of services: residential local services in high cost
serving areas (HCSAs); residential local services in non-high cost
serving areas (non-HCSAs); business services; other capped services;
Competitor Services; services with frozen rates; public payphones; and
uncapped services. Each of these baskets or service groups is subject to
pricing constraints tailored to meet the circumstances of the relevant
services. |
8. |
The individual basket constraints rely on
an inflation factor, a productivity factor and an exogenous factor, as
appropriate. The Commission has selected the chain weighted GDP-PI
published by Statistics Canada as the inflation measure and it has set
the productivity offset at 3.5%. In addition to basket constraints, a
variety of rate element constraints were imposed on specific services in
light of competitive circumstances and related considerations. These
rate element constraints provide customers with additional price
protection. Based on the general environment under which the Companies
operate, as well as the prospects for the development of local
competition in their serving territories, the Commission made several
conclusions regarding the general grouping of services into baskets and
the need for a productivity offset. |
9. |
In the residential market, the Commission
did not anticipate that competition would be sufficient to discipline
the Companies' residential local exchange and residential optional local
service rates. Accordingly, the Commission considered it appropriate,
with the exception of service provided in HCSAs, to subject these
services to a productivity offset. The Commission therefore applied a
basket constraint equal to inflation less a productivity factor to the
non-HCSA basket of residential local services. The Commission did not
consider it appropriate to impose a basket constraint on the HCSA basket
of local residential services as such a constraint would have forced
down local exchange rates in HCSAs which were already set below cost. |
10. |
However, given the potential for adverse
effects on local competition as a result of mandated rate reductions,
the Commission implemented a deferral account mechanism to mitigate
these potential effects. The deferral account mechanism applies only to
revenues from residential local services in non-HCSAs. |
11. |
With a deferral account mechanism, an
amount equal to the revenue reduction required by the basket constraint
is assigned to the deferral account and retained in that account,
instead of reducing the revenues of the basket by means of rate
reductions. The Commission considered that the creation of a deferral
account for residential local services would assist in achieving the
objective of balancing the interests of the three main stakeholders in
telecommunications markets: customers, competitors and ILECs. |
12. |
In addition, for the services in the HCSAs
and non-HCSA residential sub-baskets, the Commission also decided to
apply basket constraints and a number of service-specific rate element
constraints in order to provide adequate price protection to subscribers
where local competition was expected to develop slowly. |
13. |
In the business market, the Commission was
of the view that, in order to ensure a proper balance among
stakeholders, and given that competition was likely to develop first in
the business market, it was not necessary to subject business services
to a productivity offset. |
14. |
With respect to the market for other capped
services, the Commission considered that market forces could not be
relied upon to sufficiently discipline the prices of these services and
anticipated that the Companies would continue to achieve productivity
and efficiency gains in respect of these services. Accordingly, the
Commission found it appropriate to subject these services to a
productivity offset. |
15. |
With respect to the market for Competitor
Services, the Commission established two categories of Competitor
Services in Decision 2002-34
for the other large ILECs. Category I Competitor Services were those
services deemed to be in the nature of an essential service. Competitor
Services not classified as Category I were assigned to Category II
Competitor Services. The Companies offer a number of services comparable
to the services classified as Competitor Services in Decision 2002-34. |
16. |
Since there were few, if any, competitive
alternatives for Companies' services that were comparable to services
classified as Category I Competitor Services under Decision 2002-34
and having regard to the expectation that Companies would experience
productivity and efficiency gains in respect of these services, the
Commission concluded in Decision 2002-43
that rates for those of the Companies' services that would be classified
as Category I Competitor Services should reflect productivity gains
on an ongoing basis. |
17. |
In Decision 2002-34,
the Commission determined that it would not be appropriate to apply
a productivity offset to the rates for Category II Competitor Services.
The rates for these services were either mandated or market-based
and were based on considerations in addition to or other than Phase
II costs. Accordingly, in Decision 2002-43,
the Commission also considered that the rates for services that would
be classified as Category II Competitor Services for Télébec and TCQ
should not be subject to a productivity offset. |
18. |
With respect to the remaining services and
their treatment under this regime, services such as 9-1-1 service and
Message Relay Service were subject to frozen rate treatment. Public and
semi-public pay telephones were placed in a separate category and their
rates were frozen. All tariffed services not in one of the previous
baskets or service groups were classified as uncapped services and are
not subject to any upward pricing constraints. |
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Other components of the regime
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19. |
With respect to quality of service, the
Commission was not persuaded in Decision 2002-43
that competitive pressures in either the retail or competitor services
markets would be sufficient to ensure that the Companies could meet
approved service quality standards. The Commission noted that, even
where limited local competition has taken hold in the operating territories
of the other large ILECs, service quality has been below standard.
In the Commission's view, under the price regulation regime for the
Companies, the drive to improve earnings at the expense of quality
of service would not be adequately offset by competitive pressures.
In the Commission's view, it was appropriate to adopt the same approach
with respect to quality of service for the Companies as was adopted
for the other large ILECs in Decision 2002-34. |
20. |
Accordingly, in Decision 2002-43,
the Commission introduced, on an interim basis, quality of service
mechanisms which provided for rate adjustments to customers and competitors
if the Companies failed to meet the Commission mandated quality of
service indicators. These mechanisms were the same as the plans established
in Decision 2002-34
for the other large ILECs. These mechanisms were finalized in Retail
quality of service rate adjustment plan and related issues, Telecom
Decision CRTC 2005-17,
24 March 2005 and Finalization of quality of service rate rebate
plan for competitors, Telecom Decision CRTC 2005-20,
31 March 2005. |
21. |
In Decision 2002-43
and subsequent decisions, the Commission approved the Service Improvement
Plans for the Companies. These plans would extend service to unserved
customers and upgrade service to underserved customers, and ensure
that the Commission's basic service objective (BSO) would continue
to be achieved in their territory. The BSO comprises 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 (included in call management services); access to operator
and directory assistance services; access to the long distance network;
and a copy of a current local telephone directory. |
22. |
In keeping with the ongoing effort to
streamline and improve the efficiency of regulation, the reporting
requirements of the Companies were revised to eliminate the filing of
Phase III/Split Rate Base reports, as well as intercorporate transaction
reports. The Commission considered that the concept of a Utility Segment
no longer had relevance. This was due, in part, to the introduction of a
Phase II-based determination of the subsidy requirement starting in 2002
and the structure of the current regime. The Commission's annual
monitoring process would be used to gauge the
financial state of the Companies in order to ensure that the objectives
of the price cap regime are being met. |
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Extending the current price regulation regime
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23. |
The Commission determined that the price
regulation regime for the Companies would be in place for a period of
four years, commencing 1 August 2002. The Commission noted that a review
of the price regulation regime for the Companies should be completed
prior to the end of the four-year period. |
24. |
As explained above, the current price
regulation framework was based, in large part, on the general
environment under which Télébec and TCQ operate, the prospects for the
development of local competition in their serving territories and their
ability to achieve productivity and efficiency gains in respect of
certain services. The Commission considers that the factors and
circumstances present at the time of the establishment of the current
price regulation regime have not changed significantly and still exist
at this time. |
25. |
While competitive entry into the residential
local services market through various initiatives, such as voice communications
services using Internet Protocol (IP), may well increase the level
of competition for residential local services in the future, the timing
and magnitude of this impact are not clear at this time. In Regulatory
framework for voice communication services using Internet Protocol,
Telecom Decision CRTC 2005-28,
12 May 2005, the Commission set out the regulatory framework for voice
communication services using IP. The Commission will need to assess
the impacts of that Decision on the state of competition in the residential
local services market and, consequently, any changes that may be required
to the price regulation regime. |
26. |
In addition, in Forbearance from regulation
of local exchange services, Telecom Public Notice CRTC 2005-2,
28 April 2005, the Commission initiated a proceeding to consider the
framework for forbearance from the regulation of residential and business
local exchange services. The determinations in that Decision may impact
the existing price regulation regime. |
27. |
As outlined above, the current price regulation
regime is comprised of many interrelated initiatives which collectively
are designed to achieve the objectives set out in Decision 2002-43.
The Commission considers that the current regime is achieving the
objectives set out in Decision 2002-43
and, as such, current circumstances within the industry do not warrant
a review at this time. |
28. |
In light of the above, the Commission is of
the opinion that an extension of the regime without any changes would be
appropriate at this time. The Commission considers that a two-year
extension is appropriate given the current circumstances. Accordingly,
the Commission invites comments on its proposal to extend the existing
price regulation regime for the Companies for a period of two years. |
29. |
In Proceeding to consider extending the
price regulation regime, Telecom Public Notice CRTC 2005-3,
issued today, the Commission initiated a separate proceeding to seek
comments on extending the current price regulation regime for the
other large ILECs. |
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Procedure
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30. |
Télébec and TCQ are made parties to this
proceeding. |
31. |
Other interested parties wishing to participate
in this proceeding are required to notify the Commission of their
intention to do so by 16 June 2005 (the registration date)
and to provide their contact information. They should do so by contacting
the Secretary General by mail at CRTC, Ottawa, Ontario, K1A 0N2,
by fax at (819) 994-0218 or by email at procedure@crtc.gc.ca.
They are to indicate in the notice their e-mail address where available.
If such parties do not have access to the Internet, they are to indicate
in their notice whether they wish to receive disk versions of hard
copy filings. |
32. |
The Commission will issue, as soon as
possible after the registration date, a complete list of interested
parties and their mailing addresses (including their e-mail addresses,
if available), identifying those parties who wish to receive disk
versions. |
33. |
All parties may file comments
with the Commission on any matter within the scope of this proceeding
by 27 June 2005, serving a copy on all parties by that date.
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34. |
All parties may file replies to any
comments made pursuant to paragraph 33 by 11 July 2005, serving a
copy on all parties by that date. |
35. |
The Commission will not formally
acknowledge comments. It will, however, fully consider all comments and
they will form part of the public record of the proceeding. |
36. |
Where a document is to be filed or served
by a specific date, the document must be actually received, not merely
sent, by that date. |
37. |
Parties can file their submissions
electronically or on paper. Submissions longer than five pages should
include a summary. |
38. |
Each paragraph of your submission should be
numbered. |
39. |
Where the submission is filed by electronic
means, the line ***End of document*** should be entered following the
last paragraph, as an indication that the document has not been damaged
during electronic transmission. |
40. |
Please note that only those submissions
electronically filed will be available on the Commission's web site and
only in the official language and format in which they are submitted. |
41. |
The Commission encourages interested
parties to monitor the public examination file (and/or the Commission's
web site) for additional information that they may find useful
when preparing their submissions. |
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Important
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42. |
All information submitted, including your
email address, name and any other personal information as provided, will
be posted on the Commission's web site. Documents received in electronic
format will be posted on the Commission's web site exactly as you send
them, and in the official language and format in which they are
received. Documents not received electronically will be available in
.pdf format. |
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Location of CRTC offices
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43. |
Submissions may be examined or will be made
available promptly upon request at the Commission offices during normal
business hours: |
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Central Building
Les Terrasses de la Chaudière
1 Promenade du Portage, Room 206
Gatineau, Quebec J8X 4B1
Tel: (819) 997-2429 - TDD: 994-0423
Fax: (819) 994-0218 |
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205 Viger Avenue West, Suite 504
Montréal, Quebec H2Z 1G2
Tel: (514) 283-6607 |
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Secretary General |
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This document is available in alternative
format upon request, and may also be examined in PDF
format or in HTML at the following Internet site: http://www.crtc.gc.ca
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