Ottawa, 13 August 2001

Reference: Tariff notice 146

On 28 February 2001, Northern Telephone Limited proposed its final 2001 Carrier Access Tariff (CAT) rate of $0.0364 per minute, consisting of a contribution rate of $0.0266 per minute and a direct toll rate of $0.0098 per minute. The total 2001 CAT was based on a contribution requirement of $8,939,000, a direct toll component of $3,294,000 and contribution-eligible minutes of 336,120,000.

In Telecom Order CRTC 99-1068, dated 16 November 1999, the Commission approved new depreciation life characteristics for Northern.

In Order CRTC 2000-883, Northern Telephone Limited final 2000 Carrier Access Tariff approved, dated 27 September 2000, which approved Northern's final 2000 CAT, Northern was directed to advise the Commission when it implements or plans to implement the depreciation life characteristics approved in Order 99-1068, for CAT calculation purposes, at the time it files its proposed 2001 CAT.

By letter dated 30 November 2000, Northern advised the Commission that it planned to implement the depreciation life characteristics approved by Order 99-1068, effective 1 January 2000.

The Commission notes that Northern's proposed final 2001 contribution requirement incorporates the new depreciation life characteristics approved by Order 99-1068. The Commission also notes that, although the implementation of new depreciation life characteristics causes an increase in depreciation expense, overall total operating expenses for Northern have decreased in 2001.

The Commission is satisfied that the implementation of the depreciation life characteristics approved by Order 99-1068 has not caused Northern's 2001 contribution requirement to exceed the previous year's base.

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O.N.Telcom submitted that Northern's total local and access revenue associated with its 2001 CAT forecast had decreased by $901,000 as compared to its approved 2000 contribution requirement. O.N.Telcom requested that the Commission satisfy itself that this reduction in revenue was appropriate before setting Northern's final 2001 CAT.

In response to a Commission interrogatory, Northern cited a decrease of some $634,000 in revenue related to reductions in access services, basic local services, service charges and optional local services. As well, Northern indicated that additional revenue reductions resulted from reduced cellular access number rates, a transfer of 870 network access services to Cochrane Public Utilities Commission, and a decline in non-urban set rentals. The Commission is of the view that Northern's overall revenue projection is reasonable.

In Telecom Order CRTC 98-317, dated 3 April 1998, the Commission noted that Northern's interexchange carrier (O.N.Telcom) would ultimately benefit from business transformation (BT) savings in future years. Northern had argued that the final payouts under its BT program would only be made in late 1998 and early 1999. Consequently, a significant portion of cost savings would not be realized until three to five years after this timeframe.

In response to a Commission interrogatory, Northern indicated that BT program incremental cost savings of $45,000 would be realized in 2001.

The Commission is satisfied that savings resulting from Northern's BT program have been realized to date. The Commission notes that further savings resulting from completion of the amortization of termination and early retirement payments have begun, starting with 2001.

In Telecom Order CRTC 98-780, dated 11 August 1998, the Commission directed Northern to file annual Switching Equipment Modernization (SEM) program progress reports concurrent with the company's annual CAT filings until the SEM program has been fully implemented.

Northern reported 2000 SEM investment expenditures of $503,000. Northern's SEM report indicated this investment was for outside plant, buildings and network to complete the installation of digital equipment in the Elk Lake and Matachewan exchanges.

Northern's SEM report further indicates that Northern has completed modernization of the eight exchanges of its SEM program and the Commission notes that digital service has now been made available to 5,137 customers according to the program. The Commission further notes that Northern's SEM program has been completed and that no further reporting is required.

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In Telecom Decision CRTC 99-5, Review of contribution regime of independent telephone companies in Ontario and Quebec, dated 21 April 1999, the Commission directed that, on a going-forward basis, the small independents file, as part of their annual CAT filings, detailed information on broadband applications including investment and planned use for any fibre investment.

Northern provided a summary of its fibre investment for the Utility and Competitive segments as of 31 December 2000, as well as the amount of planned investment for 2001.

The Commission finds Northern's 2000 broadband investment report to be in accordance with Decision 99-5.

By letter dated 11 June 2001, O.N.Telcom provided a revised forecast of contribution-eligible minutes in to the Commission. O.N.Telcom claimed confidentiality of the revised minute forecast pursuant to section 39(1) of the Telecommunications Act, stating that the minute forecast is competitively sensitive information concerning O.N.Telcom's business at a level of disaggregation that is confidential and is treated consistently in a confidential manner by O.N.Telcom.

The Commission notes that the minutes related to CAT applications are routinely placed on the public record. In this proceeding, the original forecast of minutes, now subject to revision by O.N.Telcom, was placed on the public record. The Commission further notes that CAT rates cannot be calculated without the minutes and once approved rates and requirements are made public, the minutes can be determined by simply dividing one into the other. O.N.Telcom's claim of confidentiality is therefore denied.

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In its original submission, Northern provided an estimate of 336,120,000 contribution-eligible minutes for 2001. The Commission notes that Northern's forecast of contribution-eligible minutes originates with O.N.Telcom, its toll service provider.

O.N.Telcom submitted a revised forecast of contribution-eligible minutes. The revised forecast of 315,499,000 minutes represents a year-over-year increase of 10.2%. The Commission finds the revised forecast of contribution-eligible minutes of 315,499,000 to be reasonable and that it be used to set Northern's final 2001 CAT.

According to Decision 99-5, CAT rates should be set based on forecast minutes and then actual minutes used for the billing and collection of CAT revenues.

Northern indicated in its application that actual contribution-eligible minutes could not be made available from O.N.Telcom for the foreseeable future. O.N.Telcom proposed that its minute forecast, as provided to Northern, be used as proxy minutes for the settlement of Northern's CAT payments, consistent with the manner in which the two companies have been settling CAT payments since 1995. The Commission notes that Northern raised no objections to the continued use of proxy minutes for CAT settlement purposes.

When Decision 99-5 was issued, the Commission expected that the independents and their toll provider would be able to reliably forecast toll minutes.

The Commission considers that circumstances have changed significantly since Decision 99-5 was issued. In particular, toll minutes have become increasingly more difficult to forecast, resulting in increased risk for both Northern and O.N.Telcom.

In light of the above, the Commission therefore approves the use of the revised contribution-eligible minute forecast, as proxy minutes, for the billing and collection of CAT revenues for the year 2001.

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In Decision 99-5, the Commission determined that the 2001 contribution requirement would be capped at the final 2000 contribution requirement after adjustments due to any local rate increases.

The Commission has reviewed Northern's proposed 2001 contribution requirement and finds that it meets the requirements of Decision 99-5. The Commission therefore approves Northern's proposed contribution requirement with a revised contribution rate per minute to reflect the use of the revised minute forecast.

In light of the above, the Commission approves Northern's proposed 2001 contribution requirement of $8,939,000 with a revised contribution rate of $0.0283 per minute.

2001 direct toll component and rate

In Order 2000-883, the Commission directed Northern to adjust its 2001 direct toll costs to reflect a reduction of $342,000 due to a one-time termination cost related to billing and collection system implementation costs that were included in its approved 2000 direct toll component.

The Commission has reviewed Northern's proposed direct toll costs and notes that after accounting for removal of the one-time termination cost, the company's direct toll costs have been reduced by $18,000 from the approved 2000 amount. The Commission therefore approves Northern's proposed direct toll costs with a revised direct toll rate per minute to reflect the use of the revised minute forecast.

In light of the above, the Commission approves Northern's proposed 2001 direct toll component of $3,294,000, with a revised direct toll rate of $0.0105 per minute.

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In light of the above, the Commission approves a CAT rate of $0.0388 per minute effective 1 January 2001.

The Commission directs Northern to:

a) issue amended CAT tariff pages within 15 days and proceed with billing adjustments, as expeditiously as possible; and

b) provide actual 2001 rates of return by 31 October 2002, when it files its actual Phase III results, and in the event the company has over-earned, provide the amount to be refunded to the toll provider.

Secretary General

This document is available in alternative format upon request and may also be examined at the following Internet site: http://www.crtc.gc.ca