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Telecom Decision CRTC 2006-14
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Ottawa, 29 March 2006 |
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Revised regulatory framework for the small incumbent local exchange
carriers
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Reference: 8663-C12-200509846 |
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In this Decision, the Commission
extends, with minor modifications, the simplified price regulation
regime established for the small incumbent local exchange carriers
(SILECs) in Regulatory framework for the small incumbent telephone
companies, Decision CRTC 2001-756,
14 December 2001, for a period of four years. The Commission also
approves the continued use of the rates for direct connect, equal
access and toll trunks established in Direct toll and network
access costing methodology for small incumbent local exchange carriers
- Follow-up to Decision 2001-756,
Telecom Decision CRTC 2005-3,
31 January 2005, but directs that these rates be applied to actual
minutes and toll trunks. In addition, the Commission permits local
competition in the territories of all SILECs, effective immediately. |
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Background
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1. |
There are currently 38 small
incumbent local exchange carriers (SILECs) in Canada, which are listed
in Attachment 1 to this Decision. Most are dispersed throughout Ontario
and Quebec, with one located in British Columbia. These SILECs serve
less than 2 percent of the Canadian population in generally rural areas,
and almost all have less than 25,000 subscribers. |
2. |
In Regulatory framework
for the small incumbent telephone companies, Decision CRTC 2001-756,
14 December 2001 (Decision 2001-756),
the Commission established a simplified price regulation framework
applicable to the SILECs. This framework came into effect in 2002
for a period of four years. |
3. |
Local exchange services were
grouped into four baskets of services. Each basket had pricing
constraints tailored to meet the circumstances of the relevant services.
Prices were permitted to change provided the SILEC demonstrated that the
constraints had been met. |
4. |
The SILECs' subsidy requirements
were based on the new contribution mechanism1
established in Changes to the contribution regime, Decision
CRTC 2000-745,
30 November 2000 (Decision 2000-745).
A four-year transition period was established to reduce the financial
impact on those SILECs that would receive less subsidy under the new
contribution mechanism than they had previously received. |
5. |
For the purpose of determining
a SILEC's interconnection revenues, the Commission was unable to determine
an appropriate methodology based on the record of the proceeding leading
to Decision 2001-756.
Consequently, the Commission froze the direct toll (DT) and network
access costs and rates at the 2001 levels and made the corresponding
rates interim in Decision 2001-756. |
6. |
In Direct toll and network
access costing methodology for small incumbent local exchange carriers
- Follow-up to Decision 2001-756,
Telecom Decision CRTC 2005-3,
31 January 2005 (Decision 2005-3),
the Commission replaced the majority of the SILECs' DT rates with
a direct connection (DC) rate, an equal access (EA) charge, and trunking
tariffs for the facilities used to interconnect an interexchange carrier's
(IXC) point of interconnection with a SILEC's switch. For Ontera,
NorthernTel, Limited Partnership (NorthernTel) and Cochrane Telecom
Services (Cochrane), the Commission finalized their DC and EA rates
that had been made interim in Decision 2001-756. |
7. |
Decision 2001-756
stipulated that a review of the price regulation regime would be initiated
in the fourth year of the price regulation period. |
8. |
On 29 July 2005, the Commission
received a submission from the Canadian Independent Telephone Company
Joint Task Force (CITC Joint Task Force) which included a proposal for
establishing the SILECs' next regulatory regime. The CITC Joint Task
Force represented the 39 SILECs in Canada. The CITC Joint Task Force was
comprised of the Association des Compagnies de Téléphone du Québec inc.,
the Ontario Telecommunications Association, the Canadian Alliance of
Publicly-Owned Telecommunications Systems (CAPTS), the Société
d'administration des tarifs d'accès des télécommunicateurs, and
NorthernTel. |
9. |
In Review of regulatory
framework for the small incumbent local exchange carriers, Telecom
Public Notice CRTC 2005-10,
19 August 2005 (Public Notice 2005-10),
the Commission invited comments on establishing a new regulatory framework
for the SILECs that would go into effect in 2006 and incorporated
the CITC Joint Task Force's 29 July 2005 submission into the proceeding. |
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Process
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10. |
On 17 October 2005, the SILECs
filed their responses to the interrogatories from the Commission,
Bell Canada and TELUS Communications Inc. (TELUS). |
11. |
On 7 November 2005,
Bell Canada, the Canadian Cable Telecommunications Association (the
CCTA), the Public Interest Advocacy Centre (PIAC) and Shaw
Communications Inc. (Shaw) filed comments. On 8 November 2005, TELUS
filed comments. |
12. |
On 21 November 2005, the
SILECs, Bell Canada and PIAC filed reply comments. On 2 December 2005,
Bell Canada filed further comments in reply to the SILEC's
21 November 2005 reply comments. |
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Overview
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13. |
The SILECs proposed extending
the frameworks established in Decision 2001-756
and Decision 2005-3,
with minor modifications, for the next four years. The SILECs also
proposed a staged approach to the introduction of local competition
in their territories. An additional proposal was made by CAPTS with
respect to the calculations to be used to determine the subsidy requirements
for the municipally-owned, tax-exempt companies. |
14. |
TELUS generally supported the
SILECs' proposal to extend the frameworks, but only for a two-year
period. Bell Canada proposed bringing the SILECs' next regulatory regime
more in line with that of the large incumbent local exchange carriers
(ILECs) and reducing the SILECs' interconnection rates and revenues. |
15. |
The CCTA's and Shaw's comments
primarily dealt with ensuring that the Commission established a level
playing field for local competition in the SILECs' territories. PIAC
requested that the Commission establish adequate price protection for
consumers of the SILECs. |
16. |
In establishing the new
regulatory framework for the SILECs, the Commission has been guided by
the following objectives: (1) balancing the interests of the three main
stakeholders in the telecommunications markets (i.e. customers,
competitors and incumbent telephone companies); (2) providing a
transition to local competition; (3) ensuring that the SILECs' customers
continue to have access to reliable, innovative and affordable services;
(4) providing the SILECs with incentives to increase efficiencies and be
more innovative; and (5) adopting a regulatory approach that imposes
minimum regulatory burden on the SILECs, compatible with the achievement
of the previous four objectives. |
17. |
The components of the SILECs'
regulatory framework are set out in this Decision as follows: |
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i) General framework; |
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ii) Calculation of subsidy;
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iii) Calculation of
interconnection revenues; |
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iv) Local competition; and |
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v) Other matters. |
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General framework
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18. |
In this section, the following
issues are discussed: (1) basic components of the pricing constraints;
(2) basket design and pricing constraints; (3) treatment of credits for
unused rate increases; (4) length of the regulatory regime; and (5)
filing requirements. |
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Basic components of the pricing constraints
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19. |
In Decision 2001-756,
the Commission established an inflation factor and an exogenous factor
as components for the price constraints for the First and Second Baskets.
The Commission did not establish a productivity offset for any of
the baskets. |
20. |
The Commission directed the
SILECs to use the national Gross Domestic Product - Price Index (GDP-PI)
as the measure of inflation. |
21. |
The Commission determined that
an exogenous factor adjustment would be considered for events that
satisfied the following criteria: |
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a) they were legislative,
judicial or administrative actions which are beyond the control of the
company; |
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b) they were addressed
specifically to the telecommunications industry; and |
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c) they had a material impact
on the company. |
22. |
The Commission also determined
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. |
23. |
In determining that no productivity
offset would be implemented, the Commission took into consideration
the SILECs' cost structures and the fact that they would be receiving
less subsidy under the framework established in Decision 2001-756.
The Commission stated, however, that the application of a productivity
factor would be revisited during the regulatory framework review. |
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Positions of parties
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24. |
Parties proposed no changes
regarding the inflation and exogenous factor components. Several parties
suggested that the productivity offset component should be included as a
component of the SILECs' next price regulation regime. Parties' views
varied, however, on what would be an appropriate productivity offset
level. |
25. |
The SILECs proposed that a
variable productivity offset factor be applied solely to the First and
Second Baskets of services (i.e. residential and business primary
exchange service (PES)) set equal to the rate of inflation in each year
of the regulatory regime. |
26. |
The SILECs argued that
productivity opportunities were limited, if not non-existent, for them.
The SILECs were of the view that productivity gains would continue to
assist them in providing the high level of quality service currently
provided to their customers. |
27. |
TELUS agreed with the SILECs'
proposal to set the annual productivity factor equal to the annual
inflation factor. TELUS noted that under the SILECs' proposal, in the
absence of any exogenous adjustments, the SILECs would not be able to
raise prices for any residential or business PES local service. |
28. |
Bell Canada and PIAC proposed
that a productivity offset should be set and applied to the SILECs in
the same manner as was the case for the large ILECs. Both parties argued
that the SILECs' new regime should include some expectation of
efficiency improvements. |
29. |
Bell Canada considered that
each SILEC should use the same productivity offset as currently applied
to the large ILECs (3.5 percent), unless a SILEC could demonstrate that
its operating circumstances were sufficiently different from those of
the large ILECs to warrant a company-specific productivity factor. |
30. |
PIAC was of the view that the
difference between the inflation factor and the productivity offset
should be reflected through direct rate reductions to the SILECs'
customers. |
31. |
In reply, the SILECs noted the
application of a productivity offset of 3.5 percent would
inappropriately assume that the SILECs shared the same capacity to
achieve productivity gains as did the large ILECs. The SILECs submitted
that there was no evidence on the record to support a level of
3.5 percent. |
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Commission's analysis and determinations
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32. |
The Commission notes that no
party to this proceeding objected to the inflation and exogenous factor
methodologies set out in Decision 2001-756.
Accordingly, the Commission will continue to use the methodologies
established in Decision 2001-756
to determine the inflation and exogenous factors as part of the SILECs'
next regulatory framework. |
33. |
With respect to the issue of a
productivity offset, the Commission considers that there is no evidence
on the record of this proceeding to support the appropriateness of an
explicit productivity offset of 3.5 percent for the SILECs. |
34. |
The Commission notes that the
SILECs have an excellent record for high quality of service (Q of S) to
its customers. The Commission also notes that the SILECs offer a variety
of telecommunications services that are comparable in price and service
offerings to those offered elsewhere in Canada. The Commission considers
that, due to their relative size and the type of territory they serve
(i.e. primarily high-cost serving areas (HCSAs)), the SILECs may not be
able to achieve a fixed productivity level without affecting their
ability to serve their customers and maintain their capacity to
modernize their network and operations. |
35. |
The Commission notes that the
majority of the SILECs will receive less subsidy during the next
regulatory regime based on the determinations in this Decision with
respect to the SILECs' subsidy calculation. The Commission has also
determined not to establish a transition period for the SILECs
associated with any impact resulting from a loss in subsidy. The
Commission considers it appropriate to allow the SILECs to use any
productivity gains to help offset the loss of subsidy. |
36. |
Based on the above, the
Commission considers that it would be inappropriate to mandate a fixed
productivity offset as part of the SILECs' next regulatory framework.
The Commission considers, however, that it may be appropriate to review
the implementation of a productivity factor at the end of the next
regulatory regime. |
37. |
Accordingly, the Commission
determines that no explicit productivity offset will be established for
the SILECs in their next regulatory regime. |
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Basket design and pricing constraints
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38. |
In Decision 2001-756,
the SILECs' local exchange services were grouped into four separate
baskets, each with their own pricing constraints. Prices for services
within each basket were permitted to increase or decrease provided
that they conformed to the pricing constraints for that basket. |
39. |
The First Basket comprised
residential PES, both single-line and party-line, including all
mandatory local exchange services such as touch-tone service. Rates for
each of these services were permitted to increase each year by no more
than inflation, in the absence of any exogenous factors. Where a SILEC's
monthly residential PES rate was below $22.75, the SILEC was permitted
to increase rates by no more than $4 per year to reach $22.75. This rate
increase was over and above the increases allowable for this basket of
services. |
40. |
The Second Basket comprised
business PES for single-line, multi-line and party-line, including
mandatory local exchange services. Rates for each of these services were
permitted to increase each year by no more than inflation, in the
absence of any exogenous factors. In addition, the Commission allowed
the SILECs to increase their monthly business PES rates to a minimum of
$22.75. |
41. |
The Third Basket comprised
9-1-1 service, message relay service (MRS) and toll restriction. The
Commission considered it appropriate to freeze these services at the
existing tariffed rates. This was based on the same policy reasons
enunciated in Price cap regulation and related issues, Telecom
Decision CRTC 97-9,
1 May 1997 (Decision 97-9).2
In Decision 2001-756,
the Commission stated that it would give expedited treatment
of a SILECs' tariff filing where the proposed rate was a pass-through
of an already approved ILEC rate. |
42. |
The Fourth Basket comprised all
other exchange services offered by the SILECs, such as optional
services, multi-element service categories, special facilities tariffs
(SFTs), support structure tariffs and competitor access tariffs, if
applicable. Rates for these services were generally allowed to increase
up to any already approved rate for the same service. For proposed rate
increases that were more than previously approved rates, an economic
study was required to accompany the application. |
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Positions of parties
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43. |
The SILECs proposed that the
basket structure and the pricing constraints continue to apply, modified
only by the introduction of a variable productivity offset on the PES
baskets (i.e. First and Second Baskets). |
44. |
TELUS agreed with the SILECs'
proposal. TELUS further submitted that a fifth basket of services and
associated pricing methodology for competitor services might be
appropriate if the Commission permitted local competition in the SILECs'
territories. |
45. |
Bell Canada proposed that a
fifth basket of competitor services be established under the same
pricing principles, terms and conditions as for the large ILECs.
Bell Canada indicated that this basket of services should include
unbundled local loops by band, digital subscriber line (DSL) service by
band and interconnection tariffs for local exchange carriers (LECs) and
that the rates should be set based on Phase II costs plus a 15 percent
mark-up. Bell Canada submitted that the rates for these services should
then be subject to an individual rate element constraint of inflation
minus productivity (I-X). Bell Canada, in addition, proposed that
certain competitor services should be capped at their existing rate
levels. |
46. |
PIAC noted that residential PES
rates charged by the SILECs were almost equivalent to rates paid by
large ILEC customers. PIAC raised concerns with the possibility of
continuing escalation of those rates and that customers might not be
able to access services of the SILECs due to affordability concerns.
PIAC suggested that both concerns must be addressed, at a minimum, by an
effective cap on SILEC residential rates that encouraged reasonable and
achievable productivity gains. |
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Commission's analysis and determinations
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Residential
and business PES categories (i.e. First and Second Baskets) |
47. |
Prior to Decision 2001-756,
many SILECs' local rates were well below those of the large ILECs.
The Commission notes that, under the current framework, the SILECs
have been permitted to make rate increases to residential and business
services during the last four years. These rates have also increased
to allow the SILECs to recover costs associated with Commission-approved
service improvement plans (SIPs) and to offset reductions in the SILECs'
contribution and DT revenues. As a result, most of the SILECs' residential
and business rates are comparable to those charged by large ILECs
for the same service. |
48. |
The Commission notes that, as
discussed later in this Decision, local competition will be permitted in
the residential and business PES markets in the SILECs' territories. The
Commission considers, however, that competitive entry could be limited
in certain territories and that market forces alone may not be
sufficient to discipline the SILECs' prices for residential and business
local exchange services. |
49. |
The Commission considers that
the SILECs' variable productivity factor proposal would be better
characterized as a proposal to cap residential and business rates at
current levels, in the absence of any exogenous factor and/or unused
rate increase credits, during the next regulatory regime. In light of
the rate increases, many of them significant in nature, that the SILECs'
customers have experienced over the last four years, the Commission
considers that this approach would provide the SILECs' customers with
some relief from continued rate increases to these services. |
50. |
Accordingly, the Commission
caps the SILECs' rates for services in the residential and business PES
baskets at existing levels, except for the use of unused rate increase
credits to be discussed below, during the next regulatory regime. |
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Services with
frozen rates (i.e. Third Basket) |
51. |
The Commission notes that where
a SILEC does not provide the service themselves, the SILEC pays the
large ILEC's approved frozen tariffed rate for the service when the ILEC
provides that service for them (i.e. 9-1-1 service, MRS and toll
restriction). The Commission also notes that it would have already
reviewed the costing information and balanced any policy objectives in
arriving at the ILEC's approved rate. |
52. |
Accordingly, the Commission retains
the expedited treatment of a SILEC's tariff filing for services in
this basket where the proposed rate is a pass-through of an already
approved rate for an ILEC, as established in Decision 2001-756. |
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Other
services (i.e. Fourth Basket) |
53. |
The Commission notes that over
the last four years the vast majority of SILECs who requested a rate
increase to a service in the Fourth Basket chose to adopt a tariff
rate already approved by the Commission, rather than file a Phase II
cost study. In addition, the Commission notes that several of the
SILECs that applied for rate increases chose not to increase their
rates as high as already approved ILEC rates. The Commission considers
rate increases to services in this basket have been reasonable and
that the SILECs' customers have been adequately protected under the
pricing rule established in Decision 2001-756. |
54. |
In light of the above, the Commission
concludes that rates for services in the Fourth Basket will be allowed
to increase up to any rate approved by the Commission for the same
service, as established in Decision 2001-756.
In addition, an economic (Phase II) study must accompany an application
to support proposed rate increases over and above an approved ILEC
rate. |
55. |
Regarding the proposal by
Bell Canada and TELUS to establish a fifth basket of services, the
Commission notes that the majority of the SILECs do not have tariffs for
competitor services. The Commission also notes that, as outlined later
in this Decision, the SILECs will be required to file tariffs for
competitor services only when a bona fide request has been
received. Accordingly, the Commission considers that it would be
premature to establish a fifth basket of services and any associated
basket constraint as part of the SILECs' next regulatory regime.
Accordingly, the Commission denies the request to establish a fifth
basket for competitor services. |
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Treatment of credits for unused rate increases
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56. |
Based on the framework established
in Decision 2001-756,
the unused rate increase credits for any given year were accumulated
and could be requested any time during the four year period within
the specified annual constraints. |
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Positions of parties
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57. |
The SILECs proposed that for
the duration of the new framework period, opportunities to increase
local PES rates should be limited to any unused rate increases reported
in each SILECs' annual filing and exogenous events, such as the reductions
in DT revenues in excess of 35 percent, as established in Decision
2005-3. The
SILECs further proposed that any SILEC whose PES rates continued to
be below the national average monthly rate of $22.75 would also be
permitted to increase PES rates to that rate. The SILECs submitted
that the maximum cumulative increase in any one year should continue
to be limited to $4, as prescribed in Decision 2001-756. |
58. |
Bell Canada and PIAC were of
the view that the cumulative rate increases should be time-limited, but
did not specify when they should expire. |
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Commission's analysis and determinations
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59. |
The Commission notes that it
has encouraged the SILECs to raise residential and business rates and
move them closer to their costs. However, several of the SILECs continue
to charge residential service rates below the rates for similar services
charged by the large ILECs in similar bands. The Commission considers
that if the total unused SILEC rate increase credits were used by the
SILECs, their rates would continue to be reasonable and would remain
comparable to neighbouring HCSA exchange rates elsewhere in Canada for
the same service. |
60. |
The Commission considers that
carrying forward unused rate increase credits into the next regime would
provide the SILECs with the flexibility to implement rate increases
contemplated in the previous regime, while at the same time furthering
the Commission's objective of moving rates closer to their costs. |
61. |
The Commission considers,
however, that rate increases should be limited to $4 in any 12 month
period to mitigate consumer rate shock, and that the unused rate
increase credits should be time-limited. The Commission considers that
it would be reasonable for these unused rate increase credits to expire
at the end of the next regulatory regime. |
62. |
Accordingly, the Commission
considers that any unused rate increase credits from the current regime
can be carried forward to the next regime. The maximum cumulative rate
increase in any 12 month period will continue to be limited to $4. Any
unused rate increase credits, except for any rate increases required to
achieve a residential local service monthly rate of $22.75, will expire
at the end of the next regulatory regime. |
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Length of the regulatory regime
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Positions of parties
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63. |
The SILECs proposed a four-year
period for the next price regulation framework in order to provide a
sufficient period of regulatory stability to counteract market forces
operating within their territories, including the deployment of new
technologies and the start of local competition. |
64. |
Bell Canada and TELUS submitted
that, based upon the SILECs' proposals, the length of the regulatory
period should not exceed two years. |
65. |
In reply, the SILECs submitted
that, to date, they had enjoyed the benefits of stability and certainty
of only one four-year period of price regulation, whereas the large
ILECs had already had two four-year periods of full price cap
regulation. |
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Commission's analysis and determinations
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66. |
The Commission considers that a
four-year regulation period would allow the benefits of price regulation
to continue to be realized, while providing for the possibility of a
timely adjustment to correct the regulatory framework for any errors in
its structure or to reflect the evolution of competition over the price
regulation period. Accordingly, the Commission establishes a four-year
price regulation period for the SILECs' next regime, with a review of
the regime to be initiated in its last year. |
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Filing requirements
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67. |
The Commission directs the
SILECs to file by 1 May 2006 a schedule which would show
any unused rate increase credits resulting from Decision 2001-756
and Decision 2005-3
being carried forward into the new price regulation regime. This schedule
should provide a breakdown of unused rate increase credits by year,
and by type of credit. |
68. |
The Commission directs the
SILECs to provide for each tariff filing a description of the service,
the proposed rate changes, and how they have met the associated basket
constraints, including an updated schedule of the unused rate increase
credits. The Commission expects that rate increases on any individual
rate element for a service will generally be permitted once in a
12-month period. |
69. |
If a SILEC wishes to apply for
an exogenous factor, the SILEC must identify how they have met the
established exogenous factor criteria in their tariff application. |
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Calculation of subsidy
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70. |
The components of the subsidy
per residential network access service (NAS) calculations for the large
ILECs are: |
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a) company-specific,
band-specific Phase II costs; |
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b) annual adjustments for
inflation and productivity (I-X adjustment); |
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c) a 15 percent mark-up for
fixed and common costs; |
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d) company-specific,
band-specific average residential local service rates; and |
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e) an implicit subsidy of $60
per NAS per year ($5 per NAS per month) associated with optional local
services. |
71. |
In Decision 2001-756,
the Commission determined that the SILECs would move to a subsidy
process that was essentially the same as that established for the
large ILECs with the following exceptions: |
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a) the SILECs would use the
national weighted-average band-specific Phase II costs, increased by
7.5 percent as proxy PES costs, rather than requiring the SILECs to
produce detailed Phase II cost studies; |
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b) the SILECs would use a fixed
residential local service monthly rate of $22.75; and |
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c) the SILECs would use a
banding structure modified to (i) provide four sub-bands for Band F and
(ii) exclude the Band F loop length criteria.3 |
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PES cost component
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Positions of parties
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72. |
CAPTS proposed that the
tax-exempt national weighted-average Phase II PES costs used to
determine their subsidy requirements be adjusted upward because, in
their view, the impact of income taxes had been overstated in
determining the tax-exempt proxy costs. |
73. |
TELUS submitted that it did not
support making any changes to the proxy subsidy rates of the tax-exempt
SILECs to reflect a change in the tax adjustment method. TELUS further
submitted that such a change could only be made with a full
investigation of the issue beyond what the current process allowed. |
74. |
Bell Canada submitted that the
SILECs' 2006 proxy costs should be reduced by 5 percent to reflect the
reduction in the Phase II costs experienced by the large ILECs over the
past four years using the I-X adjustment. |
75. |
In reply, the SILECs submitted
that the Commission established an I-X adjustment on the large ILECs'
PES cost component of their HCSA subsidy calculation as part of the
large ILECs' price cap regulatory framework. The SILECs noted that
the Commission did not impose such a constraint on the SILECs as part
of their price regulatory framework and considered that to do so would
be inconsistent with the Commission's determination in Decision 2001-756. |
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Commission's analysis and determinations
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76. |
With regard to CAPTS's
submission, the Commission notes that CAPTS relied on an
accounting-based income tax expense definition to develop its proposal.
CAPTS's methodology assumed that the tax costs included in a Phase II
cost study were the same as the accounting-based income tax expense. |
77. |
The Commission notes that the
definition and calculation of taxes payable used to determine the causal
incremental Phase II costs are very different from the accounting-based
income tax expense definition and calculation used to develop a
company's annual financial statement. The Commission also notes that the
SILECs' Phase II proxy costs are based on the Phase II costs of the
large ILECs in similar bands. |
78. |
The Commission considers that a
Phase II estimate of tax costs is required to appropriately adjust the
Phase II proxy residential PES cost estimates contained in the subsidy
formula. The Commission, therefore, considers that, contrary to CAPTS's
submission, the proposed accounting-based income tax cost adjustment
methodology will not provide an appropriate estimate that is consistent
with the Phase II tax cost calculation. |
79. |
Accordingly, the Commission denies
CAPTS's request for an upward adjustment to the tax-exempt proxy costs
set out in Decision 2001-756. |
80. |
With regard to Bell Canada's
submission to reduce the PES cost component, the Commission considers
that it would be inappropriate to adjust the SILECs' PES costs based
on the large ILECs' I-X adjustment because it would equate to applying
a retroactive productivity adjustment to the SILEC's costs. In addition,
the Commission notes that, as part of Decision 2001-756,
the SILECs were permitted to retain any productivity gains during
the four-year period to help offset the lost of contribution revenues
as a result of their new framework. |
81. |
Accordingly, the Commission
denies Bell Canada's request to reduce the proxy costs by 5 percent. |
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PES costs going forward
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Positions of parties
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82. |
Bell Canada submitted that the
cost component of the SILECs' subsidy calculation should be adjusted
annually for an I-X adjustment and that the productivity offset should
be set at 3.5 percent, similar to the large ILECs. |
83. |
In reply, the SILECs disagreed
with Bell Canada and noted that there was no evidence on the record to
support a productivity offset of 3.5 percent. |
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Commission's analysis and determinations
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84. |
The Commission notes that, for
the reasons outlined earlier in this Decision, it is not implementing an
explicit productivity offset at this time as part of the SILECs' next
regulatory framework. In these circumstances, the Commission considers
that it would not be appropriate to implement an explicit productivity
offset on the PES cost component of the SILECs' subsidy calculation. |
85. |
Accordingly, the Commission
denies Bell Canada's request to adjust the SILECs' subsidy calculations
annually for an I-X adjustment. |
|
Residential local service rate component
|
|
Positions of parties
|
86. |
The SILECs submitted that the
fixed monthly rate of $22.75 should continue to be used for subsidy
calculation purposes, as the Decision 2001-756
rate was consistent with the proxy PES costs, was a light-handed form
of regulation and resulted in subsidies that were consistent within
the SILEC industry. The SILECs also submitted that using company-specific
rates would reward those companies that had not raised their rates. |
87. |
TELUS submitted that the
residential PES revenue component should be adjusted to $24.88 to
reflect what the $22.75 rate would have been had all of the allowable
rate increases been utilized by the SILECs over the past four years. |
88. |
Bell Canada submitted that
the revenue component of the subsidy calculation should reflect the
actual PES rate for those SILECs whose PES rate exceeded $22.75, as
this would be consistent with what the large ILECs used in their subsidy
calculations. Bell Canada also submitted that the revenue component
of the subsidy calculation should continue to be $22.75 for those
SILECs whose PES rate was less than $22.75, for the same reasons set
out in Decision 2001-756. |
89. |
In reply, the SILECs submitted
that TELUS's proposal was not based on an examination of the actual
SILEC revenue data. The SILECs submitted that the revenue component of
the subsidy formula must be aligned with the determinations made for the
cost component of the formula and that TELUS's proposal only considered
one component of the subsidy equation. |
90. |
The SILECs submitted that
Bell Canada's proposal would result in a cumbersome subsidy structure
that would generate different levels of subsidy for the various SILECs
and reduce the certainty and financial predictability that exists in the
current framework. |
|
Commission's analysis and determinations
|
91. |
In Decision 2001-756,
the Commission determined that the SILECs' subsidy requirements would
be based upon a fixed monthly rate of $22.75, including touch-tone
service, for the four-year price regulation period because this would,
among other things, prevent required contributors to the National
Contribution Fund from unduly subsidizing the SILECs. |
92. |
The Commission notes that 25
SILECs currently have residential local rates above $22.75 and that
these SILECs have been permitted to keep the revenues associated with
their residential local rates having been above $22.75 during the last
regulatory framework period (i.e. their subsidy was not reduced as
residential local rates were increased). The Commission also notes that
those SILECs that currently have residential local rates below $22.75
will still be able to raise their rates to that level under the new
regulatory regime. |
93. |
As noted earlier in this Decision,
the SILECs' local residential exchange rates are comparable to those
charged by the large ILECs elsewhere in Canada. The Commission notes
that, in accordance with Decision 2000-745,
all of the other ILECs are using their average residential local rates,
by band, in their subsidy calculations and that only the SILECs are
using a fixed monthly rate amount. |
94. |
In light of the above, the Commission
considers that using the higher of actual residential local rates
or $22.75 would move the SILECs' subsidy calculation formula closer
to the one set out in Decision 2000-745
and used by the large ILECs. The Commission also considers that it
would not be appropriate for the SILECs to continue to receive subsidy
based upon a $22.75 monthly rate while at the same time charging their
customers more than $22.75 and requiring contributors to the National
Contribution Fund to pay the additional subsidy. |
95. |
With regard to the SILECs'
submission that using company-specific rates would be cumbersome and
would reduce financial predictability, the Commission notes that all of
the large ILECs have different subsidy levels for each of their
respective high-cost bands and that the Commission has attempted to
provide some financial certainty in this Decision by establishing fixed
subsidy amounts for the next four years. |
96. |
In light of the above, the
Commission concludes that the SILECs' subsidy calculations will be based
upon the higher of their actual residential local rates or $22.75. |
97. |
The Commission considers, however,
that adjustments are required to the SILECs' actual residential local
rates to be used for subsidy purposes to exclude SIP and DT-related
local rate increases, which were approved for specific purposes. The
Commission notes that this would be consistent with its determination
in Amtelecom Inc.'s request to review and vary Decision 2001-756
and Order 2002-230,
Telecom Decision CRTC 2004-9,
19 February 2004 (Decision 2004-9).
The Commission also considers that, after the SIP and DT-related local
rate increases are deducted, the rates used for subsidy calculation
purposes should not be lower than $22.75. |
98. |
As outlined later in this Decision,
the Commission has determined that actual DT minutes and trunks should
be used, as opposed to the 2001 frozen DT minutes and trunks, and
that this determination will result in some SILECs receiving more
DT revenues than was originally contemplated in Decision 2005-3. |
99. |
Accordingly, the Commission
considers that in the event that a SILEC has taken a DT-related local
rate increase and that it is no longer entitled to the increase as a
result of moving to actual DT minutes and trunks, the revenues from the
DT-related local rate increase should be used to reduce the SILEC's
subsidy entitlement. The Commission notes that this will apply to
Execulink Telecom Inc. (Execulink) and People's Tel Limited Partnership
(People's) and therefore concludes that revenues from Execulink's and
People's DT-related local rate increases will be used to reduce their
subsidy entitlements. |
|
Subsidy amounts
|
100. |
In Decision 2000-745,
the Commission introduced a subsidy per residential NAS process that
resulted in the LECs being required to file monthly residential NAS
information with the Central Fund Administrator (CFA). |
101. |
In Decision 2001-756,
the Commission established the annual subsidy requirements for the
SILECs for the years 2002 to 2005, thereby eliminating the need for
them to file monthly residential NAS information with the CFA. |
|
Positions of parties
|
102. |
The SILECs proposed that the
subsidy per residential NAS rates from Decision 2001-756
be carried forward into the new framework and that their annual subsidy
amounts should be determined based on the annual filing of 31 July
residential NAS information by 31 October of each year. The SILECs
submitted that the CFA would then pay the SILECs subsidy based upon
1/12 of the annual subsidy amounts approved by the Commission in the
final revenue-percent charge decision. The SILECs also submitted that
if their subsidies were to be reduced, then the reduction must be
transitioned over the duration of the new price regulation period. |
103. |
Bell Canada noted that the
SILECs' proposal would result in the SILECs receiving higher subsidy
than if they used either actual or average NAS. Bell Canada submitted
that the SILECs should be required to file monthly NAS information with
the CFA and the related NAS audit report with the CFA auditor. |
104. |
In reply, the SILECs submitted
that reporting monthly NAS information with the CFA would increase the
regulatory burden on both the CFA and the SILECs. The SILECs were of the
view that their proposal was consistent with a simplified approach to
regulation and one that yielded the maximum amount of regulatory
certainty and financial predictability. |
|
Commission's analysis and determinations
|
105. |
With regard to Bell Canada's
proposal for the SILECs to report their monthly NAS with the CFA, the
Commission considers that, at this time, the resources required by the
SILECs and the CFA to implement this proposal outweigh the benefits
associated with it. While the resources required to implement the
SILECs' proposal would be less than for Bell Canada's proposal, the
Commission is still concerned with the resources required to implement
either proposal. |
106. |
The Commission notes that the
SILECs submitted that they would be prepared to accept a freezing of
their NAS counts for the next four years should the Commission favour a
simpler approach. The Commission further notes that, under this option,
the SILECs' annual subsidy amounts for the next four years would be
approved at this time and that the CFA would simply be required to make
the monthly subsidy payments to the SILECs in accordance with this
Decision. |
107. |
The Commission notes that, based
upon a $22.75 monthly rate and the revised NAS information filed during
this proceeding, the SILECs would have received approximately the
same amount of subsidy in 2005 as was approved by the Commission in
Decision 2001-756.
Accordingly, the Commission considers that establishing the SILECs'
subsidy amounts now for the next four years would provide the SILECs
with some financial certainty, while at the same time minimizing their
regulatory burden. |
108. |
The Commission notes that basing
the subsidy amounts on the SILECs' 31 July 2005 NAS information
would be consistent with Decision 2001-756
by providing subsidy for seasonal NAS. |
109. |
The Commission notes that the
large ILECs are able to cost recover the revenue-percent charge. The
Commission considers it appropriate to allow SILECs who are currently
required contributors to the National Contribution Fund to cost recover
the revenue-percent charge and has made the necessary adjustments to
their subsidy calculations. In addition, the Commission considers that
any SILEC who becomes a required contributor in the future should
continue to be allowed to file for the cost recovery of the
revenue-percent charge through an exogenous adjustment, rather than
through adjustments to their subsidy entitlements. |
110. |
With respect to the SILECs'
request for a transitional period if subsidies were reduced, the
Commission notes that the SILECs' total annual subsidy will decrease by
approximately $3.4 million when compared to the 2005 total subsidy.
Given the size of this reduction and in light of the determinations made
in this Decision, the Commission does not consider that a transition
period is required in the next regulatory regime. |
111. |
Accordingly, the Commission
approves on a final basis the subsidy amounts listed in Attachment 2 to
this Decision for the four-year period from 2006 to 2009 and directs the
CFA to remit monthly subsidy equivalent to 1/12 of the annual subsidy
amounts, on a final basis effective 1 January 2006 and on an interim
basis effective 1 January 2010. |
|
CLEC access to subsidy
|
112. |
The SILECs submitted that,
since the likelihood of local competition in a SILEC territory was
uncertain, a discussion on the CLEC process would be premature at this
time and should be dealt with on a case-by-case basis with the CFA. The
SILECs proposed, as one possible alternative, that the SILECs and CLECs
could file NAS numbers at the same time, so that the CFA could make the
necessary subsidy determinations. |
113. |
The Commission considers that
some basic procedures should be established now, so that CLECs will be
able to consider these requirements in their business plans. |
114. |
The Commission notes that for a
CLEC to receive subsidy in the territories of the large ILECs, the CLEC
must report its monthly NAS to the CFA, by ILEC territory and band, and
provide an annual NAS audit report to the CFA Auditor. The Commission
concludes that this procedure should be used by CLECs operating in the
territories of the SILECs. The Commission notes that all of the criteria
necessary for a CLEC4 to receive subsidy in a large ILEC territory also
applies in the SILECs' territories. |
115. |
When a CLEC starts to operate
in a specific SILEC territory, the Commission will establish the final
subsidy per residential NAS amounts in its next revenue-percent charge
decision. As an interim measure, the CFA should make subsidy payments
based upon the subsidy per residential NAS amounts that would be paid if
the residential local service rates were $22.75, which are as follows: |
|
Wire centre classification |
Tax-paying company |
Tax-exempt company |
|
Band E |
(0 to 1,500 NAS) |
$16.57 |
$8.98 |
|
Band F-1 |
(1,501 to 2,500
NAS) |
$15.93 |
$8.46 |
|
Band F-2 |
(2,501 to 4,000
NAS) |
$14.35 |
$7.17 |
|
Band F-3 |
(4,001 to 6,000
NAS) |
$12.12 |
$5.37 |
|
Band F-4 |
(6,001 to 7,999
NAS) |
$8.31 |
$2.27 |
|
Band G |
(Remote NAS) |
$37.87 |
$27.30 |
116. |
Any interim subsidy received by
a CLEC prior to the final individual SILEC subsidy per residential NAS
amounts being published will be adjusted by the CFA to reflect the final
subsidy per residential NAS amounts applicable for that particular
SILEC. The Commission notes that the final subsidy per residential NAS
amounts will depend on the SILEC's actual residential local service
rates. |
|
Calculation of interconnection revenues
|
|
Direct connection
|
117. |
In Decision 2005-3,
the Commission gave final approval to the DC rates for the territories
of Cochrane, NorthernTel and Ontera. For the remaining SILECs, Decision
2005-3 established
each SILEC's 2005 DC revenues based on the SILEC's 2001 conversation
minutes and one of three DC rates, dependent on the total number of
the SILECs' 2001 minutes as follows: |
|
Annual conversation minutes |
DC rate
(per minute) |
|
0 to 5 million minutes |
$0.0178 |
|
5+ to 20 million minutes |
$0.0132 |
|
20+ million minutes |
$0.0037 |
118. |
Where more than one IXC was
operating in the territory of a SILEC, each IXC's payment was determined
by allocating the SILEC's 2005 DC revenues among the interconnected IXCs
in proportion to their actual conversation minutes for 2004, subject to
a year-end adjustment based on the actual conversation minutes for 2005. |
|
Positions of parties
|
119. |
The SILECs proposed that the
DC rates and methodology established in Decision 2005-3
should be extended for the duration of the new regulatory framework.
The SILECs proposed that the number of conversation minutes for each
SILEC from 1 August to 31 July of the previous year should be used
to determine which of the three DC rates established in Decision 2005-3
would apply for the whole year in question. The SILECs submitted that
this rate would then be multiplied by the number of annual conversation
minutes in order to establish the DC revenues for the year in question.
The SILECs proposed that a meeting be held with the IXCs to reach
a consensus on the inventory of minutes and trunks. |
120. |
Bell Canada submitted that the
Commission should reject the SILECs' proposals. Bell Canada, instead,
proposed the following DC rates: |
|
Annual conversation minutes |
DC rate
(per minute) |
|
0 to 5 million minutes |
$0.0142 |
|
5+ to 20 million minutes |
$0.0106 |
|
20+ million minutes (except
TBayTel) (including Cochrane, NorthernTel, & Ontera) |
$0.0030 |
|
TBayTel |
$0.00112 |
121. |
Bell Canada noted, among
other things, that its proposed rates would: (1) reflect an appropriate
reduction to the rates established in Decision 2005-3;
(2) be more in line with those of the other ILECs on a going-forward
basis; (3) be more reflective of the conditions in TBayTel's territory;
and (4) not preclude a SILEC from proposing a company-specific DC
rate based on company-specific Phase II costs. |
122. |
Bell Canada proposed that for
each subsequent year, those rates be reduced by a factor equal to the
rate of inflation less a 3.5 percent productivity offset or
company-specific productivity offset, if one were established, similar
to the large ILECs' required treatment of those rates. |
123. |
Bell Canada noted, as a
separate matter, that there was a flaw in the DC rate structure and
proposed that a SILEC not be permitted to increase its DC rate as a
result of declining volumes of conversation minutes unless it filed a
Phase II cost study to support such a change. Bell Canada proposed that
if the number of a SILEC's minutes fell short of the threshold for the
SILEC's current band, the DC rate could be frozen at that level for that
band for a period of no longer than one year. |
124. |
In reply, the SILECs disagreed
with Bell Canada's proposed rates and treatment for declining
volumes of conversation minutes. The SILECs considered that, among
other things, Bell Canada had made some incorrect assumptions
and its approach was unbalanced. The SILECs noted that the rates the
SILECs had proposed were based on Phase II-like cost studies,
were appropriate considering their recent approval in Decision 2005-3,
and were in keeping with their previous regulatory frameworks. |
125. |
With respect to Bell Canada's
submission that there was a flaw in the DC rate structure, the SILECs
submitted that Bell Canada found a flaw in the rate structure only when
there were significant increases in DC revenues for the SILECs, and that
Bell Canada neither saw a flaw when significant decreases in DC revenues
occurred nor proposed that the reverse should apply. |
|
Commission's analysis and determinations
|
126. |
In Decision 2005-3,
the Commission found, on balance, that the rates therein would contribute
to the Commission's objectives of setting rates based on Phase II-like
costs, moving rates more in line with current retail long distance
prices and minimizing the financial hardship on the SILECs. The Commission
considers that these circumstances have not changed since the release
of Decision 2005-3. |
127. |
The Commission considers that
Bell Canada's proposal would not adequately compensate each SILEC
for its DC costs. In addition, the Commission notes that it took into
account the cost of the SILECs' facilities and the recovery of these
costs when setting the SILECs' rates in Decision 2005-3. |
128. |
Accordingly, the Commission concludes
that the rates set out in Decision 2005-3
continue to apply for the duration of SILECs' next regulatory period,
and are to be applied to actual minutes and trunks. |
129. |
Regarding Bell Canada's
proposal to move a SILEC to a band with a lower DC rate if its number of
minutes exceeded the threshold for that band, the Commission agrees with
the SILECs that this approach is unbalanced. The Commission notes that
the approved rate structures were based on a stepped table approach in
order to achieve administrative simplicity. This rate structure has
negatively impacted those SILECs slightly over a minute threshold,
resulting in those SILECs receiving significantly less DC revenues than
SILECs that are slightly under the same minute threshold. In light of
the above, the Commission rejects Bell Canada's proposal. |
|
Trunking
|
130. |
In Decision 2005-3,
the Commission established 2005 trunking revenues for each SILEC,
excluding Cochrane, NorthernTel and Ontera. A SILEC's total trunks
as of 31 December 2002 were used to determine which of the four
trunking rate bands established in Decision 2005-3
would apply for that SILEC in 2005. Where there was more than one
IXC operating in a SILEC's territory, each IXC's payment was determined
by allocating the SILEC's 2005 trunking revenues among the IXCs in
proportion to each IXC's trunks and associated distance as of 31 December
2004, with a year-end adjustment based on actual trunk data as of
31 December 2005. |
|
Positions of parties
|
131. |
The SILECs proposed that the
trunking rates and methodology established in Decision 2005-3
should be extended for the duration of the new regulatory period.
The SILECs proposed that, for each SILEC, the trunking rates in Decision
2005-3 should
be applied to the trunks in service as of 31 July of the previous
year in order to set the trunking revenues for the 12-month period
from 1 January to 31 December of the year in question. |
132. |
Bell Canada submitted that the
Commission should reject the SILECs' proposal. Bell Canada proposed that
the Commission should bring monthly trunking rates in line with
Bell Canada's equivalent tariffed rate levels. Bell Canada submitted
that service charges should be reduced to reflect Bell Canada's levels
and the fact that the installation work for a trunk was split between
the SILEC and the IXC. Bell Canada also proposed that each IXC should
only pay for its actual trunks in service, in order to obviate the need
for complex annual reconciliation and adjustment processes. |
133. |
Bell Canada noted that the
SILECs' trunking rates were significantly higher than the ILECs' rates
and submitted that the SILECs' Phase II costs for trunks were
not examined in the proceeding leading to the rates established in
Decision 2005-3,
nor had they been examined subsequently. Bell Canada also submitted
that the SILECs' service charges for trunks should be significantly
reduced. |
134. |
Bell Canada also noted that in
the case of installation of trunks between a SILEC and Bell Canada,
Bell Canada carried out the necessary installation work at the point of
interconnection (POI) end of the circuit, while the SILEC carried out
the installation work at its switch. Accordingly, Bell Canada proposed
that the service charge for trunks be reduced by 50 percent from the
applicable service charge to reflect that the trunks were jointly
provisioned. |
135. |
Bell Canada was of the view
that under the SILECs' proposal that the Commission use the trunks in
service as of 31 July of the previous year to fix each SILEC's trunking
revenue for the 12-month period from 1 January to 31 December of the
year in question, there would be no adjustment to reflect the actual
number of trunks. Bell Canada submitted that reconciliation and
adjustments would, however, apply where more than one IXC connected to a
SILEC and where there was a change in the proportion of trunks, or
mileage, used by each IXC. Bell Canada was of the view that the SILECs'
proposal for a reconciliation process would be unnecessary and would
create an undue regulatory burden. Bell Canada proposed that the rating
approach for trunking should be revised so that IXCs paid only for the
trunks they used. |
136. |
In reply, the SILECs urged the
Commission to reject Bell Canada's proposal that SILEC monthly
trunking rates and service charges should be brought in line with
Bell Canada's retail rates. The SILECs stated that the rates
and methods determined in Decision 2005-3
had been judged recently by the Commission to be appropriate for the
SILECs and, thus, should remain constant over the next four years
of the new regulatory framework period. |
|
Commission's analysis and determinations
|
137. |
The Commission considers that
without company-specific Phase II cost studies for the SILECs,
it would not be reasonable to compare and equate the rates charged
by the SILECs, given their unique costs and circumstances. The Commission
notes that in Decision 2005-3
it recognized that a trunking rate made up of an adequate mix of both
fixed and distance-based components would be reasonable for the SILECs
at that time; that the rates were reasonable since they would provide
higher base rates for smaller companies, recognizing that the costs
per trunk would be greater for companies with fewer trunks; and that
the number of interconnection trunks sold by each of the SILECs was
insufficient to justify the use of volume and term discounts. |
138. |
The Commission considers that
the circumstances surrounding this issue have not changed since the
release of Decision 2005-3.
Accordingly, the Commission does not consider Bell Canada's proposal
that the SILECs' rates should mirror Bell Canada's rates to be reasonable. |
139. |
With regard to Bell Canada's
proposal that the service charges should be reduced by 50 percent, the
Commission considers that the ILEC's service charge for installation of
trunks is to compensate the ILEC for the costs of provisioning the
trunks from the ILEC's side of the POI to the switching centre of the
ILEC. The service charge does not include costs associated with work on
the IXC/CLEC side of the POI, as those costs are incurred by the
IXC/CLEC. Accordingly, the Commission rejects
Bell Canada's argument. |
140. |
In light of the above, the Commission
concludes that the rates and methodology for toll trunks
established in Decision 2005-3
continue to apply for the duration of the SILECs' next regulatory
period. |
|
Multiple exchanges in non-contiguous areas (i.e. clustering)
|
141. |
The SILECs proposed that certain
SILECs with multiple exchanges in non-contiguous areas should be permitted
to treat each exchange cluster as a separate entity for the purpose
of applying the DC and trunking rates in Decision 2005-3. |
142. |
Bell Canada submitted that the
Commission should reject the SILECs' proposal and that the current
methodology should continue to apply. |
143. |
The Commission notes that it
has consistently treated all ILECs in the same manner by not permitting
them to treat multiple exchanges in non-contiguous areas as separate
entities. The Commission considers that there was insufficient evidence
on the record of this proceeding to support a change to this policy.
Accordingly, the Commission denies the SILECs' proposal with regard to
multiple exchanges in non-contiguous areas. |
|
Revenue impacts
|
144. |
In Decision 2005-3,
the Commission was concerned that significant toll interconnection
revenue losses due to a change in the DT methodology would have a
significant impact on the financial viability of some SILECs. Accordingly,
the Commission determined that those SILECs whose 2005 revenues for
toll interconnection (DC, EA, and trunking revenues) fell by more
than 35 percent from 2001 levels could recover that portion of
their losses in excess of 35 percent through rate increases to
local services (i.e. residential and business PES). These calculations
were set out in Appendix B to Decision 2005-3. |
145. |
Based on the determinations
in this Decision, the Commission considers it appropriate to reset the
SILECs' toll interconnection revenues used to calculate their entitlement
for any compensation through local rate increases pursuant to Decision
2005-3. Accordingly,
the Commission requires the SILECs, to file by 1 May
2006, an updated schedule in the same format as Appendix B to
Decision 2005-3 that
incorporates the determinations in this Decision (i.e.,
using actual trunks and minutes) to estimate their 2006
revenues for toll interconnection. These 2006 revenues
will replace the 2005 revenues in that schedule for the
calculation of the SILECs' local rate increase entitlement. |
|
Local competition
|
146. |
The framework for local competition
in the ILECs' territories was initially set out in Local competition,
Telecom Decision CRTC 97-8,
1 May 1997 (Decision 97-8),
and Co-location, Telecom Decision CRTC 97-15,
16 June 1997 (Decision 97-15).
The obligations, terms, and conditions applicable to the large ILECs
with respect to local competition have been modified and revised in
some 200 subsequent public notices, decisions, orders and letters
issued by the Commission since May 1997. Some of the main issues related
to the implementation of local competition include interconnection
arrangements between ILECs and CLECs, the unbundling of the ILECs'
networks, local number portability (LNP) and the establishment of
a carrier services group (CSG). |
147. |
In Public Notice 2005-10,
the Commission invited comments with respect to permitting local competition
in the SILECs' territories. |
|
Positions of parties
|
148. |
The SILECs proposed the
introduction of competition in their territories by means of a staged
approach. The SILECs proposed that the first step should be to require a
SILEC to file tariffs to allow the resale of local services when a
competitor expressed interest in servicing customers within the exchange
of an individual SILEC. |
149. |
In addition, the SILECs
proposed that a SILEC should only file tariffs for competitor services
in response to a bona fide request from a competitor. The SILECs
considered that if all of those types of tariffs were required, they
should be determined using a simplified process rather than full
Phase II cost studies. |
150. |
The SILECs also suggested that
the current CRTC Interconnection Steering Committee (CISC) process and
the procedures developed within that forum might assist in the
implementation of local competition in their territories. The SILECs
submitted, for example, that rather than developing a complete
co-location tariff, access could be granted to a competitor using a
SILEC's general tariff and the standard co-location agreement developed
by CISC. |
151. |
TELUS proposed that the SILECs
be required to immediately file tariffs for interconnection, as well as
other mandatory competitor services outlined in Decision 97-8, such as
9-1-1 service, MRS and LNP. TELUS stated, however, that in the
alternative, the Commission could require the SILECs to file unbundled
services tariffs upon the receipt of a request from competitors. |
152. |
Bell Canada proposed that the
same pricing approach, terms and conditions for local competition be
adopted for the SILECs as was used for the large ILECs. Bell Canada was
of the view that the Commission should direct the SILECs to file tariffs
for competitor services within 45 days of signing an interconnection
agreement with a CLEC and to provide those services within 90 days.
Bell Canada noted that, alternately, the SILECs could choose to adopt
Bell Canada's rates. Bell Canada also proposed that the SILECs be
required to file proposed tariffs to offer Type 2 co-location upon
receiving an application for co-location from an IXC. |
153. |
The CCTA supported the SILEC's
proposal for a case-by-case approach to implementing interconnection and
related arrangements for local entry. The CCTA added that local
interconnection and the related processes should be implemented with
CLECs as expeditiously as possible, even if the SILECs had to rely on
manual processes and support from other ILECs. |
154. |
Shaw submitted that the rules
for local competition should track the rules that had been established
for the ILECs, unless a SILEC could establish that its special
circumstances necessitated changes. Shaw noted, however, that the
Commission had established a simplified approach for CLEC interexchange
(IX), EA and interconnection tariffs, where a CLEC must justify any
departure from the terms and conditions of an ILEC tariff. Shaw
suggested that this simplified approach should be extended to the SILECs
for services required by CLECs. |
155. |
Shaw was of the view that the
SILECs, in particular the larger ones, should be able to file tariffs
for competitor local services within 30 days of a request. Shaw added
that the SILECs should be able to implement those tariffs and subsequent
processes within 180 days. |
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Commission's analysis and determinations
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Resale of
local competition |
156. |
The Commission notes that all
parties agreed that some form of local competition should be permitted
in the territories of the SILECs. The Commission considers that the
SILECs' approach to first allow local competition in their territories
through resale has merit. The Commission considers that resale can
promote the development of a competitive market while allowing
competitors time to construct their own facilities. |
157. |
Accordingly, the Commission
permits competitive entry in the SILECs' territories by allowing the
resale of the SILECs' local services, effective the date of this
Decision. The SILECs are directed to file tariffs by 1 May 2006
to reflect this determination. |
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Facilities-based local competition in the SILECs' territories |
158. |
While competition through
resale can help promote the development of a competitive market, the
Commission considers that the full benefits of competition can only be
realized with some form of facilities-based competition. The Commission
also considers that requiring the unbundling of a greater number of
network components would provide more opportunities for competitors
wishing to enter the local market, resulting in increased benefits to
consumers. |
159. |
The Commission notes, however,
that the SILECs' resources are limited. The Commission also notes
competitive entry may not occur in every SILEC territory. The Commission
considers that it would be inappropriate to require the SILECs to
establish tariffs for competitor services if there is no demand from a
competitor. The Commission considers that a SILEC should be required to
make tariffs for competitor services to a LEC or carrier available in
response to a request for those services. Accordingly, the Commission
concludes that a SILEC is only required to file proposed tariffs for
competitor services if the SILEC receives a bona fide request
from a competitor. |
160. |
The Commission directs each
SILEC, following a formal signed expression of interest from a LEC or
carrier requesting to use competitor services within a SILEC's
territory, to file an implementation plan with the Commission within 30
days. The implementation plan should include certain details, such as
when tariffs will be filed, the nature and cost basis of those tariffs,
how customer transfer procedures would be managed, the timing of the
implementation of local competitor services, the start-up costs to
implement local competition including LNP if appropriate and how those
costs will be recovered, and any other implementation issues that may be
unique to that SILEC. |
161. |
The Commission considers that a
SILEC's implementation plan should be guided by the following
principles: |
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- the interconnection framework that exists in the large ILECs'
territories should apply in the SILECs' territories;
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- when a SILEC receives a request from a LEC to make available
unbundled network elements, such as local loops, those competitor
services should be implemented in a manner similar to that of the
large ILECs; and
|
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- a SILEC, if requested, should make co-location space available to
another competitor or a DSL service provider, where space is
available, under similar terms and conditions established for
co-location services for the large ILECs.
|
162. |
The Commission notes that
various CISC working groups have developed processes and documentation
to aid the SILECs in negotiating arrangements with competitors which may
reduce the SILECs' costs. |
163. |
The Commission also notes that
some ILECs have voluntarily implemented a dry loop service where no dial
tone is present on the loop from a central office to a customer, which
allows an ILEC to provision the loop for high-speed Internet service and
a customer to choose another service provider for local voice services.
The Commission encourages the SILECs to make this service available if
requested by another LEC. |
164. |
With respect to LNP, the
Commission considers that when local competition is implemented in the
territories of the SILECs, customers who choose to change service
providers should be able to retain their telephone numbers. The LNP
process for the SILECs would have two components: 1) "porting out",
where a SILEC releases a customer's telephone number to another LEC; and
2) "porting in", where a customer returns to the SILEC with his/her
telephone number. |
165. |
The Commission notes, however,
that LNP could be expensive for the SILECs to implement. The Commission
also notes that the process of porting in adds administrative costs to
the LNP process. The Commission considers that the porting out process
is important to the development of local competition in its early stages
since SILEC customers will be able to switch local service providers
without changing their telephone numbers. The Commission also considers
that significant cost savings could be achieved by the SILECs if they
were only required to establish a porting out process. |
166. |
Accordingly, the Commission
concludes that when local competition is implemented in a SILEC's
territory, the SILEC must implement LNP and participate in the LNP
porting process. However, the Commission concludes that while a SILEC
must implement the porting out process, it can choose whether to
implement the porting in process. |
167. |
The Commission has required the
large ILECs to establish a CSG function when competitors have entered
their particular territory in order to offer services in competition
with the large ILEC. The Commission considers that the separation of the
retail activities from the wholesale activities of an ILEC is important
to protect the interests of the ILEC and the new entrant. Accordingly,
the Commission concludes that whenever a SILEC is approached by a
competitor requesting access to competitive services including resale,
the request should be channelled through a CSG. |
168. |
The Commission considers,
however, that it may be too costly and inefficient for each SILEC to
establish a dedicated CSG function. Accordingly, the Commission
considers that where resource restrictions do not allow for a dedicated
CSG to be established within a SILEC's territory, alternative
arrangements should be explored, such as the use of an appropriate third
party, a joint CSG serving a number of SILECs, or the establishment of
one CSG per province. The operation of the CSG function should be
addressed by each SILEC in its implementation plan. |
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Other matters raised with respect to removing competitive barriers
to entry
|
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Head start rule
|
169. |
In Application by telephone
companies to carry on broadcasting distribution undertakings,
Public Notice CRTC 1997-49,
1 May 1997 (Public Notice 1997-49),
the Commission envisioned that competition in local services in the
territories of the ILECs could come from cable companies. The Commission
recognized the potential for cable companies and ILECs to offer a
mix of services in their own territories that was traditionally limited
to either a cable company or an ILEC. The Commission concluded that
it would only be appropriate for the telephone companies to apply
for Broadcasting Distribution Undertaking (BDU) licences once the
barriers to entry, such as interconnection, co-location and the unbundling
of network components, in the local telephone market were sufficiently
addressed (i.e. the head start rule). |
170. |
The SILECs submitted that the
head start rule detailed in Public Notice 1997-49
should not apply in their territories. The SILECs submitted that the
first competitors in their territories would likely be cable companies
offering local VoIP services, and cable companies may not require
co-location or unbundled elements. In addition, the SILECs noted that
cable companies would likely use the services of the ILECs for interconnection. |
171. |
The CCTA opposed the SILECs'
proposal that the head start rule not apply in their territories. The
CCTA submitted that a SILEC should only be permitted to obtain a BDU
licence upon implementation of the arrangements necessary for
facilities-based local competition. |
172. |
The CCTA considered that if the
head start rule were set aside for the SILECs, it would remove a
critical incentive for the SILECs to work towards opening up their core
markets to competitive local entry. The CCTA stated, however, that the
head start rule should not apply where there was no cable BDU providing
broadcasting distribution services in a SILEC's operating territory. |
173. |
Shaw submitted that the head
start rule recognized that permission to enter local SILEC markets was
meaningless if fundamental barriers to entry remained in place. Shaw
stated that co-location, interconnection, and LNP were barriers to
entry. |
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Commission's analysis and determinations
|
174. |
The Commission notes that
Amtelecom Inc., Nexicom Telecommunications Inc. and Execulink were
granted BDU licenses prior to the implementation of local competition in
their serving territories. The Commission notes that the head start rule
could apply to the remaining SILECs. |
175. |
The Commission notes however,
that applications from ILECs to obtain a BDU license (i.e. thereby
permitting the ILECs to enter the cable companies' core business) were
generally not permitted until rules were established to eliminate
barriers to entry into the ILECs' local telephony market. The Commission
further notes that this head start rule was developed to ensure a level
playing field between cable companies and ILECs when competing in each
other's core business. In this Decision, the Commission has established
a framework for local competition in the SILECs' territories which
sufficiently addresses the barriers to entry to allow for the
development of effective competition. |
176. |
In light of the above, the
Commission concludes that the head start rule should not apply to
the SILECs. |
|
Cost recovery of equal access
|
177. |
In Regulatory framework for
the independent telephone companies in Quebec and Ontario (except
Ontario Northland Transportation Commission, Québec-Téléphone and
Télébec Ltée), Telecom Decision CRTC 96-6,
7 August 1996, the Commission provided the SILECs with a ten-year
recovery period of start-up costs associated with the implementation
of equal access that could not end later than 31 December 2007. |
178. |
The SILECs noted that equal
access had been implemented, but the process to recover the associated
costs would continue until 2014 for some of the SILECs that implemented
equal access as late as 2004. |
179. |
Bell Canada requested that the
Commission impose a final date for the recovery of equal access costs as
31 December 2007, and that it should not be extended beyond that date. |
180. |
The Commission considers that
for those SILECs that had not implemented equal access on
1 January 1998, the ten-year recovery period to recover start-up costs
associated with equal access could end later than 31 December 2007. |
181. |
Accordingly, the Commission
concludes that for those SILECs that will not have recovered their equal
access start-up costs by 31 December 2007, the 10-year recovery period
will be extended beyond that date. |
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Access to support structures
|
182. |
Some of the SILECs have tariffs
for access to their support structures. These tariffs were developed
under the existing framework governing access to support structures
which is similar to that of the large ILECs. |
183. |
The CCTA submitted that the
SILECs should have a requirement to provide access to support structures
under the SILECs' control. The CCTA was of the view that the lack of
access to support structures on a timely and reasonable basis impeded
CLECs from launching facilities-based local telephone services. |
184. |
Shaw noted that access to
support structures and municipal rights-of-way were fundamental barriers
to facilities-based local entry. |
185. |
The Commission considers that
the current approach with respect to support structures is appropriate
and should continue to apply. Accordingly, the Commission concludes that
if a SILEC receives a request for access to its support structures and
no tariff exists for that service, the SILEC is required to file tariffs
for access to its support structures within 30 days of the request. |
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Other matters
|
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Competitive safeguards
|
186. |
In Promotions of local wireline
services, Telecom Decision CRTC 2005-25,
27 April 2005 (Decision 2005-25),
the Commission determined that ILEC promotions in the local wireline
market were permitted, subject to a number of competitive safeguards. |
187. |
In various decisions, the
Commission has also placed certain restrictions on ILECs’ ability to
directly communicate with former local exchange service customers in an
attempt to win them back (winback rule). This rule was established to
prevent the ILECs from deriving an unfair or undue competitive
advantage, or otherwise benefit from an unfair opportunity, arising from
their incumbency advantages, such as control of, and access to, detailed
customer-specific information concerning almost all local exchange
service customers. |
188. |
With competitive entry permitted
in the SILECs' territories pursuant to this Decision, the Commission
directs the SILECs to show cause by 1 June 2006,
as to why the determinations made in Decision 2005-25
and the local winback rule should not apply to them. |
|
Regulatory framework for VoIP services
|
189. |
In
Regulatory framework for voice communication services using Internet
Protocol, Telecom Decision CRTC 2005-28,
12 May 2005 (Decision 2005-28),
the Commission set out its regulatory framework for VoIP services.
In Decision 2005-28,
the Commission deferred its determination on the framework for the
provision of local VoIP services in the territories of the ILECs not
subject to local competition. |
190. |
Accordingly, with the introduction
of local competition in the SILECs' territories, the Commission directs
the SILECs to show cause by 1 June 2006, as to why
the determinations made in Decision 2005-28
should not apply to them. |
|
Quality of service
|
191. |
With respect to the reporting
of Q of S in the territories of the SILECs, only those SILECs that have
NAS above 25,000 are required to report Q of S statistics. Two SILECs
(NorthernTel and TBayTel) satisfy this criterion and report Q of S
statistics on a quarterly basis in a manner similar to that of the large
ILECs. The SILECs with NAS below 25,000 are required to report the
nature and number of complaints on an annual basis. |
|
Positions of parties
|
192. |
The SILECs proposed that, since
the present Q of S reporting system was working very well, the existing
floor of 25,000 NAS be increased to 100,000 NAS before Q of S reporting
was required. The SILECs submitted that the practice of filing
information on the number and nature of complaints by those SILECs with
NAS below 25,000 appeared to be satisfactory in meeting the monitoring
requirements of the Commission. The SILECs submitted that there was no
compelling reason to believe this would not be the same for the
remaining SILECs. |
193. |
The SILECs submitted that it
was not their intent to downplay the importance of reporting
requirements. The SILECs were of the view, however, that in the absence
of monitoring it did not follow that there would be degradation in
service quality. The SILECs considered that the high quality level of
the SILEC's service would not change as a result of a change in the
level of Q of S reporting requirements. |
194. |
TELUS submitted that the
Commission had no record on which to make the requested change, as
SILECs had not offered any reasons for their proposed change. |
195. |
PIAC noted that the potential
degradation of service quality associated with a failure to maintain
reporting requirements was a serious concern for the customers of the
SILECs. PIAC submitted that the evidence provided by the SILECs did not
reassure customers of the SILECs that were exempted from service quality
monitoring because of the size of their customer base. PIAC submitted
that reporting requirements represented benchmarks that should be
measured by any company delivering local service, regardless of size. |
|
Commission's analysis and determination
|
196. |
The Commission notes that only
two SILECs are required at this time to report retail Q of S statistics
on a quarterly basis while the rest of the SILECs file on an annual
basis. The Commission considers that the SILECs have not provided
sufficient rationale to justify a change in the reporting requirement
for Q of S results that would effectively remove all SILECs from the
quarterly filing requirement. Accordingly, the Commission concludes that
the current Q of S reporting requirement should remain unchanged. |
197. |
The Commission considers that
it is important that service quality to the SILECs' retail customers
remains high due to the potential for local competition in the SILEC
territories. Accordingly, while the Commission considers that there
should be no modification to the current retail Q of S framework, it
will closely monitor the retail Q of S results in those SILEC
territories where local competition will occur. Where this monitoring
indicates a reduction in the level of Q of S to the SILECs' customers,
the Commission may review the current Q of S framework at that time. |
198. |
The Commission notes that when
local competition is implemented in the territory of a SILEC, services
may need to be provided to competitors. In order to ensure that competitors
can compete effectively, the Commission considers that these services
may need to be subjected to the Q of S framework established
in Finalization of quality of service rate rebate plan for competitors,
Telecom Decision CRTC 2005-20,
31 March 2005 (Decision 2005-20). |
199. |
The Commission directs the SILECs
to show cause by 1 June 2006, why the determinations
made in Decision 2005-20
should not apply to them in the event that they are required to offer
services to competitors. |
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Secretary General |
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Footnotes:
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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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