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Order CRTC 2001-876 |
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Ottawa, 14 December 2001 |
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Interim 2002 revenue-percent charge, national subsidy requirement
and procedures for the revenue-based contribution regime |
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Reference: 8695-A53-01/01 |
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Summary
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In response to a Part VII application requesting clarification of
contribution related changes taking effect on 1 January 2002, the
Commission sets:
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a) the 2002 revenue-percent charge at 1.4% on an interim
basis;
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b) the interim 2002 national subsidy requirement at $279
million; and
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c) interim procedures for the distribution of the subsidy
requirement by the Central Fund Administrator to the eligible
recipients.
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Introduction
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1. |
On 30 November 2000, the Commission issued Decision CRTC 2000-745, Changes to the contribution regime, which replaced
the per-minute contribution collection mechanism with a national
revenue-based approach, changed the definition of the subsidy
requirement and changed the distribution of subsidy amounts. In
particular, Decision 2000-745 based the calculation of subsidy
requirement on high-cost serving areas (HCSAs) which were to be
determined in the proceeding initiated by Public Notice CRTC 2000-27
entitled Restructured bands, revised local loop rates and related
issues, dated 18 February 2000. |
2. |
On 27 April 2001, the Commission issued Decision CRTC 2001-238, Restructured
bands, revised loop rates and related issues (amended by
Decisions 2001-238-1 and
2001-238-2), which established the costs to
be used as the basis for the determination of the subsidy
requirement under the new contribution regime. This included the
adoption of a uniform approach for the identification of HCSAs in
the territories of the large incumbent local exchange carriers
(ILECs) and a more consistent set of costing methodologies by which
large ILECs are to determine the costs for local loops and
residential primary exchange services. |
3. |
On 29 June 2001, Aliant Telecom Inc., Bell Canada, MTS
Communications Inc. and Saskatchewan Telecommunications
(collectively, the companies) filed a Part VII application seeking
clarification from the Commission regarding certain changes to the
contribution regime directed by the Commission to occur on 1 January
2002. |
4. |
Specifically, the companies sought clarification regarding the
calculation of the total subsidy requirement (TSR), the subsidy per
network access services (NAS) and the distribution of the subsidy
from the national contribution fund effective 1 January 2002. The
companies note that, while these issues would be determined on a
final basis in the proceeding initiated by Price cap review and
related issues, Public Notice CRTC 2001-37, dated 13 March
2001, some interim determinations were required as a decision in the
PN 2001-37 proceeding will not come into effect before later in
2002. |
5. |
The companies submitted that there is a need to provide for an
interim revenue-percent charge and subsidy requirement, effective 1
January 2002. |
6. |
The companies submitted that an interim solution should be put in
place in order to ensure that large surpluses do not accrue in the
central fund that would need to be refunded following the price cap
review decision. To do otherwise, will result in large adjustments
to the fund and the subsidy distributed resulting in an increase in
complexity of administration. |
7. |
AT&T Canada Corp., GT Group Telecom Services Corp., Microcell
Telecommunications Inc., O.N.Telcom, Rogers Wireless Inc., Telesat
Canada, TELUS Communications Inc. and Vidéotron Télécom ltée
filed comments regarding this application. |
8. |
All of these parties agreed with the companies that an interim
solution was required effective 1 January 2002 in order to avoid
large surpluses being accrued in the National Contribution Fund that
would need to be refunded later in the year. |
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2002 National subsidy requirement
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9. |
The Commission notes that, effective 1 January 2002, significant
changes are required to the calculation of the national subsidy
requirement (NSR) as a result of Decision 2000-745. The Commission
expected that the NSR would decrease significantly in 2002 as a
result of these changes. |
10. |
According to Decision 2000-745, the subsidy requirement per
residence NAS in each high-cost band will consist of:
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a) the average annual primary exchange residential service
revenue, plus
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b) the approved annual target implicit contribution from
optional local services ($60/NAS), less
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c) the Phase II costs as determined in Decision 2001-238,
adjusted for certain cost factors; plus
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d) the approved mark-up on Phase II costs (15%).
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11. |
Decision 2000-745 further states that the 2002 NSR will consist
of the following:
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a) the TSRs for all of the high-cost bands in each ILEC
territory, including the small ILECs; plus
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b) the supplemental funding for Northwestel Inc.; plus
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c) the administrative costs for the Central Fund Administrator
(CFA) and the Canadian Portable Contribution Consortium (CPCC).
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12. |
Decision CRTC 2001-756 released on 14 December 2001, Regulatory
framework for the small incumbent telephone companies, which
implemented a new regulatory framework for the small ILECs, has been
taken into account in this proceeding. |
13. |
The Commission notes that the following issues, among others, are
currently under consideration by the Commission in various
proceedings and may impact on the determination of the final NSR for
2002:
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a) 2002 rates for primary exchange residence services are being
reviewed in the price cap review proceeding;
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b) service improvement plans submitted in price cap review;
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c) the results from the price cap proceeding for Télébec
ltée and TELUS Communications (Québec) Inc.;
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d) the components associated with inflation, productivity and
the revenue charge are to be added explicitly to the primary
exchange service costs each year. As indicated in Decision 2001-238, the cost increase factors will be determined during the
price cap review proceeding;
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e) TELUS Communications Inc. application to review and vary
Decision 2000-745 and Decision
2001-238; and
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f) the final 2002 supplemental funding requirement for
Northwestel.
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14. |
The Commission is of the view that it is appropriate to set an
interim subsidy requirement and an interim revenue-percent charge
effective 1 January 2002:
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a) since there are significant changes in the determination and
distribution method of the NSR effective 1 January 2002; and
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b) final Commission determinations are pending on issues that
directly impact the revenue-based contribution regime.
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Large ILECs
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15. |
The Commission is of the view that, since at this time there are
no known rate changes in 2002, the TSR for the interim period for
the large ILECs should be calculated using the average current rates
at 31 December 2001, adjusted for the implicit subsidy from optional
services of $60/NAS. The final TSR calculation for 2002 will be
adjusted to reflect any adjustments to rates resulting from the
price cap decision. |
16. |
With respect to the costs to be used in determining the TSR,
Decision 2001-238 set out the Phase II costs for the large ILECs.
Decision 2001-238 stated that the productivity and inflation factors
for the determination of the TSR would be determined in the
proceeding initiated by PN 2001-37. Therefore, in order to implement
a simplified interim solution, the Commission considers it
appropriate to use the Phase II costs as determined in Decision
2001-238-2 with a mark-up of 15%. |
17. |
Since the Commission has not made a decision regarding the
productivity offset or inflation factor for HCSAs, the Phase II
costs in the calculation of the interim TSR will not reflect these
adjustments. The final TSR and revenue-percent charge will be
adjusted to reflect the determinations coming out of the price cap
review proceeding. |
18. |
Based upon the assumptions in this order, the Commission sets the
interim monthly subsidy per NAS in the HCSAs of the large ILECs
effective 1 January 2002 as shown in appendix A to this order. |
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Télébec and TELUS Québec
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19. |
On 13 March 2001, the Commission issued Implementation of
price cap regulation for Québec-Téléphone [now TELUS Québec]
and Télébec, Public Notice CRTC 2001-36. |
20. |
This proceeding is considering the issues associated with the
implementation of an appropriate form of price cap regulation that
would apply to Télébec and TELUS Québec starting in 2002. Among
other things, PN 2001-36 indicated that the specific timing of the
annual TSR updates would depend on the nature of the regulatory
mechanism after 1 January 2002 and that the basis for distributing
the subsidy would be determined in that proceeding. |
21. |
Télébec and TELUS Québec filed their estimated 2002 subsidy
requirements in that proceeding which were calculated in accordance
with the directives set out in the Decision 2001-238. Based upon
these assumptions, the 2002 subsidy requirements would be $13.7
million and $5.9 million for Télébec and TELUS Québec
respectively. |
22. |
Since these figures are significantly below the 2001 subsidy
requirements, Télébec and TELUS Québec requested that the
Commission provide for a transition period to fully implement the
use of Phase II costs in the determination of the subsidy
requirement. As part of this transition period, Télébec and TELUS
Québec have requested additional subsidy from the central fund and
permission to use their deferral accounts. |
23. |
In order to implement a simplified interim solution, the
Commission:
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a) approves an interim 2002 TSR of $18.7 million for Télébec
and $17.3 million for TELUS Québec based on the companies'
proposed amounts adjusted to exclude the impact of the proposed
rate increases; and
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b) directs the CFA to distribute a monthly payment equivalent
to 1/12 of the interim 2002 subsidy requirement to Télébec and
TELUS Québec. This would result in monthly payments of
approximately $1.56 million for Télébec and $1.44 million for
TELUS Québec.
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24. |
The approval of the interim 2002 TSR, based upon the companies'
respective proposal is not a decision by the Commission regarding
additional compensation from the central fund or the use of their
respective deferral accounts by the companies in 2002. A
determination on these issues will be made by the Commission in its
decision related to PN 2001-36. The final 2002 TSRs and NSR will be
adjusted accordingly. |
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Small ILECs
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25. |
On 14 December 2001, the Commission issued Decision 2001-756,
which approved, among other things, the methodology for the
calculation of the subsidy requirements for the small ILECs. |
26. |
Consistent with that decision, the 2002 final subsidy
requirements have been established for all small ILECs (see appendix
B attached). |
27. |
The Commission notes that the small ILECs are subject to the
revenue-based contribution regime effective 1 January 2002. In order
to facilitate the transition to the new regime and to keep the
interim contribution regime as simple as possible for the small
ILECs, the Commission considers it appropriate, for the interim
period, to distribute the subsidy to each small ILEC based on fixed
monthly amounts equivalent to 1/12 of its 2002 subsidy amount. Any
adjustments to the distribution procedures and NAS reporting will be
addressed following the issuance of the price cap decisions. |
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Northwestel supplemental funding
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28. |
In Decision CRTC 2000-746, Long-distance competition and
improved service for Northwestel customers, dated 30 November
2000, the Commission stated that the supplemental funding level for
Northwestel in 2001 will continue to be made available on an interim
basis effective 1 January 2002, pending review and approval of the
final 2002 supplemental funding requirement. The Commission notes,
however, that it is anticipated that the level of supplemental
funding is expected to increase in 2002. |
29. |
In response to Commission interrogatories, Northwestel estimated
its supplemental funding requirement at $18.7 million for 2002. |
30. |
The Commission sets Northwestel's interim 2002 supplemental
funding at $18.7 million. The final 2002 supplemental funding
requirement will be adjusted to reflect the Commission's
determination in the annual review proceeding for Northwestel to be
initiated early in 2002. |
31. |
Therefore, the Commission directs the CFA to increase the monthly
supplemental funding to $1,558,333 for Northwestel effective 1
January 2002. |
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CFA/CPCC operational and administrative costs
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32. |
The Commission notes that the 2001 costs for the CFA/CPCC are
projected to be approximately $2.5 million. The Commission
expects that there will be further significant changes in 2002 due
to the new distribution method and addition of many participants,
which will result in administrative costs in 2002 being similar to
those incurred in 2001. |
33. |
Decision 2000-745 indicated that the CFA/CPCC costs would be
added to the NSR in 2002 and beyond. The Commission considers it
appropriate to use the estimated 2001 costs for the determination of
the 2002 interim NSR. The Commission will monitor these costs during
the interim period and consider changes in the determination of the
final 2002 subsidy requirement. |
34. |
Therefore, the Commission approves the use of the 2001
administrative costs of the CPCC and the CFA of $2.5 million as the
estimate for the 2002 administrative costs for the CPCC and the CFA
in the establishment of the interim 2002 NSR. |
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National subsidy requirement
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35. |
Based upon the assumptions above, the Commission approves, on an
interim basis, the 2002 NSR as follows: |
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$ |
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CPCC/CFA Costs |
2,500,000 |
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Northwestel |
18,700,000 |
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Small ILECs |
34,216,200 |
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Télébec |
18,700,000 |
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TELUS Québec |
17,300,000 |
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Large ILECs |
187,570,135 |
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NSR |
278,986,335 |
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Procedures for the distribution of the funds
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36. |
The Commission recognizes the possibility that there may be a
shortfall in the National contribution fund in a particular month.
The Commission notes that, although the true-up process established
in Decision 2000-745 ensures that every local exchange carrier (LEC)
will receive the TSR due, there could be a delay in receiving full
payment that could extend to the following year. The Commission
acknowledges that the timely receipt of the total monthly subsidy
for the small ILECs is important to their financial stability.
Therefore, the Commission directs the CFA to remit the total monthly
subsidy for the small ILECs prior to the normal distribution of
subsidy to the remaining LECs (including Télébec and TELUS
Québec), but subsequent to the payments to the CFA/CPCC and
Northwestel. |
37. |
The Commission notes that the true-up mechanism in Decision
2000-745 provides, as of the year 2002, for any shortfall at the end
of the current year for all of the LECs by adding it to the NSR of
the following period. |
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Required contributors
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38. |
Decision 2000-745 indicates that the required contributors to the
central fund would be determined each year following the annual
contribution filing required each 31 March. |
39. |
The Commission directs the 2001 required contributors to continue
to contribute to the fund in January 2002 unless a required
contributor advises the Commission, with supporting evidence, that:
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a) changes in corporate status of the telecommunications
service provider (TSP) have occurred that will bring its Canadian
Telecommunications Services Revenues (CTSR) below the minimum
threshold of $10 million; and/or
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b) the CTSR results for 2001 are expected to be below the
minimum threshold.
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40. |
In these cases, the Commission will consider the information
provided and determine whether or not the TSP remains a required
contributor in 2002. |
41. |
As stated by the Commission in Decision 2001-756, some small
ILECs are expected to be required contributors in 2002. As well,
some TSPs will become required contributors in 2002 as a result of
revenue growth or change in corporate status. |
42. |
The Commission notes that this determination will not be made
until the 2001 annual contribution reports are filed on 31 March
2002. However, small ILECs and all other TSPs that are determined to
be required contributors, following the filing of 31 March 2002,
should be aware that they will be liable for contribution payments
effective 1 January 2002. |
43. |
Therefore, the small ILECs and TSPs who were not required
contributors in 2001 but are expected to be required contributors in
2002 may wish to file their monthly contribution-eligible revenues
and remit the appropriate funds to the CFA effective 1 January 2002. |
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Interim 2002 revenue-percent charge
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44. |
In Decision 2000-745, the Commission stated that the subsidy
would be limited to HCSAs as determined in Decision 2001-238.
Decision 2001-238 established the Phase II cost per high-cost band.
The Commission also determined that the subsidy would only be
applicable to primary exchange residential services. |
45. |
The companies noted that the Commission indicated in Decision 2001-238, that it expected the subsidy requirement to decline
significantly in 2002 due to the limited application of the subsidy
and the reduction in Phase II costs. In that decision, the
Commission estimated that the revenue charge would decline by
approximately two-thirds from the 2001 revenue charge of 4.5%. |
46. |
The companies argued that maintaining the 2001 revenue charge of
4.5%, during the interim period, would be detrimental to the
industry as large amounts of cash would be tied up until the price
cap review decision was issued and the appropriate reconciliation
process was completed. The companies submitted that an interim
revenue-percent charge could be estimated using the
contribution-eligible revenues filed for the first ten months of
2001 and project the remaining two months of the year. No other
parties to the proceeding disagreed with this approach. |
47. |
The Commission notes that if the 2001 revenue charge of 4.5% were
retained for the interim period with distribution based on a fixed
amount per NAS for high-cost bands, a large surplus would accrue in
the central fund. In the Commission's opinion, it is not in the best
interest of the industry or the public to have large surpluses
accrue in the fund only to be refunded later in 2002. |
48. |
As stated in Decision 2000-745, the Commission's intent was to
limit the amount of regulatory burden in a revenue-based
contribution regime. To allow a significant amount to accumulate in
the fund resulting in large adjustments at a later date would be
contrary to that intent. |
49. |
The Commission considers it appropriate to establish the interim
revenue-percent charge using the 2001 contribution-eligible revenues
filed with the CFA and projected to year end and the interim 2002
NSR established in this proceeding. |
50. |
Accordingly, the Commission sets the interim 2002 revenue charge
at 1.4% effective 1 January 2002. |
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Final 2002 revenue-percent charge
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51. |
As outlined in this order, many issues are unresolved with
respect to the 2002 revenue-percent charge and subsidy requirements.
Following the issuance of the price cap decisions and the receipt of
the annual contribution filing on 31 March 2002 for 2001
contribution-eligible revenues, adjustments to the TSR and
revenue-percent charge may be necessary to reflect the following:
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a) rate increases effective during 2002;
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b) adjustments to the Phase II costs including inflation and
productivity factors as determined in the price cap review
decisions for the large ILECs, Télébec and TELUS Québec;
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c) any changes to the 2002 supplemental funding for
Northwestel;
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d) estimated 2002 CFA/CPCC costs as approved by the CPCC Board
of Directors; and
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e) contribution-eligible revenues for 2001 filed by all
required contributors, including new contributors and small ILECs.
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52. |
The final 2002 revenue-percent charge and final 2002 subsidy
requirements will be determined when the above issues have been
addressed. |
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Secretary General
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This document is available in alternative format upon request
and may also be examined at the following Internet site: http://www.crtc.gc.ca
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