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Summary |
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In its May 1997 local competition decision, the Commission
prescribed an imputation test for incumbent local exchange carriers'
(ILECs) retail local exchange services as a safeguard against
anti-competitive pricing. In its April 2001 rebanding decision, the
Commission proposed changes to that methodology and raised three
issues relating to the imputation test's methodology. |
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In this decision, the Commission concludes that the per-band loop
cost is a reasonable estimate of service-specific loop costs within
a band for the purpose of safeguarding against anti-competitive
pricing. The Commission considers that using per-band loop costs,
which form the basis of loop rates, will increase fairness and
competitive equity. It therefore modifies the imputation test for
ILECs' retail local exchange service and service bundles that
include local exchange services. |
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The Commission also requires ILECs to use, in their imputation
tests, the accounting plant lives and capital cost parameters used
in the rebanding decision, to the extent applicable, for the
non-loop portion of local exchange services and service bundles that
include local exchange services. |
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The Commission concludes that the imputation test for residential
primary exchange services in high cost serving area bands remains
appropriate and should not be modified to take account of the
explicit subsidies ILECs receive from the Central Fund
Administrator. |
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In addition, the Commission is of the preliminary view that
unbundled loops in SaskTel's Band C should be treated as essential
for purposes of the imputation test. The Commission invites comments
from all parties to the proceeding regarding this view. |
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The Commission also clarifies, for the purpose of the imputation
test, the treatment of unbundled loops in certain bands in Aliant
Telecom territory formerly served by NBTel, NewTel and Island Tel.
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Background
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1. |
In Decision CRTC 2001-238, Restructured bands, revised loop
rates and related issues, dated 27 April 2001 (the rebanding
decision), the Commission raised three issues relating to the
methodology of the imputation test that certain incumbent local
exchange carriers (ILECs) apply for tariffed retail local exchange
services. This test was prescribed by the Commission in Telecom
Decision CRTC 97-8, Local competition, dated 1 May 1997, as a
safeguard against anti-competitive pricing by ILECs for various
local services. |
2. |
The ILECs involved in this proceeding are Aliant Telecom Inc.
(formerly Island Telecom Inc., Maritime Tel & Tel Limited, NBTel
Inc., and NewTel Communications Inc.), Bell Canada, MTS
Communications Inc. and Saskatchewan Telecommunications
(collectively, Bell Canada et al.), and TELUS Communications Inc.
(TCI). These ILECs filed comments on 8 June 2001 and replied on 24
July 2001 to comments filed on 9 July 2001 by GT Group Telecom
Services Corp. on behalf of itself, AT&T Canada Telecom Services
Company, AT&T Canada Corp. and Call-Net Enterprises Inc.
(collectively, Group Telecom et al.). Group Telecom et al. are
competitive local exchange carriers (CLECs) and provide local
services in competition with the ILECs.
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Imputing per-band loop costs
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3. |
In the rebanding decision, the Commission directed the ILECs to
show cause why the imputation test for retail local exchange
services in non-essential bands should not be changed to impute the
company's per-band loop cost instead of its service-specific loop
costs.
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4. |
The ILECs opposed the Commission's proposal. Bell Canada et al.
submitted an alternative proposal whereby the lesser of the
following two amounts would be included in an imputation test for
loops in non-essential bands:
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· service-specific
Phase II costs of the loop facilities used by that service; and |
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· the
unbundled loop rate. |
5. |
Bell Canada et al. submitted that, because the unbundled loop
rates represent the maximum cost of a loop to CLECs in non-essential
bands, CLECs could not be disadvantaged if unbundled loop rates are
used in the imputation test. Further, to ensure fairness and
competitive equity in non-essential bands, ILECs must be allowed to
use the service-specific cost of provisioning both the loop and
non-loop components in imputation tests because CLECs can maximize
their efficiency on both these components in non-essential bands. |
6. |
TCI considered that the current imputation test should not be
changed. TCI argued that CLECs can economically duplicate loops in
non-essential bands, and that using average per-band loop costs
would influence choices made by CLECs between facilities-based entry
and entry using ILEC unbundled loops. This could preclude efficient
facilities-based entry where it would otherwise be warranted.
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7. |
Group Telecom et al. also opposed the Commission's proposal. It
argued that the greater of the following two amounts should be
included in the imputation test for loops in non-essential bands: |
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· the
service-specific Phase II costs of the loop facilities used by that
service; and |
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· the
unbundled loop rate. |
8. |
Group Telecom et al. argued that, contrary to the presumption
underlying non-essential bands, even aggressive facilities-based
entrants have no choice, and will have no choice for the foreseeable
future, but to rely on ILEC loop facilities in most areas of
non-essential bands. Thus, imputing loop rates only in essential
bands is not sufficient to achieve the imputation test's objectives.
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9. |
TCI argued that non-essential loops are simply not essential. TCI
disagreed with Group Telecom et al. that ILECs have a price
advantage relative to CLECs as ILECs must price services to recover
fixed and common costs. Bell Canada et al. also disagreed that CLECs
are unavoidably reliant on leased loops in non-essential bands.
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(a) Determination with respect to alternative imputation test
proposals
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10. |
Bell Canada et al. and Group Telecom et al.'s proposed changes to
the imputation test rely on identical elements, but Bell Canada et
al. would impute the lesser of the two amounts, and the competitors
would impute the greater of the two amounts.
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11. |
The Commission considers that the proposals to impute loop rates
raise the issue of whether the Commission should treat
loops in non-essential bands as essential for imputation test
purposes. Group Telecom et al.'s proposal is grounded in their view
that local loops are essential, even in bands now designated as
non-essential. The extent to which ILEC loops in non-essential bands
should be characterized as essential is also the basis for the
ILECs' objection to Group Telecom et al.'s position.
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12. |
The Commission notes that Bell Canada et al.'s proposal
presupposes that economic loop options are readily available to
CLECs, in all instances, in non-essential bands. The Commission
disagrees and considers that Bell Canada et al.'s proposal does not
take sufficient account of competitive realities that CLECs face.
Group Telecom et al. argued that it is simplistic to assume that the
path to facilities-based competition in non-essential bands can
involve the exclusive use of CLEC-owned facilities at every stage.
In Order CRTC 2001-184, Local competition: Sunset clause for
near-essential facilities, dated 1 March 2001, the
Commission stated that near-essential facilities, including loops,
are critical inputs required by entrants. The Commission noted that
in virtually all cases only ILECs provide such facilities. The
Commission maintains this view and considers that CLECs are not in a
position to use only, or even mainly, CLEC-owned loops during the
transition to facilities-based local service competition.
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13. |
With respect to Bell Canada et al.'s proposal, the Commission
expects that the service specific loop costs will almost always be
less than the loop rate, given that the rate includes a mark-up. The
Commission also anticipates that Bell Canada et al.'s proposal, if
applied for non-essential bands, would typically result in the use
of service-specific loop costs, as is the case with the current
imputation test.
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14. |
The Commission distinguished between "essential"
and "other"
facilities for pricing purposes in Decision 97-8. Group Telecom et
al. referred in this proceeding to an application made in May 1999
by AT&T Canada (formerly MetroNet Communications Group Inc.)
with respect to Bell Canada's enhanced exchange-wide dial (EEWD)
service. EEWD service provides the customer with a combination of
exchange and intercommunicating services and is offered in the
restricted geographic area of Ottawa-Hull. In its application,
AT&T Canada argued that the imputation test does not adequately
prevent anti-competitive pricing and proposed using loop rates in
all bands for imputation test purposes. The Commission denied
AT&T Canada's application in Order CRTC 2000-208,
Commission
denies MetroNet Communications Group's request to modify the
imputation test, dated 20 March 2000. The Commission notes
its finding in that order that AT&T Canada's application sought
to review and vary Decision 97-8, and that AT&T Canada failed to
demonstrate that there is substantial doubt as to the correctness of
that decision.
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15. |
The purpose of this proceeding is to consider the Commission's
preliminary view that was expressed in the context of the rebanding
decision, regarding a change to the imputation test whereby ILECs
would use the per-band loop costs set out in that decision, and not
service-specific loop costs in that test. The Commission also
notes that various issues relating to ILEC services used by
competitors to provide local services, including the pricing of
these services, are currently being considered in the proceeding
begun by Public Notice CRTC 2001-37, Price cap review and related
issues, dated 13 March 2001.
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16. |
Based on the foregoing, the Commission considers that neither of
the proposals made by Bell Canada et al. and Group Telecom et al. is
appropriate.
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(b) Determination on the use of per-band loop costs
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17. |
Bell Canada et al. argued that requiring ILECs to impute per-band
loop costs would result in an unfair cost advantage to CLECs because
CLECs have access to cost options lower than the average per-band
loop cost. As discussed above, the Commission disagrees that such
alternatives are readily available to CLECs in most circumstances.
Group Telecom et al. objected to the Commission's proposed approach
on the basis that it would result in a price floor that does not
recover causal costs in situations where an ILEC's service-specific
loop costs are greater than its average per-band cost.
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18. |
The Commission recognizes that there will be instances where an
ILEC's service-specific loop costs are greater than the per-band
loop cost. The Commission also notes there are ILEC services for
which the service-specific loop costs will be less than the per-band
loop cost. The Commission notes that costs within bands are more
homogeneous as a consequence of the rebanding decision and considers
that, as a result, the per-band loop cost will be more
representative of the cost of any given loop within that band than
previously.
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19. |
The Commission recognized in the rebanding decision that
competitive equity issues may arise under the current imputation
test methodology insofar as it allows de-averaging of loop costs
within a rate band. Rates for ILEC loops are based on per-band loop
costs and, as the Commission stated in Order 2001-184, loops are a
critical input required by entrants. As noted above in paragraph 12,
it remains the Commission's view that CLECs are not in a position to
use only, or even mainly, CLEC-owned loops during the transition to
facilities-based local competition. The Commission therefore
considers that, as it proposed in the rebanding decision, using the
per-band loop cost will increase fairness and competitive equity.
Moreover, the Commission considers that the per-band loop cost is a
reasonable estimate of service-specific loop costs within a band for
the purpose of safeguarding against anti-competitive pricing.
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20. |
The Commission considers that it is appropriate to use consistent
costs for various regulatory purposes. For example, in Decision CRTC
2000-745, Changes to the contribution regime, dated 30
November 2000, the Commission stated that, to the extent applicable,
various costing parameters used to determine the loop rates in the
proceeding begun by Public Notice CRTC 2000-27, Restructured
bands, revised local loop rates and related issues, dated 18
February 2000, should also be used to determine primary exchange
services (PES) costs for purposes of calculating the subsidy
requirement. The Commission considers using the per-band loop costs
used to develop loop rates in the imputation test for local exchange
services is consistent with this general approach. This is
particularly relevant because loop costs represent a large
proportion of retail local exchange costs.
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21. |
In view of the foregoing, the Commission therefore modifies the
imputation test for retail local exchange services and service
bundles that include such local exchange services to require ILECs
to impute per-band Phase II loop costs underlying the approved loop
rates.
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Use of the rebanding decision costing parameters
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22. |
In the rebanding decision, the Commission asked ILECs to also
comment on the appropriateness of using costing methodologies and
parameters approved in the rebanding decision for future imputation
tests of retail exchange services.
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23. |
Bell Canada et al. and TCI argued that the costing methodologies
and parameters approved in the rebanding decision will not result in
costs that reflect an ILEC's true incremental costs and thus are not
appropriate for imputation tests of retail local exchange services.
Bell Canada et al. identified numerous adjustments with which they
disagreed. TCI, while also not agreeing with various adjustments in
the rebanding decision stated that the methodologies and parameters
for local loop pricing in that decision should also be used for
imputation test purposes so that consistent costs are used for both
purposes. Group Telecom et al. argued that, to ensure retail rates
are not set at anti-competitively low levels relative to unbundled
local loop rates, the Phase II cost of imputed test components must
be at or above the levels that result from using the costing
methodologies and parameters approved in the rebanding decision.
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24. |
The Commission considers it desirable to use consistent cost
methodologies for rating local loops and for imputation tests
associated with retail local exchange services, as doing so
increases the consistency between costs for the services provided to
CLECs and costs determined by the ILECs for their retail services.
With respect to the costing parameters adopted in the rebanding
decision, the Commission does not expect that capital cost
parameters (e.g. various average working fill factors and life
estimates) and use of accounting plant lives would vary with each
service.
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25. |
Therefore, the Commission requires ILECs to use in their
imputation tests the accounting plant lives and capital cost
parameters used in the rebanding decision, to the extent applicable,
for the non-loop portion of retail local exchange services and
service bundles that include retail local exchange services. The
Commission confirms that, when the imputation test is applied to a
proposed service bundle, this determination applies only to the
retail local exchange portion of that bundle.
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Residential service in high cost bands
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26. |
In the rebanding decision, the Commission asked ILECs to submit
their proposals on the Commission's preliminary view that the
imputation test for residential PES in high cost serving area (HCSA)
bands should be modified to take account of the explicit subsidies
to be received from the Central Funds Administrator (CFA).
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27. |
TCI and Group Telecom et al. considered that the Commission's
proposal is appropriate. Bell Canada et al. did not agree with the
Commission's proposal, and proposed to retain the existing
imputation test rules for residential PES in HCSA bands. Bell Canada
et al. submitted that, since the CLECs can resell ILEC residential
services in HCSA bands, using residential PES tariffed rates for
imputation tests involving residential PES in these bands will not
lead to a competitive inequity.
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28. |
The Commission agrees with Bell Canada et al. that the imputation
test for HCSA bands does not lead to a competitive inequity in the
current circumstances. As set out in Decision 97-8, an imputation
test is not required for below-cost single line residence services
and such services, when included in an ILEC's bundled service
offering, are costed at the applicable tariffed rates. Moreover,
based on the record of this proceeding, the Commission does not
consider that a change to the imputation test for HCSA bands is
justified. Therefore, the Commission concludes that the current
rules concerning the imputation test for residential PES in HCSA
bands remain appropriate and should not be modified to take account
of the explicit subsidies to be received from the CFA.
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Other matters
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Preliminary view regarding SaskTel's Band C |
29. |
In paragraph 15 of its letter regarding The imputation test
methodology for local services, dated 27 November 1998 (1998
letter), to interested parties to Telecom Public Notice CRTC 95-36, Implementation
of regulatory framework – Local interconnection and network
component unbundling, dated 11 July 1995, and Telecom Public
Notice CRTC 96-28, Implementation of regulatory framework –
Development of carrier interfaces and other procedures, dated 1
August 1996, the Commission identified loops in various
then-existing ILEC rate bands as essential facilities for purposes
of the imputation test. However, Saskatchewan Telecommunications,
which came under Commission jurisdiction effective 30 June 2000, was
not referenced in this letter.
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30. |
Having regard to the relative level of costs associated with
SaskTel's Band C, the Commission is of the preliminary view that
SaskTel's Band C should be treated as essential for purposes of the
imputation test. SaskTel may comment, copying all parties to the
rebanding decision proceeding, by 6 December 2001. Parties
may comment by 11 December 2001, copying SaskTel and SaskTel
may submit reply comments by 13 December 2001, serving
copies on those parties who filed comments. Comments and reply
comments must be received, not merely mailed, by these dates. |
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Clarification regarding Bands B and C in Aliant Telecom territory
formerly served by NBTel, NewTel and Island Tel
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31. |
In the rebanding decision, the Commission found that all bands
designated as essential prior to that decision will continue to be
designated as essential, and also designated the HCSA bands
identified in that decision as essential. However, NBTel and NewTel
did not have a Band C prior to the rebanding decision. Therefore,
while the rebanding decision has the effect that Band C is
designated as essential for all other ILECs (except SaskTel), that
decision's identification of Band C for NBTel and NewTel, taken with
the Commission's findings in its 1998 letter, create a situation
where Band C is not identified as essential in Aliant Telecom
territory formerly served by NBTel and NewTel. However, in Aliant
Telecom territory formerly served by NewTel, Band C loops are drawn
from the former NewTel essential Band B; and in Aliant Telecom
territory formerly served by NBTel, Band C loops are drawn
largely from the former NBTel essential Band B. In Aliant Telecom
territory formerly served by NBTel, NewTel and Island Tel, Band B
was previously classified as the non-essential Band A.
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32. |
The Commission therefore clarifies that for purposes of the
imputation test:
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(a) in Aliant Telecom territory formerly
served by NBTel and NewTel, unbundled loops in Band C are to be
treated as essential; and |
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(b) in Aliant Telecom territory formerly
served by NBTel, NewTel and Island Tel, unbundled loops in Band B
are to be treated as non-essential. |
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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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