Telecom Decision
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Ottawa, 27 November 1995
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Telecom Decision CRTC 95-22
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CONTRIBUTION REGIME IN ALBERTA
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I INTRODUCTION
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In AGT Limited - Interconnection of Interexchange Carriers and Related Resale and
Sharing Issues, Telecom Decision CRTC 93-17,
29 October 1993 (Decision 93-17), the
Commission determined that competitors' toll traffic originating in Edmonton, like toll
traffic originating elsewhere in Alberta, should continue to contribute towards non-self
supporting services in the rest of the province on the basis of foregone contribution. The
Commission also concluded that the most effective method of accomplishing this objective
is for interexchange carriers (IXCs) and resellers to make contribution payments to AGT
Limited (AGT) for toll traffic which originates and terminates in Edmonton.
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On 11 February 1994, Edmonton Telephones Corporation (ETC), filed an application
requesting that the Commission review and vary Decision 93-17 pursuant to section 62 of the Telecommunications
Act (the Act). ETC requested that the Commission alter the contribution regime to
require contribution payments to AGT only where there is interconnection with AGT.
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In ED TEL - Application for a Review and Variance of Telecom Decision CRTC 93-17, Telecom Decision CRTC 94-21, 26 October 1994, the Commission
denied ETC's request to review and vary Decision 93-17. However, the Commission determined that
as a result of the decision of the Supreme Court of Canada in Attorney-General of
Quebec et al. v. Téléphone Guèvremont, 26 April 1994, that brought ETC under the
Commission's jurisdiction, the Commission would now be in a position to re-examine the
contribution regime in Alberta in a manner that took into consideration the local/access
shortfall in the operating territory of each company.
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In Contribution Regime in Alberta, Telecom Public Notice CRTC 94-51, 26 October 1994, the Commission
invited proposals for an alternative contribution approach that would provide a better
balance between the contribution requirements of both AGT and ETC and reflect the
local/access shortfall of each company in an equitable manner.
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Proposals were received from AGT, ETC, Northline Telecommunications Inc. (Northline),
the Ontario Telephone Association, Sprint Canada Inc. (Sprint), and Unitel Communications
Inc. (Unitel).
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In March 1995, AGT's parent, Telus Corporation (Telus) purchased ETC's
telecommunications assets from the City of Edmonton, and continued operations under the
name ED TEL Communications Inc. (ED TEL).
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Comments were received from AGT, the City of Calgary (Calgary), ED TEL, Northline,
Sprint and Unitel.
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II ED TEL'S CURRENT ARRANGEMENTS WITH INTERCONNECTING CARRIERS
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The current settlement arrangements between AGT and ED TEL are based upon a modified
Commission and Line-Haul type of settlement, known as Alternate Appendix B (AAB). Under
the terms of the settlement agreement, ED TEL collects all revenue from toll calls that
originate in Edmonton, retains a fixed percentage derived from a multi-variable formula
and remits the remainder to AGT. The retention rate of toll revenues by ED TEL is capped
at 20.1%. This has the effect of keeping ED TEL's share of toll revenue at a constant
proportion of the total toll revenue generated in Edmonton.
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Prior to this Decision, ED TEL and ETC have required Alternate Providers of Long
Distance Services (APLDS) with whom they entered into interconnection agreements to pay
contribution charges of $0.0556 per minute for traffic originating or terminating in
Edmonton. In addition to this, as a result of the Commission's determinations in Decision 93-17, an APLDS paid an additional
contribution for traffic originating or terminating in Edmonton. By way of example, for
IXCs, this resulted in a contribution rate that was significantly higher than the average
contribution rate paid in the territories of the Stentor members other than AGT.
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III PROVINCE-WIDE AVERAGE CONTRIBUTION RATE MECHANISM
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All parties generally supported the adoption of a blended province-wide average
contribution rate.
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The Commission agrees with this approach for the Alberta market, primarily because of
the relationship between AGT and ED TEL and the relative importance to the Alberta market
of traffic originating and terminating in Edmonton. The specific details for the
implementation of a blended province-wide average contribution rate are set out below.
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- IV CONTRIBUTION REQUIREMENT
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ED TEL submitted that, in the absence of an approved costing methodology specifically
applicable to a Local Exchange Carrier (LEC) operation, such as ED TEL, the 1994 AAB
amount of $40.4 million is an appropriate contribution requirement for 1995 because this
amount inherently recognizes both the costs of interconnection, including those associated
with switching and aggregation, and the local/access shortfall.
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In response to a Commission interrogatory requesting an estimate of its non-toll
shortfall, ED TEL filed a Phase III Approximation Study. However, ED TEL noted that the
use of the study for any purpose other than an indicator of the reasonableness of the AAB
amount noted above would be inappropriate.
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Sprint submitted that ED TEL provided, in its Phase III Approximation Study, 1995
local/access shortfall information that would be adequate to derive ED TEL's 1995
contribution requirement.
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Calgary submitted that the contribution method should be based on the costs of
providing local service and the resulting shortfall, and that the methodology to be
employed should be consistent with that enunciated in Review of Regulatory Framework,
Telecom Decision CRTC 94-19, 16 September
1994 (Decision 94-19).
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AGT argued, that ED TEL's costing information is not detailed enough for the Commission
to estimate the initial province-wide Carrier Access Tariff (CAT), nor is it sufficient to
permit the Commission to make specific adjustments to particular cost items. AGT submitted
that the Commission should use the AAB amount as a starting point and should adjust it, if
necessary, when a proper cost separation study is conducted by ED TEL to identify its toll
costs and local/access shortfall.
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The Commission has evaluated the methodology and results of the Phase III Approximation
Study commissioned by ED TEL and finds that there are major differences between the study
as submitted and the Commission's approved Phase III methodology, including inappropriate
category assignments, incomplete data with respect to its reports and lack of detail at
the account level.
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While the Commission agrees with the various parties who submitted that the calculation
of ED TEL's local/access shortfall should be cost-based, the Commission is of the view
that the Phase III Approximation Study is not adequate for the purpose of calculating a
1995 contribution rate.
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Accordingly, the Commission considers that the AAB amount of $40.4 million to be the
most reasonable approximation of the local/access shortfall that can be made for 1995,
while satisfying the requirements of recovering contribution and switching and aggregation
costs.
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In order to ensure that a cost-based contribution mechanism is implemented for 1996,
the Commission directs ED TEL to: (1) refine its costing methodology so as to be more
consistent with the approved Phase III methodology and (2) file its 1996 contribution
requirement based on this methodology.
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The Commission will follow-up with ED TEL, to outline generally the refinements to its
costing methodology that are required.
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V SWITCHING AND AGGREGATION
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ED TEL submitted that, while switching and aggregation costs are not separately
identified under the AAB methodology, ED TEL would be prepared to unbundle its CAT
provided that: (1) a suitable costing methodology applicable to LECs is available and (2)
the sum of the contribution and switching and aggregation charges maintain the per-minute
component of ED TEL's 1994 CAT at $0.0457.
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AGT submitted that until ED TEL provides more detailed cost separation information, the
current AAB amount should be employed to determine the ED TEL portion of the province-wide
CAT. AGT submitted that when ED TEL has completed its cost study, its allocated toll costs
will be determined and that these should form the basis for ED TEL's switching and
aggregation charge.
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Sprint submitted that a separate switching and aggregation rate should be developed for
ED TEL. Sprint further submitted that until such time as ED TEL has filed proposed rates
and costing information similar to that filed by Stentor members in the proceeding
initiated by Equal Access, Telecom Public Notice CRTC 94-26, 24 May 1994 (Public Notice 94-26), ED TEL's switching and aggregation
charge should be the same as that established in Competition in the Provision of Public
Long Distance Voice Telephone Services and Related Resale and Sharing Issues, Telecom
Decision CRTC 92-12, 12 June 1992 (Decision
92-12).
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Unitel proposed that the switching and aggregation rates should be tariffed separately
from contribution charges, and that these rates should be based on Phase II costing rules,
consistent with the proceeding initiated by Public Notice 94-26. Unitel submitted that, after adjusting
for an alleged misallocation of property taxes, the per-minute rate of $0.007 should apply
for switching and aggregation services in Edmonton. Consistent with the Commission's
decision in Part IV above to adopt the AAB amount of $40.4 million for 1995, the
Commission does not consider that it is appropriate to establish a separate switching and
aggregation charge for 1995. However, with the implementation of a cost-based contribution
charge by ED TEL in 1996, the Commission directs ED TEL to include an explicit switching
and aggregation charge of $0.011 per minute in its CAT, to be effective 1 January 1996.
Accordingly, AGT and ED TEL are directed to file a proposed contribution requirement for
1996 that includes in the calculation estimated revenue flowing to ED TEL from switching
and aggregation charges.
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VI CONTRIBUTION DISCOUNTS
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ED TEL noted that in Telecom Order CRTC 95-534,
2 May 1995, the Commission denied an application by Bell Canada (Bell) for approval of
tariff revisions to flow through to APLDS the settlement costs associated with calls
between APLDS and the independent telephone companies using Bell facilities. ED TEL was of
the view, that the Commission supported a non-discounted CAT for LECs and submitted that
similar treatment should be afforded ED TEL. ED TEL further submitted that the conditions
cited by the Commission in Decision 92-12
as the basis for establishing a contribution discount are not applicable to EDTEL.
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Sprint argued that, given the nature of the relationship between AGT and ED TEL, it is
appropriate that a contribution discount apply in deriving the contribution rate paid by
IXCs and resellers in ED TEL's operating territory. Sprint further submitted that the
discount would recognize the tremendous market and structural advantages enjoyed by AGT in
ED TEL territory.
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Unitel submitted that the two factors of (1) telephone company dominance and (2)
minimal competition, identified by the Commission in Decision 92-12, apply equally in the Edmonton market.
Unitel submitted that there is currently minimal long distance competition in Edmonton,
with AGT continuing its historically dominant position.
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In reply, ED TEL submitted that if contribution discounts are allowed, then ED TEL
would be unable to recover its entire access shortfall with the result that ED TEL would
not be kept whole.
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The Commission notes that, currently, (1) all default traffic automatically transfers
to AGT as a result of an AGT-ED TEL agreement, (2) the billing and collection functions
are simultaneously carried out by ED TEL for the company's own provision of local service
as well as for AGT's long distance services and (3) AGT enjoys certain marketing
advantages, such as the inclusion of AGT billing inserts with the bill that ED TEL sends
to its customers.
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The Commission also notes that, while the companies are separate legal entities, they
are affiliated through Telus. In the Commission's view, the nature of ED TEL's
relationship with AGT allows AGT to achieve a market and structural advantage in the
Edmonton market.
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In light of the above, the Commission considers that, in order to foster a fully
competitive long distance market in Edmonton, contribution discounts should apply in ED
TEL territory consistent with the Decision 92-12
methodology. Finally, because the long distance market has been open to competitors in
Edmonton since 1993, the Commission concludes that the same contribution discount schedule
should apply for ED TEL's operating territory as that currently in place for IXCs and
resellers interconnecting with AGT. By way of example, for IXCs operating in Alberta, a
25% discount will apply until 30 June 1996.
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VII DIRECT ACCESS LINES
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For reasons similar to those noted above regarding contribution discounts, ED TEL
submitted that Direct Access Lines (DALs) used by all toll service providers are
measurable and should be subject to contribution payments consistent with ED TEL's current
CAT. ED TEL stated that the company's position is consistent with the treatment afforded
all LECs in Canada.
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AGT and Calgary also submitted that contribution should be payable on traffic carried
on DALs.
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Sprint and Unitel submitted that the contribution regime should be consistent with, and
be based on, the principles established in Decision 92-12, i.e., contribution should not be
payable on DALs.
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The Commission is of the view that the contribution mechanism applied to carriers
interconnecting with ED TEL should mirror the contribution regime implemented in Decision 92-12. The Commission considers this to be
particularly important given the size of the Edmonton market. Furthermore, in the
Commission's view, the contribution regime in Edmonton should be similar to that which
applies to AGT, in order to encourage toll providers to interconnect with ED TEL directly,
rather than through AGT's facilities.
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Accordingly, the Commission concludes that long distance carriers competing with AGT
should be allowed to originate or terminate traffic in Edmonton using DALs and should not
pay contribution on traffic carried using DALs. The Commission also considers that the
application of a 2% DAL surcharge in the calculation of ED TEL's contribution rates is
appropriate as was established in Decision 92-12.
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Finally, consistent with Decision 92-12,
the Commission considers that all of AGT's long distance traffic should continue to
attract contribution regardless of whether the traffic is carried over DALs. The
Commission believes that this treatment is appropriate because the relationship between
AGT and ED TEL confers benefits to AGT that are not available to other competitors. The
above determinations recognize that the principles established by this contribution regime
should be consistently applied province-wide.
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VIII CONTRIBUTION COLLECTION MECHANISM
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ED TEL submitted that Decision 92-12 has
been superseded by Decision 94-19 in which
the Commission advocates the adoption of a per-minute contribution collection mechanism.
ED TEL further noted that should the Commission adopt the per-trunk rate in Edmonton, ED
TEL would be unable to recover its entire access shortfall.
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AGT submitted that a per-trunk mechanism would leave ED TEL with a Commission imposed
revenue requirement shortfall. AGT further stated that if the Commission determines that a
per-trunk mechanism should be applied in Edmonton, then it should be applied equally to
all toll providers.
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Sprint submitted that the ED TEL contribution regime should be consistent with and be
based on the principles established in Decision 92-12.
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Unitel submitted that contribution among the Stentor companies, including AGT, should
be collected through a per-trunk mechanism. Unitel also stated that pending the outcome of
the proceeding initiated by De-averaged Per-Minute Contribution Mechanism, Telecom
Public Notice CRTC 94-59, 29 December 1994
(Public Notice 94-59), it would be premature
to implement an average per-minute mechanism in Edmonton.
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The Commission notes that the concerns raised by Sprint and Unitel in Applications
by Unitel Communications Inc. and Sprint Canada Inc. to Review and Vary Part of Decision 94-19, Telecom Decision CRTC 94-27, 29 December 1994 (Decision 94-27), with respect to the necessity of
reconfiguring their networks as the result of changing from a per-trunk mechanism to a
per-minute mechanism, do not apply in ED TEL territory. At present, ED TEL's tariff is
calculated on a per-minute basis; thus, the networks would already be configured
accordingly.
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In the circumstances, the Commission considers that ED TEL's contribution should
continue to be collected on a per-minute basis. Since no modifications to the APLDS'
networks are required under this scenario, the Commission considers it appropriate that
the per-minute mechanism be effective in ED TEL territory effective 1 January 1995.
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The Commission further notes that, in Public Notice 94-59, it proposed adoption of a de-averaged
per-minute contribution mechanism. While the Commission has yet to render its decision
with respect to the proceeding initiated by Public Notice 94-59, it notes that if a de-averaged per-minute
rate is adopted, or if the per-trunk mechanism is retained for the Stentor companies, then
ED TEL's contribution collection mechanism may be revised.
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- IX IMPACT OF DIRECTIVE
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In Order-in-Council P.C. 1994-1779, 25 October 1994, the Governor in Council issued a
directive to the Commission, pursuant to section 75 of the Act, regarding the regulation
of ED TEL and ETC during the transitional period ending 25 October 1998 (the Directive).
Pursuant to the Directive, the Commission was required to (1) approve a 200 basis point
range of regulated return on common equity with a mid-point of 12.5%, (2) include a
minimum of 12% of the shareholder entitlement (as defined in the Directive) in ED TEL's
annual revenue requirement, and (3) treat the operations of ED TEL Directory Inc. as being
partially integral to the operations of ED TEL, such that the Commission is restricted as
to the extent to which ED TEL Directory Inc.'s revenues may be included in calculating ED
TEL's revenue requirement.
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Calgary submitted that the higher rates of return that are allowed as a result of the
Directive would unduly discriminate against AGT subscribers if the Directive's provisions
were included in the contribution requirement. Calgary also submitted that higher rates of
return should not be available to ED TEL at the expense of AGT subscribers outside the
city of Edmonton.
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Calgary also submitted that the Commission should not allow the citizens of Edmonton to
benefit a second time and should therefore exclude the shareholder entitlement from the
contribution calculation.
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With respect to directory revenues, Calgary argued that the Commission should ensure
that its decision in this proceeding is consistent with its treatment of other telephone
companies.
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ED TEL replied that the Directive was implemented to facilitate a smooth transition to
federal regulation and private ownership. ED TEL submitted that any reduction of ED TEL's
CAT by an amount equivalent to the potential annual benefit of the Directive as proposed
by Calgary would result in a local rate increase in Edmonton. Since the local rates in
Edmonton currently include the costs of the Directive, ED TEL submitted that such an
increase would result in double recovery of the Directive costs from local subscribers.
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The Commission considers that it would be contrary to the objectives of the Directive
if the Commission were to set a contribution rate for ED TEL based on a revenue
requirement that did not reflect the terms of the Directive. Accordingly, for 1995, the
Commission is of the view that no adjustments are required because it has adopted the AAB
amount. In light of the Commission's direction set out above to utilize Phase
III-equivalent methodology to calculate contribution in 1996, issues related to the
Directive will be examined within the framework of that proceeding.
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X IMPLEMENTATION DATES
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AGT and ED TEL submitted that all of their internal budgeting, planning, system
processes and filings in the proceeding leading to Implementation of Regulatory
Framework - Splitting of the Rate Base and Related Issues, Telecom Decision CRTC 95-21, 31 October 1995 (Decision 95-21) have been based on a 1 January 1996
implementation date.
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Sprint submitted that the new Alberta contribution rate should be applied retroactively
to the date on which ED TEL's CAT received interim approval, i.e., 1 January 1995.
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Unitel submitted that the new blended province-wide contribution mechanism should not
be imposed effective 1 January 1995. Unitel stated that it would be unfair to penalize
competitors that did not originate or terminate significant traffic in Edmonton, by
effectively raising the contribution charges for AGT territory. Unitel proposed that the
current contribution regime should be maintained for each IXC and reseller from 1 January
1995 up until the date that the IXC or reseller in question entered the Edmonton long
distance market. Alternatively, Unitel proposed that the Commission select 1 July 1995 as
the implementation date, submitting that this would not require a separate calculation for
each competitor and would recognize that most competitors were not active in the Edmonton
market in the first half of the year.
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The Commission considers that a blended contribution rate for the province of Alberta
using the AAB amount for 1994 as a proxy for the 1995 contribution requirement should be
implemented as of 1 January 1995, the same date the contribution rates are to take effect
as directed in Decision 95-21.
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Based on the determinations made in this Decision, the Commission gives final approval
to the following contribution rates for AGT and ED TEL in 1995:
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Line 5c) (Non-Discounted)
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1995 Contribution Per Minute Per End ($)
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AGT ED TEL TOTAL
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0.04440 .0070 0.0515
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For each call originating or terminating in Edmonton, ED TEL will collect from AGT,
IXCs and resellers, $0.0515 per minute per end, $0.0367 per minute per end, and $0.0275
per minute per end, respectively. ED TEL will then remit to AGT the requisite amount to
cover AGT's contribution requirement. For example, an IXC originating or terminating a
call in Edmonton would pay ED TEL $0.0367 per minute per end. Of the $0.0367 collected by
ED TEL, $0.0317 would be remitted to AGT and the remainder, $0.0050, would be kept by ED
TEL.
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Similarly, for each call originating or terminating in AGT territory, AGT will collect
from IXCs and resellers, $0.0367 per-minute per end converted to a per-trunk rate, and
$0.0275 per-minute per end converted to a per-trunk rate, respectively. AGT will then
remit to ED TEL, the requisite amount to cover ED TEL's contribution requirement. For
example, an IXC originating or terminating a call in Edmonton would pay AGT $0.0367 per
minute per end converted to a per-trunk rate. Of the $0.0367 collected by AGT, the
equivalent of $0.0050 would be remitted to ED TEL and the remainder, $0.0317, would be
kept by AGT.
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The Commission also directs ED TEL and AGT to issue revised tariff pages to reflect the
new contribution rate and make the necessary adjustments in their billing as expeditiously
as possible.
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The calculation of 1995 contribution charges are shown in the Attachment to this
Decision.
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Allan J. Darling
Secretary Genera
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ATTACHMENT
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CALCULATION OF 1995 CONTRIBUTION RATES FOR AGT AND ED TEL
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AGT ED TEL TOTAL
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A. Contribution Requirement ($ Millions):
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1. Level of Contribution Requirement 255.2 40.4 295.6
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B. Toll Minutes Calculation
(Millions):
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2. Telco Orig. & Term. Minutes
5270.4 5270.4 5270.4
3. a) Entrant Minutes
507.9 507.9 507.9
b) Entrant Stim. Minutes Ratio to Total Minutes
0.0678 0.0678 0.0678
c) Deduct Entrant Stimulated Minutes
34.4 34.4 34.4
4. Total Market Orig. & Term. Minutes
5743.9 5743.9 5743.9
5. Contribution Rate per Min. Per End
0.0444 0.0071 0.0515
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C. Multiplicative Adjustments:
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6. Gross Receipts Tax 1 1 1
7. DAL Surcharge 1.02 1.02 1.02
8. Discount 0.75 0.75 0.75
9. Stim. Min. Factor 0.9322 0.9322 0.9322
10. Contr. Per Min. Per End - FBC ($)
0.0317 0.0050 0.0367
11. Reseller Discount 0.75 0.75 0.75
12. Contr. Per Min. Per End - Reseller ($)
0.0238 0.0037 0.0275
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Explanation of Attachment Line Items:
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A. Contribution Requirement: For AGT, the $255.2 million was derived in Decision 95-21; for ED TEL, it is the AAB Amount of
$40.4 million.
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B. Toll Minute Calculation - The minutes approved as the forecast in Decision 95-21 for AGT are the minutes used in this
Decision.
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(Minor Differences Due to Rounding)
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