ARCHIVED - Order CRTC 2000-860

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Order CRTC 2000-860

Ottawa, 19 September 2000
Québec-Téléphone 1999 final contribution rate approved
Reference: 8695-C12-10/99
The Commission approves a final 1999 contribution rate of $0.0298 per minute for Québec-Téléphone, effective 1 January 1999.

1.

In Québec-Téléphone and Télébec ltée - 1999 contribution rates, Telecom Public Notice CRTC 99-27, dated 23 December 1999, the Commission directed Québec-Téléphone to file its proposed final 1999 contribution rate.

2.

Québec-Téléphone filed its proposed 1999 contribution rate on 25 February 2000. In its assessment of Québec-Téléphone's proposal, the Commission considered the treatment of excess earnings, the international contribution process, and the capping of the contribution requirement. This order also deals with Québec-Téléphone's application for changes in depreciation life characteristics for certain accounts.

3.

The Commission has addressed the final 1999 contribution rate for Télébec in a separate order.
Québec-Téléphone 1999 contribution rate proposal

4.

Québec-Téléphone filed a proposed final 1999 contribution rate of $0.0331 per minute based on a forecast contribution requirement of $35.7 million.
Treatment of excess earnings

5.

In Implementation of regulatory framework for Québec-Téléphone and Télébec ltée, Telecom Decision CRTC 97-21, dated 18 December 1997, the Commission directed Québec-Téléphone to accumulate excess earnings in a deferral account should its Utility segment achieve earnings above the upper limit of the company allowed rate of return on average equity range during the split rate base regime.

6.

In Telecom Order CRTC 99-942, dated 30 September 1999, the Commission indicated that the disposition of any 1998 excess earnings would be addressed in the proceeding to finalize the 1999 contribution rates.

7.

In this proceeding, Québec-Téléphone reported that its Utility segment achieved excess earnings amounting to $10.2 million in 1998.

8.

The Commission considered various options for the disposition of excess earnings including those filed by Québec-Téléphone and Télébec ltée, in accordance with PN 99-27.

9.

Québec-Téléphone proposed to repay any excess earnings to the various long distance carriers on a pro-rata basis of the contribution paid.

10.

Consistent with the approach adopted for the major incumbent companies in Implementation of price cap regulation and related issues, Telecom Decision CRTC 98-2, dated 5 March 1998, the Commission has determined that the excess earnings be returned to the subscribers.

11.

The Commission has determined that the most efficient way to return the excess earnings to the subscribers is to mitigate any future residential local rate increases during the transition period or at the start of the price cap regime.

12.

Accordingly, the Commission directs Québec-Téléphone to continue to hold the excess earnings in a deferral account.

13.

The Commission also considers it appropriate, effective immediately and on a going forward basis, to impute interest on the excess earnings held in the deferral account, at a rate equivalent to the redeemable Guaranteed Investment Certificate annual interest rate with a three-year maturity date.

14.

Should Québec-Téléphone request and substantiate a residential local rate increase during the transition period prior to the introduction of price caps, the Commission may consider allowing the use of excess earnings and imputed accumulated interest to defer or reduce the need for residential local rate increases.

15.

In the absence of such a requirement, any excess earnings would be used at the start of the price cap period to reduce any required residential local rate increases.

16.

This approach is to be used for all excess earnings realized prior to the introduction of price caps.
International contribution

17.

In PN 99-27, the Commission directed Québec-Téléphone to provide comments, with supporting evidence, on the process and mechanism needed to ensure that the appropriate contribution charges are applied to international traffic carried by Québec-Téléphone, and to ensure that its contribution regime reflects any necessary changes to account for the international minutes and associated contribution revenues.

18.

Québec-Téléphone stated that it has entered into contract agreements with other carriers to carry its international traffic and that Québec-Téléphone itself does not carry international traffic.

19.

On the basis of the information provided and in the context of the current international contribution regime, the Commission is of the view that the approach used by Québec-Téléphone to carry its international traffic has no impact on the contribution requirement of Québec-Téléphone.

20.

The Commission notes that there is no provision in the current international contribution regime for international minutes that originate or terminate in the territory of independent telephone companies. Therefore, the Commission is of the view that some aspects of the international contribution mechanism with respect to the independent telephone companies need to be reviewed.

21.

The Commission will await the results of the proceeding initiated by Review of contribution collection mechanism and related issues, Telecom Public Notice CRTC 99-6, dated 1 March 1999, before determining what process, if any, is required to address the issue of international contribution with respect to the independent telephone companies.
Capping the contribution requirement

22.

In the past, the Commission has imposed some form of contribution cap on both the major incumbent telephone companies and the small independent telephone companies.

23.

In PN 99-27, Québec-Téléphone was directed to show cause as to why its contribution requirement should not be capped at its approved 1999 level.

24.

In reply, Québec-Téléphone indicated that it was opposed to a capping mechanism. The company argued that 1) it has demonstrated in the past that it has been efficient by achieving reductions in its contribution rate; 2) its contribution rate is quickly approaching the rates of the major incumbent telephone companies at the time their price cap regime was implemented; and 3) its shareholders would be required to absorb any extraordinary expenses.

25.

The Commission is of the view that, although Québec-Téléphone demonstrated fiscal responsibility in the past by reducing its contribution rate, a cap mechanism is still appropriate to ensure a contribution rate in line with the Commission's expectation in connection with the implementation of price cap regulation. This expectation was articulated in Time-frame for the implementation of price cap regulation and rate rebalancing for Québec-Téléphone and Télébec ltée, Telecom Decision CRTC 99-19, dated 10 December 1999, prior to the implementation of a new regime.

26.

The Commission determined in Regulatory framework for Québec-Téléphone and Télébec ltée, Telecom Decision CRTC 96-5, dated 7 August 1996, that the same basic framework that applies to the major incumbent telephone companies will apply to Québec-Téléphone. In Review of regulatory framework, Telecom Decision CRTC 94-19, dated 16 September 1994, the Commission imposed a cap on the contribution rates of the major incumbent companies.

27.

In light of the above, the Commission approves a mechanism that caps the contribution rate, effective with the year 2000, at the approved rate of the previous year minus an adjustment to reflect the impact of any rate increases specifically approved to reduce the contribution requirement.
Depreciation

28.

Québec-Téléphone filed an application to revise the average service lives (ASLs) of 40 accounts. In a letter dated 8 March 2000, the Commission informed Québec-Téléphone that a determination on its depreciation application would be made at the same time as the determination on the company's final 1999 contribution rate.

29.

The Commission notes that Québec-Téléphone's depreciation filing generally meets all of the Phase I directives, with the exception of the use of proper curve matching techniques.

30.

The Commission directs that, effective immediately, any applications made by Québec-Téléphone seeking changes in the depreciation life characteristics are to be filed in complete compliance with the current Phase I directives, including the use of curve matching techniques.

31.

The Commission has reviewed and analyzed the rationale and documentation supporting the proposed changes to the ASLs of the 40 accounts for which Québec-Téléphone proposed changes.

32.

The Commission is of the view that the respective proposed ASLs are reasonable with the exception of the following accounts for which the Commission has modified the ASLs as follows:
C201 Digital switching 12 years
C207 Switching software 5 years
C601 Poles 24 years
C631 Underground cable 19 years
C671 Underground conduit 44 years

33.

The Commission has determined, based on the evidence presented by Québec-Téléphone such as the rates of retirement, the average age, the impact of technological innovations and the level of competition, that the ASLs for the above noted accounts are more reasonable and more in line with the industry norms.

34.

In particular, in modifying the proposed ASL for account C207, Switching software, the Commission notes that it has directed all the companies to amortize switching application software over five years in Accounting for switching machine software expenditures, Telecom Decision CRTC 91-14, dated 27 September 1991.

35.

In light of the above, the Commission approves the ASLs and the related dispersion curves for the accounts listed in the Appendix to this order.

36.

The Commission's modifications to the ASLs of the five above noted accounts reduce the company's proposed 1999 Utility segment depreciation expense by $3.5 million.
Final 1999 contribution rate

37.

In light of the above adjustment, the Commission approves, effective 1 January 1999, a final 1999 contribution rate of $0.0298 per minute. This represents a $0.0258 reduction from the 1998 approved contribution rate of $0.0556.

38.

The company is to issue tariff pages reflecting its approved contribution rate within 10 days of the date of this order.
Filing of the final 2000 contribution rate

39.

Québec-Téléphone is directed to file, within 45 days of the date of this order, its proposed final 2000 contribution rate based on the company's forecast 2000 split rate base results and forecast 2000 minutes.
Secretary General


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

Appendix

QUÉBEC-TÉLÉPHONE

APPROVED AVERAGE SERVICE LIVES (ASL)

Account

Description

Dispersion

ASL
(years)

C121
Buildings

GM 3.5

27

C122
Radio huts

Iowa L-5.0

27

C123
Towers

Iowa L-5.0

26

C124
Access roads

Iowa R-5.0

36

C201
Digital switching

Iowa S-4.5

12

C203
Datapac network

Iowa R-3.5

7

C207
Switching application software

RECT.

5

C213
TOPS positions

Iowa L0.5

6

C214
Alarm system

Iowa L-0.5

6

C216
Power equipment

Iowa L-0.5

15

C217
Supervision software

RECT.

4

C242
Circuit - Other

Iowa L-2.0

10

C243
FOTS

Iowa L-3.0

8

C245
Digital multiplexer

Iowa L-3.0

8

C254
Exchange radio

Iowa L-2.5

12

C255
Digital radio

Iowa R-2.5

10

C257
Transmission software

RECT.

4

C401
Public telephones

GM 0.5

8

C406
Data transmission equipment

Iowa L-0.5

6

C471
Outside wiring

Iowa L-0.5

11

C601
Poles

Iowa L-2.0

24

C621
Aerial copper cable

Iowa L-0.5

18

C623
Aerial fibre cable

Iowa R-5.0

17

C631
Underground copper cable

Iowa L-2.5

19

C633
Underground fibre cable

Iowa R-5.0

17

C643
Buried fibre cable

Iowa R-5.0

17

C671
Underground conduit

Iowa L-1.0

44

C811
Furniture & office equipment

Iowa L-0.0

16

C812
Computers - Other

Iowa L-3.0

5

C814
Network computers

Iowa L-3.0

5

C821
Vehicles

Iowa L-0.5

8

C831
Automotive equipment

Iowa L-3.5

16

C841
Tools

GM 1.5

16

C842
Test equipment - Outside plant

GM 2.0

8

C843
Test equipment - Mobile radio

GM 2.0

8

C844
Test equipment - Other

GM 2.0

8

C861
Official service - Telephone sets

Iowa L-2.0

8

C863
Official service - Cellular

Iowa L-2.0

8

C868
Official service - Information systems

Iowa L-4.0

5

C869 Official service - Other

Iowa L-2.0

8

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