ARCHIVED - Order CRTC 2001-2

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Order CRTC 2001-28

 

Ottawa, 18 January 2001

 

CRTC denies Call-Net's application to discontinue the tariffs for the recovery of start-up costs

 

Reference: 8661-C25-01/00

 

The Commission denies an application by Call-Net Enterprises Inc. to, among other things, discontinue the tariffs for the recovery of start-up costs.

 

The tariffs were put in place following the introduction of competition in the long distance market in 1992. The tariffs require alternate providers of long distance services to pay a part of the costs incurred by the respondents when they modified their networks to provide equal access to all carriers.

 

Call-Net's application

1.

On 7 March 2000, Call-Net Enterprises Inc. filed an application pursuant to Part VII of the CRTC Telecommunications Rules of Procedure on behalf of itself, Call-Net Communications Inc., Call-Net Technology Services Inc. and Sprint Canada Inc. Call-Net requested that the tariffs for the recovery of start-up costs of the respondents in the proceeding leading to Competition in the provision of long distance voice telephone services and related resale and sharing issues, Telecom Decision CRTC 92-12, dated 12 June 1992, should be withdrawn, or that the respondents file evidence to support the continued application of the tariffs. Call-Net also requested that the tariffs be made interim pending the disposition of its application. The respondents to Decision 92-12 are: Bell Canada, British Columbia Telephone Company (now TELUS Communications (B.C.) Inc. (TCBC)), Maritime Telegraph and Telephone Company Limited (now Maritime Tel & Tel Limited), Island Telephone Company Limited (now Island Telecom Inc.), New Brunswick Telephone Company Limited (now NBTel Inc.) and Newfoundland Telephone Company Limited (now NewTel Communications Inc.) (the respondents).

2.

Call-Net also requested that a tracking mechanism be put in place for Manitoba Telephone System (now MTS Communications Inc.), Saskatchewan Telecommunications and AGT Limited (now TELUS Communications Inc. (TCI)), to track the recovery of start-up costs by these telephone companies, and that the respective start-up cost recovery tariffs be withdrawn once the approved start-up costs have been recovered.

3.

Call-Net submitted among other things that, because interexchange traffic volumes have increased to a far greater extent than foreseen by the Commission at the time of Decision 92-12, the start-up costs of the respondents may now have been fully recovered, and that continued application of the start-up cost recovery tariffs would unjustly enrich the respondents to the detriment of their competitors, the alternate providers of long distance services (APLDS).

4.

Primus Telecommunications Canada Inc. supported Call-Net's application.

5.

Bell Canada, on behalf of itself and MTT/Island Tel, NBTel, NewTel and MTS, collectively Bell Canada et al., and TCBC and TCI, collectively TELUS, opposed Call-Net's application.

6.

SaskTel responded stating that it tracks the recovery of start-up costs from APLDS in its territory, and is not opposed to Call-Net's application.

 

Issues

7.

The Commission notes that Decision 92-12 did not specify a fixed amount of the start-up costs that would be recovered from the APLDS.

8.

Rather, the Commission found in Decision 92-12 that $240 million was a reasonable estimate of the respondents' start-up costs. The Commission considered that it would be appropriate to allocate the start-up costs based on an approximation of the long-run market shares of all competitors, including the respondents. On that basis, the Commission determined that APLDS should pay 30% of the estimated start-up costs through tariffed charges, and that the remaining 70% would be allocated to the respondents. To avoid overburdening the initial APLDS, the Commission concluded that a fair and reasonable period for the amortization of start-up costs would be 10 years.

9.

The Commission notes that the start-up cost recovery tariffs were established by dividing the present value of the start-up cost associated with each respondent by the present value of entrants' estimated volumes in the respondent's territory. Based on this methodology, the APLDS would pay 30% of the start-up costs to the extent that they attained the volumes estimated in Decision 92-12.

10.

Conversely, APLDS pay a greater or smaller portion of the estimated start-up costs depending on whether their traffic volumes are greater or less than the traffic volumes estimated in Decision 92-12.

11.

Further, given that the tariffs apply only to trunk-side connected traffic, the actual amounts paid by the APLDS depend on the extent to which the APLDS choose to use trunk-side connections to the respondents' networks to provide equal access.

12.

The Commission did not implement, in Decision 92-12, a mechanism to track the recovery of start-up costs. Moreover, given that the Commission did not establish a fixed amount of start-up costs to be recovered from the APLDS and given that the actual amount of start-up costs paid by the APLDS would depend on their traffic volumes, and on their use of trunk-side as opposed to line-side connections to the respondents' networks, a tracking mechanism, as requested by Call-Net, would be inconsistent with the framework established in Decision 92-12 for the recovery of start-up costs.

13.

The Commission also notes that the start-up cost recovery tariffs will in any case lapse in a few years.

14.

The Commission agrees with Bell Canada et al. and TELUS that Call-Net has overestimated the amounts paid by the APLDS towards the respondents' start-up costs. First, Call-Net's revenue estimates fail to take into account the time value of money. Second, Call-Net based its revenue estimates on contribution-eligible minutes which include traffic connected via line-side connections, to which the tariffs do not apply. In this respect, the Commission also agrees with Bell Canada et al. and TELUS that Call-Net's assumption that smaller competitors' trunk-side connected traffic is of the same order of magnitude as the larger APLDS's line-side connected traffic is not valid.

 

Conclusion

15.

In view of the foregoing, Call-Net's application is denied.

 

Secretary General

 

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

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