|
Telecom Decision
|
|
Ottawa, 30 July 1984
|
|
Telecom Decision CRTC 84-20
|
|
Terra Nova Telecommunications Inc., General Increase in Rates
|
|
INTRODUCTION
|
|
On 6 January 1984, Terra Nova Telecommunications Inc., (Terra Nova Tel, the Company) filed an application with the Commission for a general increase in its rates to be effective 1 July 1984. The Company proposed to increase the rates for most of its services by approximately 6%. With respect to long distance service, the Company proposed a restructuring of its rate schedule within Newfoundland to include the introduction of a 10 cent call set-up charge and specifically for person-to-person calls, the reduction of the three minute minimum charge to one minute and the introduction of a $1.50 operator charge and time-of-day discounts. Regarding extended area service (EAS) rates, the Company proposed to increase rates for certain exchanges through rate structure modifications, in addition to the proposed 6% increase for all exchanges. The Company also proposed to introduce a toll verification charge of $1.00 to be applied in instances where toll charges, initially denied by a subscriber, were subsequently found to be valid.
|
|
The Company estimated that its proposed rate changes, if approved effective 1 July 1984, would provide Terra Nova Tel with additional revenues of $0.7 million in 1984 and $1.5 million in 1985.
|
|
The Commission received 11 letters of intervention relating to the application.
|
|
Under the provisions of subsection 81(1) of the National Transportation Act, Mr. Peter Barnes, a Commission staff member, was appointed to conduct the public hearing on the application and submit a report to the Commission. The report consisted of the transcript of the hearing, and all of the evidence filed with the Commission.
|
|
II ACCESS TO AND QUALITY OF SERVICE
|
|
1. Quality of Service
|
|
The Commission considers that an assessment of the quality of service provided by a carrier to its customers is an essential element in the determination of just and reasonable rates. In this regard, pursuant to Quality of Service Indicators for Use in Telephone Company Regulation, Telecom Decision CRTC 82-13, 9 November 1982 (Decision 82-13), Terra Nova Tel is required to report details of its performance, on a quarterly basis, for a number of indicators dealing with service provisioning, local and long distance network performance, operator services, directory and billing accuracy, and complaints.
|
|
In this proceeding, the Commission has reviewed the Company's performance for the period since its last general rate increase application in April 1981 to the first quarter of 1984. The Commission notes that considerable progress is evident for most indicators. However, the Company has yet to reach the point where its performance objectives are being achieved consistently for all indicators.
|
|
The Company cited problems associated with the implementation of new management and systems procedures as the cause of lower than normal performance for a number of indicators in the third and fourth quarters of 1983. The Company expects its performance to improve substantially with the resolution of these problems together with current and planned program expenditures related to plant improvements included in its construction program.
|
|
The Commission is satisfied with Terra Nova Tel's improvement in quality of service and encourages the Company to continue its efforts toward consistent achievement of performance results in accordance with the standards for the various indicators established in Decision 82-13.
|
|
2. Access to Service
|
|
a) Rates for Services and Equipment for the Disabled
|
|
In its application, Terra Nova Tel proposed a discount of 50% on intra-Newfoundland customer dialed long distance calls originated by subscribers with a hearing or speech impairment requiring the use of a special keyboard device.
|
|
With respect to rates for equipment for the disabled, the Company stated that it currently offers the Visual Ear at "cost plus $25.00", a handset for the hearing impaired at "a nominal installation charge of $5.00 with no additional monthly recurring charge", and the Artificial Larynx at "cost plus a small handling charge". Terra Nova Tel added that while other equipment items are not provided at a discount at present simply because they are not unique to the disabled, it would be prepared to discount by 50% all items offered at discount prices by Bell Canada (Bell) and British Columbia Telephone Company (B.C. Tel).
|
|
The Commission considers that this approach to services to the disabled is reasonable, and accordingly directs Terra Nova Tel to file tariffs, giving effect to the proposed 50% discount, for the following equipment items:
|
|
- Push-button Dialing
- Contempra Telephone
- Extension Telephone
- Long Cords
- Attendant's Telephone (Head Set)
- Key Equipment
- Speakerphone
- Automatic Dialer Equipment
- Auxiliary Signals
|
|
The Commission also approves the proposed 50% discount for intra-Newfoundland long distance calls, and directs Terra Nova Tel to inform its subscribers of these discounted toll and equipment rates by way of a billing insert.
|
|
The Company is also directed to advise the appropriate social agencies in its operating territory of these tariff changes, at the time of the introduction of these new rates.
|
|
b) Accessibility of Coin Telephones to the Disabled
|
|
Terra Nova Tel described its policy on the accessibility of coin telephones to the disabled as follows:
|
|
It is the Company's policy to make coin telephones accessible to handicapped people
whenever a recurring need is identified. The Company has:
|
|
1. equipped all coin and emergency telephones with hearing-aid compatible handsets;
|
|
2. installed wheelchair-height coin telephones and hard-of-hearing handsets in the Company's most heavy public traffic area, Gander International Airport.
|
|
The Company stated further that, in instances where two or more coin telephones are installed adjacent to each other in a public building, it is prepared to install one, on request, at a height of 54 inches. This height has been adopted as the standard by other telephone companies and found to facilitate access to coin telephones by wheelchair users while presenting no difficulty for other users. In addition, Terra Nova Tel indicated that it was prepared to adopt a policy of installing coin telephones at a 54 inch height for all future modifications, replacements and new installations.
|
|
The Commission considers this approach to be reasonable and accordingly directs Terra Nova Tel to adopt the policy described above.
|
|
With respect to the issue of equipping coin telephones with amplifying handsets, the Company stated that its current practice is to respond to specific requests for such equipment and that, at present, the Gander International Airport terminal is the only location at which coin telephones are so equipped. Terra Nova Tel indicated that it would be prepared to initiate discussions with groups and organizations representing the hearing impaired to establish whether a demand exists for coin telephones equipped with amplifying handsets.
|
|
The Commission concurs with the Company's approach and accordingly directs Terra Nova Tel to initiate discussions with the appropriate groups and report the results to the Commission within six months of the date of this decision.
|
|
c) Directory Assistance Charge Exemptions
|
|
The Company's General Tariff CRTC 2001 Item 404B exempts from directory assistance charges those registered with Terra Nova Tel as having a physical, mental or other disability preventing them from using the directory and those residential subscribers aged 65 or over who request exemption and provide to the Company suitable proof of age.
|
|
During the hearing, Terra Nova Tel agreed to extend the directory assistance charge exemption to two additional groups of subscribers, namely, the functionally illiterates so registered with the Company and subscribers who inform the operator of a temporary handicap or disability preventing use of the directory. The Company also stated that it was prepared to publicize further the directory assistance charge exemptions by way of both a billing insert and the provision of a supply of the exemption forms to groups and organizations involved with senior citizens and the disabled.
|
|
The Commission agrees with these proposals and accordingly directs Terra Nova Tel to file revisions to General Tariff CRTC 2001, Item 404B, with a proposed effective date of 1 August 1984, providing for the additional exemptions described above. The Company is also directed to publicize the exemptions using the two methods described above.
|
|
III CONSTRUCTION PROGRAM
|
|
1. General
|
|
Terra Nova Tel forecast construction expenditures of $61.7 million for the 1984 to 1988 period, which are broken down into annual expenditure forecasts as follows:
|
|
$ Millions
1984 11.5
1985 10.9
1986 11.2
1987 12.1
1988 16.0
61.7
|
|
The forecast $61.7 million expenditures were also assigned to usage categories as follows:
|
|
%
Demand 47.5
Modernization 40.5
Replacement 5.3
Support 6.7
100
|
|
2. Major Programs
|
Changes to the Company's construction program forecast for the 1983 to 1987 period, approved in Terra Nova Telecommunications Inc. - 1983 Contruction Program Review, Telecom Decision CRTC 84-5, 16 January 1984, are minimal.
|
|
Major programs in the Company's construction forecast include:
|
|
a) improvement in availability of single party exchange service to subscribers;
|
|
b) replacement of open wire pole lines with digital cable carrier systems and replacement of low
capacity tube type radio systems with solid state radio and microwave equipment, to improve
the overall capacity and efficiency of its toll network; and
|
|
c) the upgrading and replacement of some of the Company's step-by-step switching equipment
with more modern digital equipment.
|
|
3. Conclusion
|
|
Having reviewed the evidence relating to Terra Nova Tel's construction program, the Commission considers that the Company's expenditure forecasts are consistent with its forecast demand for service and reflect a reasonable rate of modernization of the Company's network. The Commission concludes that the proposed capital expenditures for the years 1984 to 1988 are reasonable.
|
|
IV FINANCIAL CONSIDERATIONS
|
|
In Inquiry into Telecommunications Carriers' Costing and Accounting Procedures - Phase I: Accounting and Financial Matters - Revision to Certain Directives Contained in Telecom Decision CRTC 78-1, Telecom Decision CRTC 79-9, 8 May 1979, the Commission directed as follows:
|
|
The Equal Life Group method of depreciation shall be employed for all depreciation categories
except for those assets currently being depreciated under the Group method of depreciation.
|
|
In a letter dated 12 December 1979, Terra Nova Tel submitted its proposal to implement Equal Life Group (ELG) procedures effective 1 January 1981 for all additions to plant made subsequent to 1 January 1980.
|
|
In Terra Nova Telecommunications, General Increase in Rates, Telecom Decision CRTC 81-20, 30 October 1981 (Decision 81-20), the Commission accepted the Company's 1981 and 1982 depreciation expense forecasts with the understanding that ELG procedures had been implemented effective 1 January 1981 as proposed in its December 1979 submission.
|
|
During the present proceeding, it was determined that ELG procedures had not been implemented on 1 January 1981 as understood earlier, but that since 1 January 1981, the Company's depreciation expenses have been based on average service life procedures, including a reserve deficiency adjustment, established on the basis of a 1978 study carried out by Gilbert Management Consultants which is referred to in Decision 81-20.
|
|
At the hearing, Terra Nova Tel requested that it be given the opportunity to review the changes which would be required to its capital reporting procedures and software programs before committing itself to a new date for implementation of ELG. As a result, on 3 July 1984, the Company informed the Commission that, considering its current work load and available resources, its best estimate for completion of the required changes to its current computer programmes to accomodate ELG procedures is the first quarter of 1985. The Company stated that at that time it would be in a position to apply ELG rates to all plant acquired after 31 December 1982.
|
|
The Commission accepts Terra Nova Tel's committment to implement ELG procedures in 1985. In the Commission's view, however, the application of ELG procedures to 1983 and 1984 vintages of plant could introduce unnecessary complexities into the depreciation procedures by reason of the adjustments which would be required, and accordingly directs the Company to implement ELG procedures only for 1985 and subsequent plant vintages.
|
|
Further, the Commission directs that by 1 April 1985, Terra Nova Tel file information concerning its estimated 1985 depreciation expenses for its existing average service life procedures as well as its ELG procedures, in the same detail as that employed by the Company in the response to interrogatory TNT(CRTC) 17Feb84-1608.
|
|
In its application, Terra Nova Tel forecast Operating Revenues at $38.2 million in 1984 and $39.4 million in 1985 without rate increases. Subsequently, on the basis of more recent results, the Company reduced these forecasts to $37.7 million and $38.6 million for 1984 and 1985 respectively. The Company stated that, despite these changes, its forecast of Operations Expenses should remain unchanged at $29.0 million for 1984 and $31.0 million for 1985.
|
|
With regard to the effect of implementing ELG on the Company's forecast operating expenses, Terra Nova Tel provided estimates of its depreciation expenses for 1984 and 1985 showing that the net effect of implementing ELG would be minimal, since the higher ELG rates would be offset by the deficiency reserve adjustment included in the average service life rates applied to present plant.
|
|
Having reviewed the evidence relating to the Company's estimates of its revenues and expenses for 1984 and 1985, the Commission has concluded that they are reasonable.
|
|
Taking into account the reduction in forecast revenues, the Company estimated that its rate of return on average common equity (ROE) would be 6.5% in 1984 and 4.5% in 1985 without rate increases. The Company estimated that the rate changes proposed to take effect 1 July 1984 would provide additional revenues of $.7 million in 1984 and $1.5 million in 1985, resulting in ROE levels of 7.4% in 1984 and 6.1% in 1985.
|
|
In considering this application, the Commission notes the Company's statement that, on the basis of charging subscriber rates comparable with those of adjacent telephone companies, it could have supported a rate increase in the order of 8% on most services. However, in recognition of the desire of both the federal and Newfoundland provincial governments for wage and price restraint to continue, Terra Nova Tel decided to reduce its rate increase request to 6%.
|
The Commission notes further that even with the 6% rate increase proposed, the Company's forecast ROE levels for 1984 and 1985 of 7.4% and 6.1% respectively, are significantly lower than those normally achieved by regulated telephone companies. For instance, in British Columbia Telephone Company, General Increase in Rates - Interim Rate Increase, Telecom Decision CRTC 84-16, 20 June 1984, the Commission granted an interim rate increase sufficient for B.C. Tel to achieve an ROE of 13.43% in 1984. As indicated in Bell Canada - Application for Approval of Increases in Certain Rates, Telecom Decision CRTC 84-15, 22 May 1984, Bell's ROE for 1984 will be in the same range as B.C. Tel's. On the basis of these comparisons, Terra Nova Tel's 6% rate increase appears to be more than justifiable.
|
|
In light of its analysis of all of the foregoing, including its findings regarding implementation of ELG and the Company's progress concerning quality of service, the Commission approves the rate changes proposed by Terra Nova Tel except where otherwise indicated in this decision.
|
|
V TARIFF REVISIONS
|
|
1. Primary Exchange Service
|
The rates proposed for primary exchange service were based on a 6% increase applied to the exchange service rates then in effect. In Attachment of Subscriber-Provided Terminal Equipment, Telecom Decision CRTC 82-14, 23 November 1982 (Decision 82-14), the Commission directed Terra Nova Tel to file unbundled rates to establish separate charges for the "line" and "telephone set" components of primary exchange service. The unbundled rates were approved by the Commission in Terra Nova Telecommunications, Inc. - Implementation of Decision Permitting Attachment of Subscriber Provided Terminal Equipment, Telecom Decision CRTC 84-13, 24 April 1984 (Decision 84-13).
|
The Commission, in approving the 6% increase in primary exchange service rates, directs that it be applied to the unbundled rates for the separate "line" and "set" components established in Decision 84-13.
|
|
2. Extended Area Service
|
|
Terra Nova Tel's present EAS rate structure consists of a flat monthly surcharge based on the distance between rate centres in the exchanges having EAS with one another. For exchanges having EAS with more than one other exchange, a discount factor (multi-point discount) is applied which reduces the total surcharge otherwise applicable.
|
|
In its application, Terra Nova Tel proposed to increase the monthly EAS surcharge by 6% effective 1 July 1984 and to modify the existing EAS rate structure by:
|
|
a) determining an EAS rate group based on the aggregate of telephone numbers within the EAS
boundary effective 1 July 1985, and
|
|
b) eliminating the multi-point discount factor effective 1 July 1986.
|
|
In Decision 81-20, the Commission commented on identical proposals made by Terra Nova Tel in its 1981 application for general rate increases as follows:
|
|
The Commission does not approve the changes proposed by Terra Nova with respect to the
treatment of EAS. In this regard, the Commission notes that imposing a monthly EAS charge
at the same time as using the total of the unweighted telephone numers in an EAS area to
determine rate groups is not consistent with the practices for other federally regulated
telephone companies. The Commission also finds that the resultant level of rates in this case
would not be just and reasonable.
|
|
The Commission considers that a method of determining rates for local and extended-area
services similar to those of other federally regulated telephone companies as described above
warrants further examination and directs Terra Nova to file a study containing proposals in this
regard within six months.
|
|
The study, which was filed with the Commission on 13 May 1982, contained the Company's conclusions in point form as follows:
|
|
1. EAS in its present form is not adequately compensatory.
|
|
2. The weighting factors used by Bell and B.C. Tel would not generate the revenues required by
the Company for EAS.
|
|
3. The distance-related weighting factor formula is not appropriate for application in Terra Nova
Tel's operating territory.
|
|
4. The sum of the subscriber counts in both exchanges subscribing to EAS should be used to
determine the rate group classification.
|
|
5. The multi-point EAS formula should be eliminated and each pair of exchanges be treated as
two-point EAS.
|
|
6. To reduce subscriber impact, the results of the change in methodology could be phased in
over a period of eighteen months, at six-month intervals, at an average increment of
plus/minus $1.00 for residential subscribers and plus/minus $2.00 for business subscribers.
|
|
No further evidence was put forward by the Company in the present application.
|
|
The Commission approves the proposed increase of 6% in the EAS surcharge. Further, the Commission is prepared to consider the two modifications proposed for implementation in 1985 and 1986 as follow-up items, but requires the following information in order to assist in its final determination on this matter:
|
|
a) The average monthly subscriber calling rate between exchanges in two-exchange EAS
complexes, based on a random sample of not less than 10% of the Company's total two-
exchange EAS complexes.
|
|
b) The average monthly calling rate per subscriber between each exchange in the Company's
multi-exchange EAS complexes.
|
|
3. Non-Recurring Service Charges
|
The proposed increases of 6% for non-recurring service charges in the present application were based on a proposed set of unbundled service charge rates filed with the Commission pursuant to Decision 82-14. In Decision 84-13, the Commission determined that the unbundled rates should not, in total, exceed the existing rates for installation of service and approved rates which were different from those filed by Terra Nova Tel. Accordingly, the Commission approves a 6% increase in service charge rates, to be applied to the unbundled rates established in Decision 84-13.
|
|
4. Message Toll Service
|
|
At the outset of the public hearing, Terra Nova Tel sought to amend its application by withdrawing its proposed Toll Verification Charge. The Commission is satisfied that the Company's action is appropriate and approves the withdrawal of the proposed charge.
|
|
5. Telex Service
|
|
The proposed 6% rate increases for Telex were based on the rates in effect at the time of filing.
|
In Implementation of Decision Permitting Attachment of Subscriber-Provided Telex and TWX Terminal Equipment, Telecom Decision CRTC 84-14, 27 April 1984, (Decision 84-14), the Commission approved rates for various telex service offerings to conform with the provisions of Decision 82-14. Accordingly, the Commission approves a 6% increase in telex service rates to be applied to the unbundled rates established in Decision 84-14.
|
|
6. Late Payment Charges
|
|
In its application, Terra Nova Tel proposed the introduction to its Late Payment Charge tariff of a "floating" monthly rate to be determined on the basis of the prevailing Bank of Canada interest rate, in contrast to the present fixed monthly rate of 2.0%.
|
|
At the hearing, the Commission introduced a document (Exhibit CRTC-1) describing a Late Payment Charge formula which provides for a monthly rate determined on the basis of the Bank of Montreal's prime lending rate and which was recently implemented by Bell, B.C. Tel, and CNCP Telecommunications. The Company considered this formula to be acceptable, but indicated that it would prefer to use the prime lending rate of its own banker, the Canadian Imperial Bank of Commerce (CIBC).
|
|
The Commission agrees with this change, and accordingly directs Terra Nova Tel to use the formula described in Exhibit CRTC-1, as amended by the incorporation of the CIBC prime rate in establishing its Late Payment Charge rate.
|
|
7. Tariff Filings
|
|
The Company is directed to file proposed tariff revisions forthwith, with an effective date of 1 August 1984, to give effect to the rates approved in this decision.
|
|
VI FOLLOW-UP ITEMS
|
|
1. Summary of Items Identified in this Decision
|
|
The Commission has identified the following items on which it requires further submissions:
|
|
84-20:01 Demand for Coin Telephones Equipped With Amplifying Handsets
|
|
84-20:02 Implementation of Equal Life Group Depreciation Procedures
|
|
84-20:03 Proposed Modifications to the Method of Establishing Extended Area Service (EAS)
Rates.
|
|
2. Follow-Up Procedure
|
|
The Commission intends to deal with the foregoing follow-up items in accordance with the following procedure:
|
|
a) Any intervener who wishes to receive copies of documents relating to follow-up items should
register with the Commission by letter specifying the follow-up items of interest by 31 August
1984.
|
|
b) The Commission will compile a list of parties who have registered noting the follow-up items
of interest to each party and will provide a copy of this list to each registered party.
|
|
c) Subject to subparagraph f), a copy of each document filed with the Commission shall be sent
to each party registered for the particular follow-up item.
|
|
d) Parties may comment on any document within thirty days from the date of filing. A copy of
comments shall be sent to the Commission and to each party registered for the follow-up item.
|
|
e) Terra Nova Tel may reply to comments within ten days from the date of their receipt.
|
|
f) The provisions of section 19 of CRTC Telecommunications Rules of Procedure
apply to any claim of confidentiality. In addition, a party asserting such a claim shall send to
each party registered for the particular follow-up item a copy of the claim and supporting
reasons.
|
|
Interveners who do not register pursuant to these procedures will nevertheless have access to all documents by consulting the public files of the Commission in its public examination room located in Room 561 of the Central Building, Les Terrasses de la Chaudière, 1 Promenade du Portage, Hull, Quebec, K1A 0N2.
|
|
Fernand Bélisle
Secretary General
|
|
|