|
|
|
Ottawa, 1 March 1985
|
|
Telecom Decision CRTC 85-5
|
|
Bell Canada - Alternatives to Extended Area Service
|
|
Background
|
|
Extended Area Service (EAS) allows customers located in neighbouring telephone exchanges to call one another without incurring long distance charges. In Bell Canada, General Increase in Rates, Telecom Decision CRTC 80-14, 12 August 1980 (Decision 80-14), the Commission approved a number of criteria which must be satisfied for exchanges in Bell Canada (Bell, the Company) territory to qualify for the introduction of EAS. The criteria are as follows:
|
|
1) the exchanges are contiguous;
|
|
2) a minimum of 60% of customers in one exchange make calls to those in the other at least
once a month;
|
|
3) the distance between the exchanges' rate centres (normally the main switching centre in an
exchange) does not exceed 30 miles; and
|
|
4) a simple majority (51%) of customers, whose basic local rates would be increased, approve of
the new service. The Commission also noted that, in particular situations, there may be
circumstances which justify exceptions to these criteria.
|
|
In Bell Canada, Increase in Rates, Telecom Decision 78-7, 10 August 1978 (Decision 78-7) the Commission, having recognized that EAS might not be sufficient to meet some customer communications requirements between exchanges for which calls are subject to toll charges, had directed Bell to investigate and report to the Commission on additional methods of interexchange flat rate calling.
|
|
In its report of 31 March 1980 Bell proposed criteria for, and trials of, a service it called the Optional Calling Plan (OCP). Bell considered that this service would meet the requirements of customers in exchanges not satisfying its then proposed criteria for EAS. In Decision 80-14, the Commission, after considering the Company's proposed OCP criteria, asked Bell to establish new, less stringent criteria which would take into account those cases in which exchange boundaries do not reflect actual patterns of social and economic activity.
|
|
The Company filed an interim report on 31 March 1982 and a final report on 31 March 1983 presenting the results of its OCP market trials and proposing the new OCP criteria.
|
|
Bell proposed that its OCP be offered as a discounted message toll service to users in one exchange wishing to call users in another exchange, contiguous or non-contiguous, where at least 50% of users in the originating exchange place calls to the terminating exchange at least once each month, that is, 50% community of interest (COI), and the maximum distance between these exchanges' rate centres is 40 miles. The proposed rates for the OCP were to include toll rate discounts of 33 1/3% in addition to any other existing discounts and monthly subscription fees of $1.00 to $3.65 for residence subscribers and $3.30 to $8.60 for business subscribers.
|
|
In a letter to the Commission dated 23 March 1981, Bell indicated that neither EAS nor its proposed OCP would provide an equitable solution for certain subscribers who would continue to be subject to toll charges on calls to their municipal offices. In a further letter to the Commission, dated 6 December 1982, Bell described one alternative, the Municipal Calling Service (MCS), which would provide subscribers with toll free calling across exchange boundaries to their municipal offices at nominally incremental monthly charges. However, Bell recommended against MCS due to the high cost of providing it and the limited number of subscribers who would benefit.
|
|
The Company stated that it was investigating an alternative which it called the Municipal Reverse Charge Service (MRCS). This service would permit subscribers to call their municipal offices with operator assistance, at discounted toll charges, which would be billed to the municipality. Bell filed its MRCS proposal on 31 August 1983. The proposal would enable interested municipalities to subscribe to the service for a monthly fee plus a per call charge of 50% of the normally applicable toll rates.
|
In CRTC Telecom Public Notice 1984-1, dated 4 January 1984 (Public Notice 1984-1), the Commission requested comment on the three proposed alternatives to EAS - OCP, MCS and MRCS - and any others which parties might wish to suggest. The Commission stated that, following receipt of comments, it expected to be in a position to adopt one or more of these alternatives and to establish generally applicable criteria. With respect to complaints that the EAS criteria should be expanded to enable more exchanges to qualify for EAS, the Commission concluded that it would be premature to review the EAS criteria before considering fully the alternatives to EAS.
|
|
Comments were received from 34 parties including a number of subscribers and subscribers' groups, several municipalities in Ontario and Quebec, the Government of Ontario (Ontario), the Canadian Independent Telephone Association (CITA) and the Ontario Telephone Association (OTA).
|
|
Bell's Position
|
|
In response to demand for EAS in exchanges which do not meet the criteria, Bell favoured the proposed OCP stating that, unlike EAS implementation which requires extensive and costly additions to the local switched network, the OCP can be operated using the existing toll network. The Company stated that its recommended OCP, based on 33 1/3% discounts on toll costs, is designed to ensure that the average residence subscriber would save money, even after paying the subscription fee, if 7 to 8 OCP toll calls are made per month.
|
|
Bell submitted that surveys carried out as part of its OCP trials from 1981 to 1983 in 11 locations in Ontario and Quebec provided results showing approximately 46.3% of respondents preferring the OCP, 34.1% preferring EAS, and the rest supporting neither.
|
|
In its submissions with respect to MCS, Bell stated that, if all eligible municipalities and subscribers participated, up to 0.6 million MCS subscribers could be expected in 1984 but that a maximum of 6% of these would benefit from reduced toll charges for intra-municipal calling. According to the Company, implementation costs would be high - almost $3.5 million - and there would be a negative revenue effect in each year following implementation. Bell added that, with MCS, continual monitoring of changes to municipal boundaries would be required on its part in order to maintain accuracy.
|
|
For these reasons, Bell recommended against the implementation of MCS.
|
|
With respect to MRCS, Bell argued that, like its proposed OCP, MRCS would utilize existing capabilities, namely the operator-handled special reverse charge or Zenith service which itself utilizes the toll network, and thus would avoid the substantial plant extension costs required for EAS. Implementation costs were estimated at about $0.25 million. MRCS would be offered to local municipal governments to provide their constituents with toll free access to services such as fire, police, public libraries and others. The Company stated that its survey of 156 local municipalities in Ontario and Quebec spanning 1 or more toll boundaries showed 26% indicating a willingness to subscribe to the proposed service. However, Bell proposed that it should not be offered to regional municipalities, provincial governments or business.
|
|
In view of the levels of acceptance for both the OCP and MRCS and the comparatively low costs of implementation, Bell proposed that it be permitted to offer them as alternatives to EAS for those exchanges which do not meet the EAS criteria.
|
|
With regard to the possibility of extending the EAS criteria, Bell indicated that doing so would greatly add to the cost of providing EAS. For example, the evidence provided by Bell showed that extending the criteria to allow EAS in non-contiguous exchanges with 80% COI which have rate centres within 30 miles of each other would result in a cost which would be almost three times higher than the projected cost of providing the additional EAS required under the existing criteria. Further, Bell was of the view that calling between non-contiguous exchanges is more discretionary, that is, calls regarding recreation and non-essential goods and services, while calling between contiguous exchanges is often based on the need for access to essential goods and services. Bell expressed the view that the EAS criteria are designed to permit a reasonable balance between satisfying customers and preventing an undue negative economic impact on the Company and concluded that permitting exceptions to the criteria would weaken their objectivity.
|
|
Positions of Other Parties
|
The majority of the responses to Public Notice 1984-1 came from municipalities and from subscribers who do not have toll free access to all telephones within their municipal boundaries. Most of these parties argued in favour of EAS implementation for exchanges which do not meet existing EAS criteria, either by revising the criteria or by utilizing the exception clause in Decision 80-14. Accordingly, these parties found the proposed alternatives to EAS unacceptable.
|
|
The remaining parties supported the OCP and MRCS as reasonable alternatives to EAS for exchanges which do not meet the EAS criteria. OTA and CITA regarded MCS as being too costly to provide and administer.
|
|
Conclusions
|
|
The Commission recognizes that there are many subscribers, whose exchanges do not qualify for EAS, who often have occasion to make calls to subscribers in neighbouring exchanges. During the course of this proceeding, the Commission has reviewed various alternatives to EAS with a view to reducing the long distance telephone bill of subscribers in such exchanges who make a large number of calls, or who make certain essential calls to neighbouring exchanges.
|
|
The merit of examining alternatives to EAS before reviewing the current EAS criteria themselves was borne out by the record of this proceeding. There are several reasons why it appears desirable to consider such alternatives seriously, rather than proceeding to a review of the EAS criteria or granting exceptions to the criteria at this time.
|
|
First, the implementation of EAS in new areas requires costly additions to the local networks in the exchanges concerned. While some of the costs of such additions are recovered through local rate increases in these exchanges, in order to keep such increases within a reasonable range, much of the cost is not recovered from the subscribers who reap the benefits. That means that the general body of its telephone subscribers ultimately bear most of the costs. In other words, it can be said that the general body of telephone subscribers subsidize EAS expansion in new areas.
|
|
Second, the Commission notes that customer requests for EAS are not isolated. According to information filed in this proceeding, there are currently 494 exchange groups in Bell's serving area where customer pressure for EAS exists. Expansion of EAS to all, or even a significant number of these exchange groups, would result in substantial rate increases for the general body of subscribers.
|
|
Third, the pressure to increase local rates which would result from an expansion in EAS would come at a particularly difficult time in the evolution of the telecommunications industry. As a result of technological, market and other changes, the industry is faced with increasing competition. Such competition is reducing the capability of telephone companies to provide the inter-service subsidies needed to support programs such as EAS. As a result, the cost of such programs is falling more and more, on the subscribers to monopoly services such as basic residential and small business telephone services.
|
|
It is for these reasons that the Commission considers it important to fully explore the potential advantages of alternatives to EAS before reviewing the expansion of that service.
|
|
The Optional Calling Plan is an alternative that has the advantage of permitting higher volume toll callers to reduce their long distance bills to neighbouring exchanges without increasing the rates of others in their exchange who may not be interested in making such calls. The proposed OCP would provide substantially discounted toll rates. Moreover, it appears that the break-even point for the OCP of 8 calls to the neighbouring exchange per month would permit a large number of subscribers to take full advantage of the OCP's reduced rates. Finally, the evidence of the Company's surveys indicates a high probability of subscriber satisfaction with the OCP.
|
|
With respect to the Municipal Reverse Charge Service, the Commission attaches great importance to subscribers being able to call their municipal services, particularly emergency services, without having to pay toll charges. At the same time, those municipalities wishing to offer a reverse charge service should not be subjected to an excessive cost burden which would ultimately have to be passed on to the taxpayers. The Commission considers that the toll discount rates contained in the proposed MRCS, which subscribing municipalities would pay, are reasonable and would permit municipalities to provide their residents with free telephone access to services without an undue burden. At the same time, through their subscription fees and discounted toll charges, municipalities will be defraying much of the cost of MRCS. Therefore, it is they and their ratepayers, the beneficiaries of the service, rather than the general body of Bell subscribers, who will pay for a very significant share of MRCS. Further, Bell's evidence showed a willingness to subscribe to MRCS on the part of 26% of the eligible municipalities surveyed, which, in the Commission's view, indicates a potential for substantial subscription to the proposed service.
|
|
In light of the above, the Commission approves the OCP and MRCS as proposed and directs Bell to submit tariffs for them by 17 April 1985. In addition, the Commission directs Bell to investigate and report on the feasibility of extending eligibility for MRCS to regional municipalities, since, in many cases, they provide essential services such as fire and police protection. In so doing, Bell should have particular regard to the extent of interest of such municipalities in MRCS and the economic impact on the Company and its subscribers of extending MRCS eligibility.
|
|
With respect to the Municipal Calling Service, in view of the small number of subscribers who would benefit from this proposed service and its high implementation costs, the Commission has concluded that the MCS option considered in this proceeding should not be implemented.
|
|
The Commission considers that the OCP and MRCS, approved in this decision, should provide the alternatives necessary to alleviate many of the problems experienced by subscribers making a high volume of toll calls to neighbouring exchanges. In light of this and the Commission's concern regarding the effects of expanding the EAS criteria, the Commission has concluded that a review of these criteria is not appropriate at this time. Rather, the Commission will monitor the introduction and acceptance of the OCP and MRCS. Should it become evident that these plans are not sufficiently successful as alternatives to EAS, the Commission will reconsider the question of a review of the EAS criteria.
|
|
Fernand Bélisle
Secretary General
|
|
|