ARCHIVED -  Telecom Public Notice CRTC 1986-34

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Telecom Public Notice

Ottawa, 23 May 1986
Telecom Public Notice CRTC 1986-34
On 2 December 1985, the Commission issued CRTC Telecom Public Notice 1985-81 (Public Notice 1985-81) calling for comment on Bell Canada's 4 November 1985 application to change Extended Area Service (EAS) criteria.
EAS allows Bell Canada (Bell) customers located in neighbouring telephone exchanges to call one another without incurring long distance charges. Bell provides EAS to link two exchanges if they qualify pursuant to four criteria. These criteria, established in Bell Canada, General Increase in Rates, Telecom Decision CRTC 80-14, 12 August 1980, are:
1) that the exchanges are contiguous;
2) that at least 60% of customers in one exchange make calls to those in the other at least once
a month (community of interest);
3) that the distance between the exchanges' rate centres (normally the main switching centre in
an exchange) does not exceed 30 miles; and
4) that a simple majority (51%) of customers whose basic local rates would be increased,
approve of the new service.
In its application, Bell proposed to eliminate the contiguity criterion and to reduce the community of interest from a 60% minimum to 50%. Bell estimated that implementing the proposed changes would result in 127 new EAS links, giving rise to an additional revenue requirement in excess of $150 million over a ten year period. It proposed to meet this requirement by increasing the weighting factors used in establishing local rates for exchanges with EAS.
Local rates for exchanges vary with the number of telephone numbers that can be called by a customer without having to pay long distance charges. For each exchange, the company determines a telephone-number count based on the total number of telephone numbers in use in the exchange. In the case of an exchange having EAS with other exchanges, the total telephone-number count for the exchange includes the telephone-number counts of all the exchanges within the local calling area of that exchange. Further, the actual counts for each exchange are multiplied by weighting factors, currently ranging up to 5.2; the specific weighting factor used depends on the distance between the exchanges. Based on the total weighted telephone-number count obtained for an exchange, it is assigned to 1 of 19 different rate groups. Starting with rate group 1, each rate group covers an increasing range of telephone-number counts and establishes increasing levels of local rates. If the telephone-number count of an exchange exceeds the upper limit of its rate group, it is assigned to the next higher rate group.
Bell Canada proposed that the weighting factors be increased by 5% after the implementation of the first group of 40 new EAS links resulting from the proposed revision of EAS criteria. There would be a further weighting factor increase of no more than 5% after the implementation of a second group of 40 new EAS links, but Bell indicated that implementation of this increase would depend on external factors such as rate rebalancing, productivity changes and inflation.
Bell estimated that, in approximately 65 exchanges, the first 5% increase in weighting factors would result in an upward change in rate group and, as a result, an increase in rates for these exchanges. Bell stated that the resulting increases in monthly rates would range from $0.30 to $7.45, depending on the service leased.
The Commission received 18 submissions in response to Public Notice 1985-81. Many of the parties supported the application but some of them questioned the accuracy of Bell's estimate of its revenue requirement. They requested that, if the application is approved, care be taken to ensure that rates are just and reasonable.
The Ministry of Transportation and Communications, Government of Ontario (Ontario) stated that Bell's proposed method of satisfying its revenue requirement would result in subscribers, in some exchanges already equipped with EAS, paying higher rates without receiving additional benefits. Ontario suggested that the combined effect of the first and second increases in weighting factors could subject customers to rate increases of up to double the amounts that Bell had projected in its application for the same services that they presently receive.
With regard to local rate increases, Bell replied that none of the 65 exchanges involved in a rate group change and resulting rate increases arising from the first 5% increase in the weighting factors would be affected by a second increase in weighting factors, with the result that projected rate increases would be as originally stated.
The Commission is fully aware of the apparent disparities that exist with regard to the current provision of EAS in Bell's territory and of the concerns expressed on the part of many communities. Indeed, the very nature of EAS makes it virtually impossible to develop criteria that will seem fair to all subscribers.
The Commission described its concerns with regard to modifying the current EAS criteria in Bell Canada - Alternatives to Extended Area Service, Telecom Decision CRTC 85-5 (Decision 85-5). In that decision, the Commission pointed out that, under the current criteria, the costs for an EAS link cannot be recovered fully from the subscribers in the exchanges concerned if rates are to remain within a reasonable range. It also noted that increasing competition is reducing the ability of telephone companies to provide the inter-service subsidies needed to support EAS. As a result, the general body of subscribers subsidizes EAS expansion. The Commission concluded that it is important to explore fully the advantages of alternatives to EAS before deciding whether EAS criteria should be reviewed.
The alternatives to EAS were described in Decision 85-5 as the Optional Calling Plan and the Municipal Reverse Charge Service. These services were implemented by Bell on 1 November 1985 under the names Selectel and Contac. The Commission indicated that these EAS alternatives are attractive from the point of view of the general body of subscribers because it is the direct beneficiaries of these services who pay for a very significant share of their costs. They can be provided, therefore, with minimal effect on local rates paid by the general body of subscribers.
As far as inter-service subsidies are concerned, the Commission reiterates its position, set out in Decision 85-5, that competition due to technological, market and other changes has reduced the telephone companies' capability to provide such subsidies to support EAS. The Commission recognizes that Bell's proposal for cost recovery in its application would eliminate the requirement for additional inter-service subsidies. However, by so doing, this proposal would raise rates in 65 exchanges, with the implementation of the first 5% increase in weighting factors. Thus, many subscribers in these exchanges would suffer a rate increase without receiving any perceivable benefits in return. Moreover, many of these subscribers may not be aware that the granting of Bell's application for revisions to the EAS criteria would affect their rates, and consequently may consider that they have not been given an adequate opportunity to comment.
In light of these concerns, and consistent with the view expressed in Decision 85-5, the Commission considers that further information is required on the adequacy of Selectel and Contac as alternatives to EAS before it passes judgement on this application.
Another significant concern to the Commission in its consideration of Bell's application is the fact that it comes at a time when the relationship between local rates and message toll rates is under scrutiny. In this regard, Bell has indicated that it will make a specific rate filing later this year that will address the level and structure of toll and local rates. In the Commission's view, due to the implications of EAS for local rates and for efficiency in the rate structure, it would be preferable not to rule on an application to expand EAS criteria prior to consideration of this filing.
In light of the above concerns, the Commission has decided to defer its disposition of Bell's application.
Fernand Bélisle
Secretary General

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