ARCHIVED -  Telecom Decision CRTC 87-3

Telecom Decision

Ottawa, 26 February 1987

Telecom Decision CRTC 87-3

NORTHWESTEL INC. - GENERAL INCREASE IN RATES

Table of Contents

I INTRODUCTION

II ACCESS TO AND QUALITY OF SERVICE

A. Quality of Service
B. Service to Rural and Remote Areas
C. Community Agencies: Late Payment Charges
D. Installment Plan for Paying Service Charges
E. Credit Rating Categories for Residential Subscribers
F. Attachment of Subscriber-Provided Equipment to Party Lines

III CONSTRUCTION PROGRAM

A. General
B. Conversion of Central Office Switches to Digital Technology
C. Plant Utilization Objectives
D. Earth Station Economic Evaluation Studies
E. Control of Capital Expenditures
F. Conclusions

IV FINANCIAL CONSIDERATIONS

A. Introduction
B. Operating Revenues
C. Operating Expenses
D. Income Tax Expense
E. Rate of Return

V TARIFF REVISIONS

A. Introduction
B. Basic Exchange Access Services
C. Exchange Line Mileage and Locality Rate Areas
D. Service Charges
E. Mobile Telephone Service
F. Directory Assistance and Time Charges Information Requests
G. Tariff Notice 241
H. Wide Area Telephone Service
I. Tariff Filings

VI FOLLOW-UP ITEMS

A. Status of Items Identified in Decision 85-23

B. Summary of Items Identified in Decision

C. Follow-Up Procedure

I INTRODUCTION

On 2 September 1986, NorthwesTel Inc. (NorthwesTel) filed an application with the Commission for approval of a general increase in its rates, to be effective 1 March 1987. The company proposed rate increases of 9% for residential and business access service and a 14% increase in the rotary service surcharge. It proposed to increase individual telephone set rental rates by $0.15 for touch-tone and $0.20 for rotary dial sets. The charge for additional directory listings was proposed to increase by 19% for residential and 50% for business subscribers, and the charge for a non-published number was to increase by 50%. NorthwesTel proposed to increase locality rates by about 9% and mileage rates for individual and two-party line service outside the base rate area by approximately 50%. It also proposed to increase mileage charges for off-premises extensions by 20%. Directory Assistance charges were proposed to increase by 40%, and, while no increases to message toll rates were proposed, the rate for requests for time and charges on long distance calls was to increase by 50%.

For private wire service, NorthwesTel proposed increases of up to 9% in lower mileage bands and decreases of up to 3% in higher mileage bands for intra-territory voice grade circuits. It also proposed to increase the rate for a local loop by up to 20%. The company proposed to increase the access charges for Telex and Telenet services by 9% and for Broadband service by 20%. Non-recurring service charges were proposed to increase by 50% for all these services. The company also proposed to increase access rates for mobile telephone service by 9% and raise the usage rate for local air-time to $0.40 per minute. Finally, NorthwesTel proposed to increase its charge for NSF cheques from $10.00 to $15.00.

The company estimated that if the proposed rate changes were approved effective 1 March 1987, revenue would increase by approximately $0.9 million or 1.3% in 1987.

NorthwesTel subscribers, interested parties registered under section 7 of the CRTC Telecommunications Rules of Procedure and other persons identified in the Directions of Procedure issued by the Commission were notified of NorthwesTel's application and a general notice was published in newspapers in the company's service area. Twenty-four parties filed comments in response to these notices. An oral public hearing was held in Whitehorse, Yukon from 13 January to 16 January 1987 before Commissioners John Lawrence (Chairman), Jean-Pierre Mongeau and Louis R. Sherman.

The first part of the hearing, held on 13 January 1987, was devoted to representations from subscribers. Representatives of the Peace River-Liard Regional District and Mr. Willard L. Phelps, Leader of the Official Opposition and Member for Hootalinqua in the Yukon Legislative Assembly, participated in this part of the oral hearing. The Consumers' Association of Canada (CAC), the Government of Yukon (Yukon), and the City of Yellowknife (Yellowknife) participated in the second part of the hearing, which was devoted to a detailed review of evidence filed by NorthwesTel and by Yukon. The International Brotherhood of Electrical Workers, Local Union 1574 participated in the oral hearing only to the extent of presenting final argument.

II ACCESS TO AND QUALITY OF SERVICE

A. Quality of Service

The Commission considers that an assessment of the quality of service provided by a carrier to its subscribers is an essential element in the determination of just and reasonable rates. Pursuant to Quality of Service Indicators for Use in Telephone Company Regulation, Telecom Decision CRTC 82-13, 9 November 1982 (Decision 82-13), NorthwesTel is required to report details of its performance, on a quarterly basis, for number of indicators dealing with service provisioning and repair, local and long distance network performance, operator services, directory and billing accuracy, and complaints.

The company provided results for quality of service indicators for each quarter of 1983, 1984 and 1985 and for the first three quarters of 1986. Performance data for most indicators were reported at the company level and at each of three area levels (Northern British Columbia, Northwest Territories, Yukon). Further, NorthwesTel provided its evaluation of each of the indicator results and an action plan for each indicator where its evaluation indicated unsatisfactory performance.

In Decision 82-13, the Commission directed NorthwesTel to submit a plan to develop final standards for all indicators. The final standards were to provide for 90% of subscribers being satisfied with the level of service provided based on the results of a subscriber survey. On 31 July 1986, pursuant to a follow-up item in Decision 82-13, dealing with standards for NorthwesTel's indicators, NorthwesTel submitted its report on its proposed standards along with the methodology used to develop them.

While this report was also filed in response to Interrogatory NWTel(CRTC)17Oct86-1111, the proposed standards are being considered for final determination by the Commission in the proceeding associated with the above follow-up item. In that proceeding, no comments were received by the Commission from any parties which had initially declared an intention to participate.

Given the interest in the proposed standards expressed by Yukon during this proceeding, the Commission has decided to add Yukon as a party to the follow-up proceeding. Yukon will be allowed to file comments on the proposed standards with the Commission and to serve a copy on NorthwesTel, both within 30 days of the date of this decision. NorthwesTel may file reply comments with the Commission within 10 days of receipt of comments from Yukon.

With regard to quality of service generally, the Commission notes that NorthwesTel's recent quality of service reports, submitted in reply to Interrogatories NWTel(CRTC)04Aug86-101 and NWTel(CRTC)17Oct86-1110 and presented in Exhibit NWTel-12, show that there has been some improvement in quality of service over the last year. It notes further that in 1986, the company spent over $2 million, out of its total capital budget of $16.2 million, for rural programs, cable programs, upgrading service, and providing new service. The Commission expects NorthwesTel to continue its efforts to improve the service provided to all of its subscribers. In this regard, the Commission has addressed certain areas of particular concern as set out below.

1. Provision of Service

In NorthwesTel Inc. - General Increase in Rates, Telecom Decision CRTC 85-23, 29 October 1985 (Decision 85-23), the Commission criticized NorthwesTel's poor performance on the Outstanding Orders for Main Stations per 100 Main Inward Movement indicator. It ordered NorthwesTel to file monthly reports, by exchange, for this indicator, and for the related indicator, entitled Outstanding Orders for Main Stations Over 30 Days, per 100 Main Inward Movement.

The Commission notes that NorthwesTel, in its 31 July 1986 report on proposed standards, filed with Interrogatory NWTel(CRTC)17Oct86-1111, did not propose any standard for these indicators and instead stated that the company was in the process of introducing a new system based on provisioning appointments.

Under cross-examination, Mr. W.A. Dunbar, Vice-President and General Manager of NorthwesTel, stated that the present measurement method for these indicators is not restricted to orders completed after appointment due dates and, therefore, it is of little value in assessing the company's performance in respect of these indicators.

The Commission considers that more specific information is required. Accordingly, the company is directed to report to the Commission within 90 days of the date of this decision on its plans to change the measurement method for the Outstanding Order indicators to measure specifically those orders that are outstanding after the appointment due date. In establishing the typical appointment interval or intervals in the report, the company should take into account the fact that, at present, exchanges that are accessible only by air are visited only once every 4 to 6 weeks by NorthwesTel personnel.

2. Repair Service

During cross-examination, Mr. Dunbar explained that the communities within the company's operating territory fall into three types: those that have resident repair forces; those that do not have resident repair forces but are accessible by road; and those that do not have resident repair forces and are accessible only by air.

Mr. Dunbar stated that those communities with resident repair forces could expect to receive good repair service. However, Mr. Dunbar indicated that Carcross, located just south of Whitehorse, is visited by repair forces only once a week.

Mr. Dunbar indicated that locations accessible only by air are visited by repair forces only once every 4 to 6 weeks. In these communities, apart from the exchange of defective telephone sets at the company's community agency, where available, no action is taken to restore service to an individual subscriber between scheduled visits of repair forces.

CAC contended that NorthwesTel's repair performance is poor, as shown by the Percent of Initial Out-of-Service Reports Cleared Within 24 Hours indicator. CAC added that NorthwesTel's performance is inferior to that of Bell Canada (Bell) in its remote northern operations.

In reply argument, NorthwesTel noted that, in response to Interrogatory NWTel(CRTC)17Oct86-1109(Revised), it had filed an action plan to bring its performance in line with the proposed standard. The company indicated that the plan is also directed at correcting errors in data, improving data gathering results and improving the calculation of indicator results. This action plan indicated that there has been a steady improvement in performance.

In the Commission's view, NorthwesTel's problems regarding the gathering of data and calculating of results of these indicators still make it difficult to evaluate with confidence the actual performance of the company in these areas. The Commission expects that NorthwesTel will ensure that the implementation of its action plan, described above, will give rise to accurate and consistent measurement in respect of these indicators. The Commission will monitor the situation in the further expectation that accurate results will be evident no later than the end of the second quarter of 1987.

The long intervals between repair visits to those communities that do not have resident repair forces, while perhaps justified because of the cost, have led the Commission to question the usefulness of measuring the Percent of Initial Out-of-Service Reports Cleared Within 24 Hours indicator since, in the case of individual service troubles, no effort is made to meet this interval as far as these communities are concerned.

Therefore, NorthwesTel is directed to report, within 90 days of the date of this decision, on the feasibility of introducing separate indicators and standards to assess its performance in clearing out-of-service troubles in communities without resident repair forces. In the event that such separate indicators and standards are found to be feasible, the existing Percent of Initial Out-of-Service Reports Cleared Within 24 Hours indicator would then apply only to communities having resident repair forces. Accordingly, the report should also examine the feasibility of implementing a higher standard than that currently proposed for this indicator.

In the Commission's view, the interval between repair visits would also be expected to affect the results of the Subsequent Repair Reports indicator because the longer the interval is, the more likely there is to be a subsequent complaint by a customer before the trouble is cleared. Accordingly, NorthwesTel's report should examine the feasibility of introducing separate standards for communities with and without resident repair forces for the Subsequent Repair Reports indicator.

The Commission notes that the remaining two indicators under the Repair Service interface (Initial Trouble Reports and Repeated Repair Reports) should not be affected by the presence or absence of repair forces in a community.

Finally, in the report, NorthwesTel should address the cost of reducing the interval between repair visits in those communities that do not have resident repair forces. Reducing the interval between visits is likely to improve the company's performance on the indicators under the Provision and Repair of Service interfaces.

3. Local Service

The Commission notes that, at present, local service is assessed only in exchanges with 2,000 or more lines installed. There are, therefore, only five exchanges out of the company's total of sixty-two being evaluated: Hay River, Yellowknife, Inuvik, Fort Nelson and Whitehorse.

When the requirement to assess local service was specified by the Commission in Decision 82-13, the company's small exchanges were generally served by old Rurax-type switches on which automated tests could not be performed. The Commission notes, however, that these electromechanical switches have almost all been converted to electronic digital switches on which automated tests to assess local service can generally be performed. The Commission notes further that Bell's local quality of service indicators for its northern territory are applied to all its exchanges that are equipped with DMS-10 digital switches.

NorthwesTel is therefore directed to file, within 90 days of the date of this decision, a report on the feasibility of assessing the local service provided by all its digital switches, and not merely those in exchanges with 2,000 or more lines. The report should provide the rationales for any proposed changes to standards.

4. Long Distance Service

In cross-examination, NorthwesTel indicated that its tests of long distance service are directed to assessing only operator-handled calls. The company indicated, however, that by the end of 1987, it would have equipment in place to sample all long distance calls. NorthwesTel also stated that its initial problems with Spacetel and the resulting impact on its long distance indicators have been resolved.

In argument, CAC stated that NorthwesTel's report on its proposed standards, filed with Interrogatory NWTel(CRTC)17Oct86-1111, indicated that 46.1% of customers experience transmission problems on long distance service. CAC submitted that this is clearly an unacceptable level of service.

The Commission notes that operator-handled calls represent only 30% of the total volume of toll calls and only a portion of the long distance routes. The Commission notes that, after the installation of new test equipment, that is scheduled for late this year, the company will be able to assess transmission and blockage performance on all toll trunks, including toll-connecting trunks.

In this regard, NorthwesTel is directed to file a report within 90 days of the date of this decision, setting out the tests that it proposes to perform so that all inter-toll trunks and all toll-connecting trunks are being assessed by the end of 1987. The report should include the specific numerical objectives for these tests and proposed standards for related indicators.

5. Basic Telephone Service Using Ruraltel 2 and the Manual Mobile System

In discussing Ruraltel 2 Service under cross-examination, Mr. Dunbar indicated that it is offered only to subscribers in areas not served by cable and that the pilot Ruraltel service, installed near Whitehorse, uses Autotel equipment. However, for the expansion of the Ruraltel 2 Service, NorthwesTel prefers Aurora equipment on the basis of price and performance. Mr. Dunbar indicated that there would be no customer impact associated with the change from Autotel to Aurora technology, as the operation of the subscriber's radio-telephone is identical for both technologies.

As far as manual mobile system users are concerned, Mr. Dunbar also indicated that the improved service offered by the Automated Mobile Telephone System (AMTS) in comparison with the manual system, will encourage people to transfer to the automated system.

With regard to congestion and the question of the sharing of channels between Ruraltel 2 and AMTS, Mr. Dunbar indicated that the company has been monitoring congestion on the Ruraltel 2 system and that he was not aware of any problems. However, he noted that mobile usage can generate high volumes of traffic at certain times of the year.

Mr. Phelps expressed concern over poor mobile radio services. These problems were said to be associated with both the service provided by the mobile operator and failures of NorthwesTel's equipment.

In final argument, Yukon submitted that the Commission should direct NorthwesTel to survey all its radio-telephone users to determine the number of subscribers using mobile facilities for basic telephone service; to conduct a needs assessment of these subscribers; to undertake a program to eliminate problems they are experiencing; to solicit public comment on NorthwesTel's proposed Aurora service; and, to perform a study comparing the cost of the rural cable option with the upgraded Ruraltel 2 Service. Yukon further noted that, in Decision 85-23, the Commission had found NorthwesTel's construction program to be very volatile and that there was no guarantee that Aurora will be implemented as indicated.

In reply to Yukon's request that NorthwesTel survey all mobile subscribers, NorthwesTel reiterated Mr. Dunbar's testimony that such a survey would serve no useful purpose because the existing manual system is obsolete and, in five years, the AMTS,using Aurora technology, will cover most of the areas presently served by the manual system. NorthwesTel concluded that it consequently does not wish to spend money to improve the existing manual system.

The Commission notes that NorthwesTel's planned extensive installation of the Aurora-based AMTS will offer improved service to the company's mobile telephone subscribers. The AMTS facilities will also allow the company to provide basic exchange telephone service,through Ruraltel 2, to many areas which cannot now be served at a reasonable cost by cable or satellite systems.

The Commission is satisfied that the company is committed to the extensive installation of AMTS over the next five years. Accordingly, the Commission considers that it would not be appropriate for the company to expend resources to undertake studies on a manual mobile system which will soon be replaced.

In NorthwesTel Inc. - Ruraltel 2 Service, Telecom Decision CRTC 85-14,22 July 1985 (Decision 85-14), the Commission noted that the radio channels utilized by the Ruraltel 2 service were limited in number thus restricting the number of subscribers who may use the service at the same time. In that decision, the Commission directed NorthwesTel to monitor radio channel use on Ruraltel 2 and to expand channel capacity in the event of a capacity shortage.

Since these channels will be shared with automated mobile subscribers, and noting the company's testimony that mobile usage can generate high volumes of traffic at certain times of the year, the Commission directs NorthwesTel to derive a specific indicator and standard to assess channel blockages experienced by Ruraltel 2 subscribers. NorthwesTel is directed to submit its proposed indicator and related standard within 90 days of the date of this decision.

6. Employee Absenteeism

In final argument, CAC argued that excessive absenteeism, referred to in response to Interrogatory NWTel(CRTC)17Oct86-1110, is causing quality of service problems. CAC requested the Commission to direct NorthwesTel to record and monitor the absenteeism rate per employee.

The company's response to that interrogatory shows that, for a few days over a period of two months, excessive "bookoffs" caused substandard results in the Outward Toll and Assistance-Average Speed of Answer indicator.

The Commission has noted CAC's concern. Nevertheless, the Commission does not consider that the record supports the need for specific action concerning this matter.

B. Service to Rural and Remote Areas

As required by Decision 85-23, NorthwesTel has, on 29 January 1986, filed a report and indicated certain steps it had taken, as well as further measures it planned to take, to improve the reliability of telephone service provided to the Peace River-Liard District of Northeastern British Columbia and to improve the company's maintenance response time. The company emphasized its plan to provide reliable service in future with its Ruraltel 2 Service, through its AMTS base stations. A considerable amount of money has been added to NorthwesTel's proposed capital expenditures over the next five years to provide AMTS in various locations throughout its operating territory. In response to Interrogatory NWTel(CRTC)17Oct86-1307, NorthwesTel stated that most of the planned work as specified in its report was either already completed, or would be completed after minor delays.

During the first part of the hearing,the Peace River-Liard Regional District representatives and Mr. Phelps noted that there had been improvements in their service but asserted that there are still many problems.

Mr. Dunbar indicated that many of the remaining problems would be solved by the introduction of Ruraltel 2 Service and that an additional repair person has been assigned to Fort Nelson. Mr. Dunbar also indicated that there were a few scattered subscribers spread along 500 miles of highway and that it was not possible to provide them with the same quality of service as is provided to a community.

The Commission notes that NorthwesTel plans to expand the coverage of its AMTS system over the next few years and that the company intends to use these facilities to provide basic telephone service through Ruraltel 2. In the Commission's view, Ruraltel 2 offers a cost-effective means of providing telephone service to sparsely populated areas. The Commission considers that many of the service problems in this area should be solved with its introduction. The Commission encourages NorthwesTel to continue its efforts to improve all aspects of service in all of the more sparsely populated areas of its territory. The Commission also encourages NorthwesTel to establish effective channels of communications with representatives of the Peace River-Liard Regional District to hear their concerns and to keep them informed of progress in improving service.

C. Community Agencies: Late Payment Charges

Community agencies are situated in communities without NorthwesTel business offices and are places at which subscribers can pay their bills, make applications for service, and lease and exchange telephones. The company uses as its date for determining late payment charges the date that payments are received at NorthwesTel's business offices from agencies. During cross-examination, it was established that sometimes this date could be days after a subscriber has made the payment at an agency, with the result that subscribers could be billed improperly for late payment charges. The company stated that its practice is to refund late payment charges arising from delays in recording payments made at agencies if the problem is brought to the company's attention by the subscriber.

In final argument, CAC stated that community agencies are "store fronts" for the company. It stated further that, under the company's current practice, a subscriber could be subject to late payment charges that are unjustified. It requested the Commission to direct NorthwesTel to use the date on which payment is made at a community agency for the purposes of calculating late payment charges.

The Commission agrees with CAC's position that payments made at community agencies should be considered as having been made at the company's business offices. Accordingly, the Commission directs the company to change its administrative practice and to base the calculation of late payment charges on the date on which a subscriber's bill is paid at any community agency.

D. Installment Plan for Paying Service Charges

The issue was raised as to whether an installment plan for payment of service charges by residential subscribers would improve access to telephone service.

During cross-examination, the company indicated that only 35% of residential subscribers are liable for all four service charge elements. The remaining residential subscribers pay only the order processing and line connection charges, which amount to $18.30 at current rates. NorthwesTel added, under cross-examination, that, after service charges for installation of telephone service were increased by 25% and 37% pursuant to Decision 85-23, there were no complaints made to the company regarding inability to pay service charges.

CAC recommended that the company be directed to put in place an installment plan for residential subscribers to pay service charges. CAC based its arguments on the result of a study by L. Perl, in 1983, of residential demand for telephone services offered by Bell Operating Companies in the United States. CAC stated that this study suggests that demand might be increased by allowing customers to pay off installation charges for telephone service over a period of time.

The Commission is not persuaded that residential demand for telephone service in NorthwesTel's serving territories is determined by the same economic and demographic variables as those that determine such demand in the territories of the Bell Operating Companies in the United States. Based on the record of this proceeding, the Commission has concluded that there is no demonstrated demand for an installment plan for paying service charges. Accordingly, the company is not required to implement such a plan at this time.

E. Credit Rating Categories for Residential Subscribers

For credit rating purposes, NorthwesTel classifies its residential subscribers into five categories, namely "A", "B", "C", "D" and "E". Category "A" is reserved for certain preferred subscribers, such as elected officials. Subscribers are placed in categories "B", "C", "D" or "E" depending on payment patterns. "A" rated subscribers are disconnected for non-payment of bills over $50 only after 90 days have elapsed. "B" rated subscribers are disconnected after 60 days, while "C", "D" and "E" subscribers have 45 days to pay before being disconnected.

CAC stated that the company's practice of putting certain preferred subscribers in a separate credit rating category is a subjective and discriminatory way of providing telephone service. CAC requested the Commission to direct the company to eliminate category "A". Subscribers currently in that category would be placed in "B".

The Commission is of the view that setting aside a credit rating category for certain preferred subscribers is not necessary for the efficient operation of the company's business. Accordingly, it has decided to direct the company to eliminate credit rating category "A" for residential subscribers.

With regard to categories "C", "D" and "E", the Commission notes that payment habits and the risk regarding the non-payment of accounts can vary significantly among subscribers in these categories. Yet all of them are subject to the same penalty of disconnection after 45 days for non-payment of outstanding amounts that are over $50.00. In the Commission's view, this across-the-board penalty is not consistent with the risks of non-payment in these categories. The Commission has decided, therefore, to require the company to provide, within 60 days of the date of this decision, a report on the feasibility of modifying its current disconnection practices applicable to residential subscribers in the four remaining credit rating categories, that would better reflect the differences in risk of non-payment of accounts.

F. Attachment of Subscriber-Provided Equipment to Party Lines

In final argument, CAC requested the Commission to direct NorthwesTel to permit the attachment of subscriber-provided telephones to party lines. CAC noted that NorthwesTel stated that it has no objections to this practice, provided certain adjustments are made to the telephone set at the subscriber's premises by a qualified technician.

In Attachment of Subscriber-Provided Terminal Equipment, Telecom Decision CRTC 82-14, 23 November 1982, the Commission stated that the problems associated with the electrical characteristics of party lines were so significant as to make subscriber ownership of telephone sets in such cases impractical at that time. It added that, at least until the compatibility problems arising from these electrical characteristics are satisfactorily resolved, subscriber ownership of main and extension telephones by two-party and multi-party subscribers would continue to be prohibited.

On 20 September 1984, Mr. Nigel David Allen filed an application with the Commission requesting the Commission to order Bell and British Columbia Telephone Company (B.C. Tel) to provide party line interface devices, without additional charge, on all new installations, and to permit party line subscribers to attach their own approved terminal equipment behind these interface devices. On 2 August 1985, the Commission denied Mr. Allen's application in view of the problems associated with the attachment of subscriber-provided equipment to party lines. The Commission stated that, if these problems could be resolved, it might, of its own motion, reconsider this matter.

With regard to CAC's request, the Commission notes that no evidence has been presented to indicate that the outstanding problems have been resolved. Accordingly, the Commission denies CAC's request.

III CONSTRUCTION PROGRAM

A. General

In comparison with its July 1985 View, NorthwesTel's 1986 View of capital expenditures shows a significant reduction. In the five year period from 1986 to 1990, the company now estimates that its construction expenditures will total $82.3 million, down $12.4 million (13.1%) from the $94.7 million estimated in the July 1985 View. The forecast annual expenditures, in comparison with the July 1985 View, are as follows:

In addition, the company now forecasts that it will spend $19 million in 1991.

For the five years 1986 through 1990, the company divided the forecast expenditures into four usage categories as follows:

The major reason for the reduction in capital expenditures between the two Views is a reduction in the forecast of demand. This has caused a reduction in Growth expenditures. It has also resulted in a reduction in those Modernization expenditures associated with demand projects.

B. Conversion of Central Office Switches to Digital Technology

NorthwesTel has undertaken a major program to convert central office switches from electromechanical to digital equipment. The company's schedule is little changed from that proposed in its July 1985 View. This schedule will result in an increase in the number of digital exchanges from 49 in 1986 to 60 in 1990. This, in turn, will result in an increase in the number of network access services, served by digital switches, from 79% in 1986 to 95% in 1990.

C. Plant Utilization Objectives installations

On 25 April 1986, NorthwesTel filed its utilization objectives pursuant to Decision 85-23. In the Commission's view, these objectives are reasonable. Further, the Commission notes that actual and forecast utilization generally falls within objectives.

D. Earth Station Economic Evaluation Studies

On 24 December 1985, NorthwesTel filed a report, pursuant to Decision 85-23, on its decision to replace Telesat Canada earth stations with its own. NorthwesTel stated that its economic study is complete and that there would be no additional maintenance costs associated with its ownership of the earth stations. NorthwesTel contended that there are no providers offering leased earth stations that would be compatible with its new network.

On 14 May 1986, the company filed an additional report in response to a request from the Commission. The company described the procedures that it had followed in arriving at the decision to provide its own earth stations and set out its reasons for ignoring maintenance and operating expenses in its original economic evaluation.

On the basis of these reports, the Commission is satisfied that there would not be cost savings to NorthwesTel arising from a lease arrangement and that the company's decision to provide its own earth stations is reasonable.

E. Control of Capital Expenditures

In Decision 85-23, the Commission expressed concern about the extent to which NorthwesTel failed to adhere to its own construction program. The Commission noted that 24% of NorthwesTel's capital expenditures in 1984 were non-budgeted. In Decision 85-23, the Commission directed NorthwesTel to file a report on procedures that it intended to follow to justify and to forecast more accurately its capital expenditures. Pending the Commission's decision regarding this report, the company was also directed to report each time it spent non-budgeted funds of more than $100,000 on a project or any time a budget-year project for more than $100,000 was eliminated or significantly reduced.

On 28 January 1986, NorthwesTel filed its report on its construction program procedures in which it provided reasons for the changes in its 1984 expenditures and submitted that it is doing everything possible to forecast requirements accurately. The company stated, however, that, in its territory, the demand is volatile in nature and results in last-minute changes to capital budgets.

On 18 August 1986, the company filed a report detailing the specific reasons for major changes to individual projects in 1986.

With regard to the company's report on construction program procedures, the Commission accepts the reasons provided by NorthwesTel for not adhering fully to its construction programs. In view of the company's primary reason, namely demand volatility, the Commission also accepts the company's position that it is in fact doing the best that it can do. However, in light of the volatility of the demand in the company's territory and its effect on the construction program, the Commission directs NorthwesTel to continue filing with the Commission reports on any changes that require a capital expenditure of more than $100,000.

F. Conclusions

The Commission is of the view that NorthwesTel's capital expenditure forecasts in its 1986 View are consistent with its forecasts of demand for its services. The Commission considers that NorthwesTel's 1987-1991 forecast of capital expenditures reflects a reasonable rate of introduction of new technology into the company's network. The Commission therefore concludes that Northwestel's proposed capital expenditures for the years 1987-1991 are reasonable.

IV FINANCIAL CONSIDERATIONS

A. Introduction

In the forecast contained in its application, NorthwesTel estimated its operating revenues, with the proposed rate increases, at $69.8 million in 1987. The proposed rates are expected to generate additional revenues of $0.9 million in 1987. The company estimated its operating expenses at $50.7 million. NorthwesTel also estimated that, with the proposed rates, its rate of return on average common equity (ROE) would be 12.9%.

On 12 January 1987, the company filed a revision to its response to Interrogatory NWTel(CRTC)04Aug86-501 in which it revised its revenue forecast for 1987, primarily to take into account tariff filings not included in the original forecast contained in its application. The company's estimate of operating revenues was increased slightly.

The company stated that the key reasons for its application for a general rate increase at this time are slower revenue growth and higher operating costs. In 1986, revenues were approximately $3.7 million less than originally budgeted due to reductions in oil and gas exploration and difficulties in the mining industry. Although the company reduced operating expenses to offset this revenue shortfall, it incurred additional costs with respect to pension and insurance.

B. Operating Revenues

NorthwesTel stated that, in late 1985, operating revenues for 1986 were budgeted at $68.5 million. The company stated that, during 1986, oil and gas exploration in the company's operating territory was curtailed substantially as a result of the decline in world oil prices and the mining industry encountered difficulties due to low mineral prices and depleted reserves. As a result of these unanticipated changes in its economic environment, the company revised its 1986 revenue forecast downward by $3.7 million in its application. NorthwesTel submitted that this reduced economic activity is also reflected in the forecast operating revenues for 1987.

CAC argued that NorthwesTel has substantially underestimated its 1987 projected revenues in several ways. First, the company has underestimated the rate of growth in the Yukon economy in failing to give proper weight to the re-opening of the Cyprus Anvil mine at Faro and, consequently, has underforecast the impact on the company's revenues. Second, the mining industry is not experiencing continuing difficulties. CAC argued that the mining industry in the Yukon is thriving and that this resurgence is not solely due to the re-opening of the Cyprus Anvil mine. Third, NorthwesTel has overestimated the significance of the oil and gas industry to the northern economy; as well it has overestimated the impact of a decline in exploration activity on the company's revenues. Finally, CAC submitted that NorthwesTel had not taken into account several positive influences on oil and gas exploration activity, such as the recent increase in the world price of oil and several potential exploration programs.

In reply, the company stated that, in projecting revenues, it does take into account significant events, such as the re-opening of the Cyprus Anvil mine, but that it would not be prudent to ignore the negative effects of such major issues as the decline in oil and gas activity. The company argued that it takes into account all facets of the economy in its operating territory in preparing revenue forecasts and that its successful record of forecasting has been shown in this proceeding.

With regard to the company's past performance in forecasting its operating revenues, the Commission notes that actual operating revenues for 1986 varied only slightly from the amount forecast: actuals were 0.02% lower than forecast in the application.

With regard to the 1987 forecast, the Commission considers that, based on the record of this proceeding, the company's forecasts of oil and gas exploration activity and of mining activity are reasonable.

The Commission is satisfied that NorthwesTel has adequately incorporated into its 1987 revenue forecast those factors that will have a significant effect on its operating revenues. In view of this, and of the current and expected economic activity in the company's operating territory, the Commission considers that the company's forecast increase of over 6% in operating revenues in 1987 over those in 1986 is reasonable.

In light of the considerations set out above, and subject to the adjustment for Tariff Notice 241 described in Part V of this decision, the Commission accepts NorthwesTel's 1987 operating revenues forecast for the purpose of assessing the company's revenue requirement.

C. Operating Expenses

1. General

NorthwesTel stated that, in late 1985, operating expenses for 1986 were budgeted at $48.9 million. Due to a reduction in projected revenues, the company revised its 1986 expense forecast downward by $0.9 million, in its application, to $48.0 million. Actual operating expenses for 1986 were $0.9 million less than forecast in the application. For 1987, the company is forecasting operating expenses of $50.7 million.

During cross-examination, Mr. J.C.B. Cullen, chairman of the company's panel on Financial Results and Forecasts, stated that the company had attempted to offset the unexpected revenue shortfall in 1986 by curtailing expenses as much as possible. Mrs. L.J. Lyle, another member of that panel, stated that the expense reductions made in 1986 could not be continued into 1987 as many programs were curtailed on a temporary basis only.

CAC argued that the company's overestimation of 1986 expenses justifies a reduction in the 1987 forecast. CAC noted that the company's original 1986 forecast overestimated actual expenses by 4.2%. CAC submitted that the inability of the company to forecast expenses one year in advance must be taken into account by the Commission in considering whether to grant NorthwesTel a rate increase. Given that the company revised its 1986 forecast downward in its application, CAC requested the Commission to reduce the forecast of 1987 expenses by the amount of the revenues NorthwesTel expects to generate through the proposed rate increases.

During final argument, the company argued that its success in reacting to unanticipated changes in demand for services should not be used to arbitrarily reduce its 1987 expense forecast. It stated that its expense forecast is realistic and in no way excessive.

The Commission accepts the company's position that expense reductions made in 1986 were in response to an unanticipated decline in demand and thus in operating revenues, and that these reductions would not be able to be continued in 1987. The Commission notes the company's efforts in respect of cost containment and efficiency as reflected in the company's forecast of operating expense increases (excluding insurance and pension expenses) from 1985 to 1987; the forecast increases are significantly lower than the anticipated increase in combined inflation and demand factors over the same period. In light of the foregoing, the Commission considers the company's forecast of these operating expenses to be reasonable.

2. Amortization of Losses Under CNR Insurance Investment Fund

The Canadian National Railway Company (CNR) Insurance Investment Fund (the Fund) provides insurance coverage for CNR's divisions and subsidiaries except CN Rail. Losses incurred by NorthwesTel that are in excess of $25,000 are covered by the Fund. Premiums are based on the company's loss experience of prior years.

The company stated that the premiums payable to the Fund by it have increased from $21,000 in 1985 to $214,000 in 1986 and are forecast at $192,000 in 1987. NorthwesTel added that this increase is due to large fire loss claims that it sustained in 1984 and 1985. At the hearing, NorthwesTel stated that cumulative losses of less than $500,000 are amortized over 5 years; cumulative losses of $500,000 or more are amortized over 3 years.

During cross-examination by CAC, Mr. Cullen explained that, according to the CNR insurance plan manager, larger losses are amortized over three years because the company would face undue uncertainty if large losses were amortized over a longer time period.

Mr. Cullen defended the reasonableness of the premiums charged to NorthwesTel by the Fund. He provided the results of a company study that indicated that, even with a three year amortization period, premiums charged to the company by the Fund are less than those that would be payable for comparable coverage by independent commercial ventures.

During final argument, CAC submitted that NorthwesTel faces no additional uncertainty if large losses are amortized over five years rather than three. CAC requested that the Commission direct NorthwesTel to recover large losses over five years for regulatory purposes.

In the Commission's view, the company's policy of amortizing losses of $500,000 or more over three years is reasonable given that commercial premiums for similar coverage would exceed the current expense. Based on the record of this proceeding, however, the Commission is not persuaded that it is reasonable to amortize losses that are less than $500,000 over a longer period. Accordingly, effective with the 1987 test year, the Commission directs the company to adopt for regulatory purposes the policy of amortizing over three years all cumulative losses in excess of $25,000. The Commission notes that, for the 1987 test year, this directive will not result in any adjustment to the Fund premium because NorthwesTel's cumulative losses exceed $500,000 and are currently amortized over three years.

3. Other Insurance Expense

The company stated that the Fund provides coverage for any individual loss sustained by NorthwesTel that is in excess of $25,000. Any loss equal to or below this deductible limit is absorbed fully by the company in the year in which it is sustained. These losses have been estimated to increase from $12,000 in 1985 to approximately $125,000 in 1986 and are forecast at $130,000 in 1987.

During cross-examination, the company stated that the 1987 forecast was based on its loss experience in 1986. NorthwesTel also stated that the losses sustained in 1984 and 1985 were exceptionally low and that the company was being conservative in its 1987 forecast.

In the Commission's view, the company's insurance expense history over the past five years suggests that the Other Insurance expense in 1986 was unusually high and that, as a consequence, it should not be used as the basis for the 1987 forecast. Accordingly, the Commission considers it appropriate to reduce for regulatory purposes the 1987 forecast of Other Insurance expense and it has determined that a decrease of $60,000 is reasonable.

4. Method of Establishing Pension Cost

Virtually all employees of NorthwesTel are covered for retirement benefit purposes under CNR's pension plans. NorthwesTel's pension liabilities are not calculated separately within CNR's pension plans. Instead, a portion of CNR's pension cost is allocated to NorthwesTel.

NorthwesTel forecasts pension cost at $1.9 million in 1987. Of this amount, approximately $1.7 million is forecast to be related to ongoing operations and is therefore expensed, while the remainder is capitalized. The forecast $1.9 million pension cost represents an increase of approximately $1.2 million over 1984 and is due to both a change in the allocation method of this cost by CNR and an increase in CNR's pension cost.

Prior to 1985, CNR allocated a fixed percentage (0.99% between 1981 and 1984) of its annual pension cost to CN Communications Division (CNC) and CNC then allocated to NorthwesTel the portion of the cost that was attributable to NorthwesTel based on a percentage of pensionable earnings (this method of allocation by CNR through to NorthwesTel is referred to for these purposes as the fixed percentage method). Other CNR divisions were allocated pension cost based on a percentage of pensionable earnings.

NorthwesTel stated that this fixed percentage method resulted in NorthwesTel paying a smaller percentage of CNR's total pension cost than would have been the case if the company's allocation had been determined solely on the basis of the percentage of pensionable earnings method. The explanation offered by NorthwesTel for the use of the fixed percentage method was that this method reflected a perceived difference in the age profile of CNC employees as compared to CNR employees as a whole.

During cross-examination, Mr. G.A.C. Manuel, a further member of the panel on Financial Results and Forecasts, stated that, towards the end of 1985, CNR decided to adopt for all its divisions, including CNC, the allocation procedure based on the percentage of pensionable earnings method. Mr. Cullen acknowledged that this new allocation method results in an approximate doubling of the amount of the pension cost that otherwise would have been allocated to NorthwesTel under the fixed percentage method. Mr. Cullen asserted that studies performed by actuaries and the CNR pension department had determined that CNR and CNC had similar age profiles and that, therefore, the fixed percentage method is no longer valid. However, Mr. Cullen did not produce any evidence to support this assertion.

Mr. Cullen stated that the percentage of pensionable earnings method is equitable. He stated that CNC had engaged an independent actuary to examine the feasibility of NorthwesTel setting up a separate pension plan. Although the study was not expected to be completed until the second quarter of 1987, Mr. Cullen said that preliminary indications were that the cost of obtaining comparable benefits under a separate plan for NorthwesTel would be higher than the company's current pension cost.

CAC requested the Commission to disallow pension cost in excess of that allowed under the fixed percentage method pending the provision of an independent actuarial study that substantiates that CNC and NorthwesTel are similar to CNR in terms of age profiles and other relevant characteristics.

During final argument, the company submitted that the allocation of pension cost from CNR based on percentage of pensionable earnings is fair, reasonable and is consistently applied to all entities that are participating in the CNR pension plan. In reply argument, the company also contended that no intervener presented evidence during this proceeding to disprove this contention.

The Commission notes that a change from the fixed percentage allocation method to the percentage of pensionable earnings method would result in a substantial increase in NorthwesTel's pension cost for 1987 and beyond. The Commission considers that the onus is on the company to provide adequate supporting evidence to justify any such increase. Notwithstanding the opportunities afforded it through interrogatories and during examination at the hearing, the company failed to do so.

In the absence of adequate supporting evidence, the Commission is unable to accept the proposed increase in the amount of pension cost. In calculating the company's revenue requirement for 1987, therefore, the Commission has estimated the company's pension cost based on the fixed percentage method.

D. Income Tax Expense

During the proceeding, Mr. D.A. Ford, a witness who appeared on behalf of Yukon, filed evidence on the issue of income tax expense. He stated that, while NorthwesTel accounts for income tax expense on a normalized basis and the company remits to CNR the income taxes that would be payable if NorthwesTel were to file a separate income tax return, little if any of this amount is actually remitted to Revenue Canada by CNR.

Mr. Ford therefore recommended that the rate used in determining NorthwesTel's income tax expense be reduced from the full statutory rate in recognition of the benefit accruing to CNR from being able to use its loss carry-forwards and tax credits more rapidly. To achieve this, he recommended that NorthwesTel's income tax expense be discounted as originally prescribed in NorthwesTel Inc., General Increase in Rates, Telecom Decision CRTC 81-4, 16 February 1981. He submitted, further, that an amount equal to income taxes that are currently required to be remitted to CNR be set aside in a special retained earnings account and used as a cost-free source of capital. NorthwesTel would not be allowed to earn a return on this amount as long as CNR is not in a tax remitting position. According to Mr. Ford, this would ensure that subscribers would derive some benefit from amounts treated as income tax expense and recovered by rates in the current year but not remitted to Revenue Canada in that year.

In their final arguments, the International Brotherhood of Electrical Workers, Local Union 1574 and the City of Yellowknife supported the position set out by Mr. Ford.

NorthwesTel took the position that it has complied with past Commission decisions with respect to the computation of income tax expense. It argued that no evidence has been submitted which would cause the Commission to reconsider its previous decisions.

The company also stated that it must be allowed to claim income tax expense at the full statutory rate so that, should CNR be in a tax remitting position or be privatized or lose its consolidated tax return status, funds would be available to permit NorthwesTel to discharge its income tax liabilities. Otherwise, in the event of a change in CNR's tax status, NorthwesTel's revenue requirement would increase substantially with corresponding increases in subscriber rates.

NorthwesTel noted further that it could file its own income tax return and remit directly to Revenue Canada the taxes payable amount that NorthwesTel transfers to CNR. CNR could then apply to Revenue Canada for a refund.

In the Commission's view, parties to this proceeding have not provided the Commission with any new information regarding the income tax expense issue that has not already been considered by the Commission in its previous decisions. In those decisions, the Commission found that, because of losses incurred in previous years on operations other than telecommunications, CNR had been claiming capital cost allowances at rates lower than the maximum permitted under the Income Tax Regulations. These unclaimed capital cost allowances, also referred to as "deferred tax debits", would then be available to reduce CNR's taxable income in future years. Under existing legislation, CNR files its tax return on a consolidated basis that includes NorthwesTel. Accordingly, the profitability of NorthwesTel allows CNR to accelerate the utilization of its unclaimed capital cost allowances and thereby receive a cash flow benefit. The Commission considered that this benefit should be recognized and used to benefit subscribers of NorthwesTel. This was accomplished by discounting the income tax expense otherwise allowable.

The Commission notes that, during cross-examination in this proceeding, Mr. Cullen stated that CNR's "deferred tax debits" that had given rise to the discounting of NorthwesTel's income tax expense had been fully utilized by early 1986. Accordingly, the Commission has concluded that, for the 1987 test year, the company's income tax expense should be calculated at the full statutory rate.

E. Rate of Return

1. NorthwesTel's Evidence

In its Overview Memorandum and in response to Interrogatory NWTel(CRTC)17Oct86-1401, the company submitted that a fair ROE would be in the range of 13.5% to 14.5%. In support of this position, the company referred to Bell Canada - Review of Revenue Requirements for the Years 1985, 1986 and 1987, Telecom Decision CRTC 86-17, 14 October 1986 (Decision 86-17), in which the Commission set the allowed 1987 ROE for Bell in the range of 12.25% to 13.25%. The company noted that this range of ROE was approximately 2.5% to 3.5% above Bell's yield on long term debt. NorthwesTel pointed out that if the same spread were applied to CNR's current cost of long term debt, which is in the order of 10%, the company's allowable ROE in 1987 would be in the range of 12.5% to 13.5%.

NorthwesTel also referred to the evidence of Mr. L. Gould, a witness who appeared on behalf of CAC in the proceeding leading to Decision 86-17. According to NorthwesTel, Mr. Gould's evidence suggested that a "risk differential" of 0.75% existed between the cost of equity of Bell and six designated Canadian telephone companies. NorthwesTel indicated that, if this "risk differential" were applied to the permissible ROE of 12.25% to 13.25% allowed for Bell in 1987 in Decision 86-17, the fair ROE for the six Canadian telephone companies would be 13.0% to 14.0%. In NorthwesTel's view, these six companies are not as risky as NorthwesTel.

NorthwesTel estimated that, with the proposed rate increases requested in this application, its ROE would be 12.9% in 1987. In its view, this would not be a satisfactory return. According to NorthwesTel, a higher return was not sought in this application because the current economic situation would not permit higher rate increases. In addition, the company expressed the view that, given the Commission's directives to freeze the message toll service (MTS) rates of Bell and B.C. Tel in Interexchange Competition and Related Issues, Telecom Decision CRTC 85-19, 29 August 1985, an application to increase MTS rates would not be appropriate.

2. Intervener Evidence

On behalf of Yukon, Mr. Ford provided evidence on a fair ROE for NorthwesTel. In his evidence and during cross-examination, Mr. Ford expressed the view that, in considering a fair ROE, NorthwesTel has overlooked several factors, namely:

i) that the opportunity cost of CNR in respect to its investment in NorthwesTel can be deduced from the realized returns of CNR's other current investments, which are much lower than the realized return of NorthwesTel;

ii) that NorthwesTel has taken into account a number of elements, such as its vast serving territory and the harsh climate, which, according to Mr. Ford, have nothing to do with financial risk;

iii) that there is stability of revenues due to the large government element in its customer base;

iv) that CNR would continue to provide financing to NorthwesTel regardless of its achieved rate of return; and

v) that the income tax position of CNR allows it to collect income taxes from NorthwesTel and to use them to subsidize other investments and to accelerate the use of tax credits.

Mr. Ford concluded that, if these factors were considered, the fair ROE for NorthwesTel would be one percentage point above the current yield of long term Canadian government bonds, which, according to Mr. Ford, are in the range of 8.75% to 9.25%. For 1987, under his approach, the permissible ROE for NorthwesTel would 10%.

3. NorthwesTel's Argument

In final argument, NorthwesTel addressed each of the issues raised by Mr. Ford. The company argued that Mr. Ford's concept of opportunity cost does not conform with accepted regulatory or commercial practice. With respect to risk, the greater variability of NorthwesTel's earnings in relation to other Canadian telephone companies showed, in NorthwesTel's submission, that it is riskier. Regarding stability of revenue, the company argued that there is no evidence that its level of government revenues is appreciably higher than those of some other Canadian telephone companies such as Manitoba Telephone System, Saskatchewan Telecommunications and New Brunswick Telephone Company. Regarding the question of CNR financing, the company argued that it has to compete with other investment opportunities available to CNR. Finally, on the matter of income taxes, the company stated that it has complied with Commission decisions.

4. Interveners' Arguments

In final argument, CAC stated that NorthwesTel erred in focusing on the 0.75% spread between the equity costs of Bell and the six Canadian telephone companies, described in Mr. Gould's evidence. According to CAC, the part of Mr. Gould's testimony that is germane to the determination of NorthwesTel's cost of equity for 1987 is his estimate that the fair ROE for the group of six Canadian telephone companies is 11.5%. This would suggest that a fair ROE for NorthwesTel is 11.5% also.

In final argument, Yukon disputed the risk factors referred to by the company. Yukon adopted the position put forward by its witness, Mr. Ford.

5. Conclusions

Based on the record of this proceeding, the Commission considers that, increasingly, certain of NorthwesTel's customers may avail themselves of satellite-based services provided by other suppliers. For this reason, the Commission is of the view that NorthwesTel's business risk has increased since Decision 85-23 was made. On the other hand, the Commission considers that interest rate levels will be lower over the 1987 test year than the levels estimated for 1986.

Based on its assessment of the company's business risk and the financial market conditions in 1987, the Commission has concluded that, for the 1987 test year, the permissible ROE range for NorthwesTel should be between 13.0% and 14.0%. For the purpose of determining the company's revenue requirement for 1987, the Commission has set rates to yield an ROE of 13.5%, which is the mid-point of the permissible range. After making the adjustments set out in this decision in respect of operating revenues and expenses, the Commission has concluded that the additional revenue required to provide the company with an ROE of 13.5% in 1987 is $615,000, or approximately $300,000 less than the amount requested by NorthwesTel in its application.

V TARIFF REVISIONS

A. Introduction

To meet the revenue requirement identified in Part IV of this decision, the Commission approves, except as specified below, the rates as proposed by NorthwesTel in its application.

B. Basic Exchange Access Services de base

In its application, NorthwesTel proposed rate increases to basic exchange access services of 9%. It was NorthwesTel's position that its exchange access rates lag behind those of other federally-regulated carriers, that it operates in a very high cost area and that it has a significantly higher capital investment per access line than any other telephone company in Canada.

It was CAC's position that rates for business subscribers should be increased more than those for residence subscribers; this would move the rate relationship between the two services more toward that existing for other federally-regulated telephone companies.

In considering the positions of the parties concerning these proposed rate increases, the Commission has noted the additional revenue to be generated by increases to other local services which are used predominantly by business subscribers. The Commission has decided to approve increases of 6% to be applied to all residence and business exchange access services. In recognition of the terminal attachment requirements that do not permit the ownership of telephone sets by party line subscribers and in light of the approved rates for party line telephone set rentals, the Commission approves increases to the access line credits for party line subscribers of $0.10 for residence and $0.05 for business such that increases for party line telephone set rentals do not exceed the 6% increases approved for exchange access service.

C. Exchange Line Mileage and Locality Rate Areas

For those subscribers located outside a base rate area, NorthwesTel proposed a 50% increase in the mileage charges for individual lines, PBX trunk lines and two-party service and, for locality rates, increases of between 8% and 10%. In support of the proposed increases in rates for mileage charges, the company cited construction costs associated with provision of telephone service to rural areas.

The Commission has noted the concern expressed by parties to this proceeding that note should be taken of the reduced economic activity in the company's operating territory in setting the actual rates. In this regard, in order to limit the impact of rate increases on subscribers' monthly bills, the Commission has decided to approve rate increases of 6% for these services.

In a related matter, the Commission notes from the record of this proceeding that NorthwesTel has instituted a free construction allowance for rural subscribers but has not yet filed a tariff for Commission approval. The company is directed to file a proposed tariff revision for this allowance within 30 days of the date of this decision for consideration by the Commission.

D. Service Charges

NorthwesTel proposed increases in its standard service charges and NSF cheque charge of 50%. It also proposed the introduction of separate standard service charges for multiline subscribers. In support of the proposed multiline service charges, the company submitted that those customers who create a cost burden should bear it.

CAC expressed concern that increases in installation service charges would lead to a drop in telephone demand. CAC was of the view that there should be no increase to residential service charges.

The Commission has reviewed the cost estimates filed by the company for each of the four service charge elements. It is of the view that the charges for the elements which involve work done on the subscribers' premises and which require travel to and from the subscribers' premises should be increased more than those involving central office work to reflect underlying costs more accurately. Accordingly, the Commission approves increases of 13% for premise visit and premise work and 6% increases for order processing and line connection applicable to residence subscriber and business individual line subscriber service charges. To the extent that these standard service charges are used as a basis to derive service charges for other than basic service (for example, Private Wire Service) the service charges for such other services should also reflect these approved rate increases. With regard to charges for NSF cheques, the Commission considers that an increase of 50% has not been justified and would be excessive. The Commission therefore approves an increase of 10%.

With respect to the proposed increases in standard service charges for multiline equipment, the Commission notes that these rates would only be applied to business subscribers. The Commission approves the premise work charge as proposed. With regard to the proposed charges for order processing, line connection and premise visit, the Commission approves rates equal to the rates approved above for individual line business subscribers.

NorthwesTel proposed changes in the wording of its service charges for PBX service in locations where a NorthwesTel technician is not resident. In this regard, the company is directed to file a proposed revision to General Tariff Item 801, paragraph F, that specifies that the customer will not bear any cost associated with travel and related expenses when the cause of the technician's visit is the result of an error on the part of NorthwesTel in installing the equipment.

E. Mobile Telephone Service

NorthwesTel proposed increasing the network access charge by 9% and the usage rate for local calls from $0.30 per minute to $0.40.

The Commission notes that the mobile network is used by some subscribers as basic telephone service. In view of this and of the Commission's decision to approve 6% increases for exchange access services, the Commission considers that similar increases for mobile network access would be appropriate. Accordingly, the Commission approves increases to the network access rate of 6%. With respect to usage rates, the Commission approves a rate of $0.35 per minute. However, the Commission directs NorthwesTel to file a proposed revision to its General Tariff to specify that the usage charges apply to outgoing calls only.

F. Directory Assistance and Time and Charges Information Requests

NorthwesTel proposed to increase the rate for Directory Assistance from $0.50 to $0.70 per request and the rate per request for Time and Charges information from $0.50 to $0.75. When estimating the additional revenue to be earned from these proposed rate increases, the company indicated that, although it had conducted no formal studies of the price elasticity of demand, it anticipated some revenue curtailment based on its experience when these charges were first introduced.

The Commission approves charges for Directory Assistance of $0.60 per request and for Time and Charges information of $0.70 per request to bring them into line with the rates charged by other federally-regulated telephone companies. Given that the company did not conduct any formal studies of the price elasticity of demand, no revenue curtailment was assumed by the Commission when calculating the additional revenues generated by these rates.

G. Tariff Notice 241

On 30 July 1986, NorthwesTel filed Tariff Notice 241 under which it proposed significant increases in rates for older PBXs, key systems, Telex equipment and other terminal equipment. In the supporting documentation, NorthwesTel indicated that these proposed rates would yield additional revenues of about $115,000 for 1987. In Telecom Order CRTC-86-557, dated 16 September 1986, the Commission approved the proposed increases in order to maximize contribution from competitive offerings, effective 15 November 1986.

On 12 January 1987, NorthwesTel filed a revised response to Interrogatory NWTel(CRTC)04Aug86-701 which indicated that a net decrease in revenues is expected from various terminal equipment categories in 1987. Under cross-examination, the company indicated that the decrease is the result of incorporating Tariff Notice 241 in its interrogatory response. Further, the company stated that the supporting economic information was not clearly presented in Tariff Notice 241 and that, in fact, there would be a reduction in revenues arising from the approval of tariff revisions filed under Tariff Notice 241.

The Commission does not accept NorthwesTel's statement regarding the economic information filed in support of Tariff Notice 241. In the Commission's view, the supporting data clearly indicated that the company projected additional revenues of $115,000 with the proposed increases. Since then, the company has not provided evidence to contradict the revenue projections filed in support of Tariff Notice 241. Accordingly, the Commission does not accept the company's current position that a decrease in revenues arising from Tariff Notice 241, as shown in the revised response to Interrogatory NWTel(CRTC)04Aug86-701, should be reflected in the 1987 revenue forecast. Accordingly, for the purpose of estimating the revenue requirement for 1987, the Commission has included the additional $115,000 revenue estimate.

H. Wide Area Telephone Service

The company indicated that it was negotiating with Alberta Government Telephones (AGT) with regard to the provision of Wide Area Telephone Service and that it expected to reach an agreement within the next twelve months. In view of the significance of long distance services in the company's operating territory, NorthwesTel is directed to provide the Commission with a report on the status of its negotiations within one year of the date of this decision.

I. Tariff Filings

The company is directed to file revised tariffs forthwith, with an effective date of 1 March 1987, to give effect to the rates approved in this decision.

VI FOLLOW-UP ITEMS

A. Status of Items Identified in Decision 85-23

The Commission has reviewed the follow-up items from Decision 85-23 and has determined that action has been completed or the activity has been subsumed by this proceeding for all except the following:

85-23:09 Residential Frequent Caller Discount Plan

B. Summary of Items Identified in this Decision

The Commission has identified the following items in this decision on which it requires further submissions:

87-3:01 Provision of Service Indicators - Report on Introduction of Due Date/Appointment System in Measurement Method (page 7)

87-3:02 Repair Service Reports (page 10)87-3:03 Local Service Indicators - Report on Feasibility of Including all Digital Exchanges in Assessment (page 11)

87-3:04 Long Distance Service Indicators - Transmission Blockage Tests (page 12)

87-3:05 Ruraltel 2 - Development of Indicator and Standard to Assess Service (page 15)

87-3:06 Report on Feasibility of Modifying Credit Rating Categories (page 20)

87-3:07 Report on Status of Wide Area Telephone Service Negotiations with AGT (page 50)

C. 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 1 April 1987.

(b) The Commission will compile a list of interveners who have registered noting the follow-up items of interest to each party and will provide a copy of this list to NorthwesTel and to each registered intervener.

(c) Subject to subparagraph (f), a copy of each document filed with the Commission by NorthwesTel shall be served on each intervener registered for the particular follow-up item.

(d) Interveners may comment on any document filed with the Commission within thirty days from the date of service. Comments shall be filed with the Commission and served on NorthwesTel and each intervener registered for the follow-up item.

(e) NorthwesTel may reply to comments within ten days from the date of service.

(f) The provisions of section 19 of CRTC Telecommunications Rules of Procedure apply to any claim of confidentiality. In addition, where the company asserts such a claim, it shall send a copy to each intervener registered for the particular follow-up item a copy of the claim and supporting reasons.

Please note that 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 rooms located in Room 201 of the Central Building, Les Terrasses de la Chaudière, Hull, Quebec, and Suite 1130, 700 West Georgia Street, Vancouver, B.C.

Fernand Bélisle
Secretary General