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Telecom Public Notice
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Ottawa, 27 August 1987
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Telecom Public Notice CRTC 1987-47
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BELL CANADA - REVISED CRITERIA FOR EXTENDED AREA SERVICE
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On 23 May 1986, the Commission issued CRTC Telecom Public Notice 1986-34 (Public Notice 1986-34), in which it stated that it was deferring its disposition of an application by Bell Canada (Bell), dated 4 November 1985, to make changes to the qualifying criteria for Extended Area Service (EAS) and to recover the increased revenue requirement arising from the changes by increasing the weighting factors used for determining local rates in exchanges having EAS.
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EAS allows Bell customers located in neighbouring telephone exchanges to call one another without incurring long distance charges. The current qualifying criteria for the provision of new EAS links in Bell's operating territory were established in Bell Canada, General Increase in Rates, Telecom Decision CRTC 80-14, 12 August 1980. These criteria are the following:
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1) the exchanges are contiguous;
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2) a minimum of 60% of customers in one exchange make calls to those in the other at least once a month (community of interest);
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3) the airline distance between the exchanges' rate centres (normally the main switching centre in an exchange) does not exceed 30 miles; and
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4) a simple majority (51%) of customers, whose basic local rates would be increased, approve of the new service.
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In its application of 4 November 1985, Bell proposed to eliminate the contiguity criterion and to reduce the community of interest requirement 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 annual revenue requirement of $19 million over a ten year period. It proposed to meet this revenue requirement by increasing the weighting factors used in establishing local rates for exchanges with EAS by 5% after the implementation of the first 40 new EAS links. It also proposed a further weighting factor increase of no more than 5% after the implementation of a second group of 40 links.
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In determining the rates for local telephone service, Bell classifies exchanges into rate groups based on the number of telephone numbers that can be reached without incurring long distance charges. Local service rates increase with rate group size. Rate grouping reflects the principle that the greater the number of subscribers that can be reached without incurring long distance charges, the greater the value of local service. At present there are 18 rate groups.
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The number of telephone numbers within an exchange is referred to as its telephone number count. When the telephone number count of an exchange exceeds the upper limit of its rate group by more than 5% for 2 consecutive months, the exchange is assigned to the next higher rate group. In the case of an exchange having EAS with other exchanges, the total telephone number count is adjusted to reflect the telephone number count for that exchange plus the total telephone number count for each other exchange in its local service free calling area multiplied by a weighting factor based on the rate centre to rate centre distance between the exchanges. The current weighting factors range from 1.0 for a distance between rate centres of 1 to 10 miles and up to 5.2 for a distance of 26 to 30 miles.
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In its 4 November 1985 application, Bell estimated that, in approximately 65 exchanges that would not receive any additional EAS links, the first 5% increase in weighting factors proposed would result in an immediate upward change in rate group and, as a result, an increase in local rates for subscribers in these exchanges.
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On 2 December 1985, the Commission issued CRTC Telecom Public Notice 1985-81 (Public Notice 1985-81), inviting comments on Bell's application. It received 18 submissions in response. Many interested parties supported the application but some questioned the accuracy of Bell's estimate of the increase in its revenue requirement. Some requested that, if the application were approved, care be taken to ensure that rates are just and reasonable.
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In deferring disposition of Bell's application, the Commission, in Public Notice 1986-34, noted that many subscribers in the 65 exchanges that would be subject to rate increases would not receive any perceivable benefits in return. It also noted that many of these subscribers might not be aware that the granting of Bell's application for revisions to the EAS qualifying criteria would affect their rates and consequently might have considered that they were not given an adequate opportunity to comment. The Commission further concluded that, due to the implications of EAS for local rates and for efficiency in the rate structure, it was preferable not to rule on an application regarding EAS criteria prior to consideration of a specific rate filing by Bell to address the level and structure of toll and local rates. The Commission also considered that additional information regarding the adequacy of alternatives to EAS, such as SELECTEL (a subscription based discounted toll service) and CONTAC (a reverse charge service paid for by municipal governments to provide citizens with toll free access to municipal services), would be required before it could pass judgement on Bell's application.
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In response to Public Notice 1986-34 and to the concerns of interested parties, Bell submitted a Report on EAS Alternatives (the Report) on 31 March 1987. On 30 April 1987, it also filed an Update to Proposals for Extended Area Service Qualification Criteria and Weighting Factors (the EAS Update). In addition, Bell filed its rate rebalancing application on 17 March 1987.
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With regard to the Commission's concerns about rate rebalancing implications, Bell stated that no rate rebalancing impacts are included in the EAS Update. The company noted that it has separated the rates effect of rate rebalancing from those of the proposed changes to the EAS criteria by assuming that increases to local exchange rates under its rate rebalancing proposal and any future increases it may file would be on a flat dollar basis across all rate groups. It contended that, under such an approach, local exchange rate increases associated with rate rebalancing would have no effect on net local revenue increases which would be associated with the upgrouping of exchanges upon the addition of EAS links. Further, it noted that its rate rebalancing proposal would entail little, if any, further reduction to toll rates in the 0 to 30 miles band.
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Regarding alternatives to EAS, Bell provided an assessment of SELECTEL and CONTAC. The company also provided the results of its review of the feasibility of additional EAS alternatives, including Toll Free Allowance and subscription arrangements such as 'Block of Dollars ' or 'Block of Time ' Plans. It stated that the Toll Free Allowance was an inappropriate alternative and that the 'Block' plans were inferior to SELECTEL. It concluded that, despite a very low subscription level by municipalities, CONTAC is a viable option where municipal and telephone exchange boundaries do not fully coincide. Bell further concluded that, despite a low subscription level, SELECTEL is an appropriate alternative in eligible exchanges where EAS is not available.
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Bell also noted that many subscribers who are eligible for SELECTEL remain unaware that this service is available. This has resulted in difficulties in reporting on customer acceptance of SELECTEL as an alternative to EAS. To address this problem, Bell proposed targeted promotional campaigns for SELECTEL in 1987. Bell indicated that it would continue to provide CONTAC and SELECTEL as EAS alternatives.
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In the EAS Update, Bell also provided current and additional information in support of its application to change two of the four EAS qualifying criteria. Noting a change in short haul calling trends since 1985, Bell estimated that implementation of the revised criteria would now result in 204 new eligible EAS links. It estimated that subscribers in 137 of these would vote to accept EAS. It also revised its estimated additional annual revenue requirement to $21 million over a 13 year study period.
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To recover this amount, Bell modified its application with respect to weighting factor increases. In the EAS Update, it applied for an increase of 0.1 to the EAS weighting factors for the 1 to 20 mile bands. It noted that this increase would be introduced in 1990 after the implementation of the first group of 45 new EAS links. It further proposed a potential additional weighting factor increase of 0.1 for the 1 to 15 mile bands, to be introduced in 1992 after the implementation of a second group of 45 new EAS links. Bell proposed no further increases to the weighting factors during the period in which the remaining links would be put into place.
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In response to Commission interrogatories of 25 May and 31 July 1987, Bell filed additional information on its updated application. In its responses, Bell listed 55 existing EAS exchanges which it expected would upgroup in 1990 and 48 exchanges which it expected would upgroup in 1992 as a result of increases in the weighting factors. Bell noted that, as a result of growth, these exchanges would have upgrouped at a later date even without an increase in weighting factors. Bell also indicated that over a fifteen year period ending in 2002, an estimated 475 exchanges representing 81% of residence and 68% of business accounts, inclusive of those above, would upgroup at an earlier date if the company's proposals were approved. Bell stated that the rate increases would range from $0.30 to $1.10 for residence individual line service and from $2.00 to $3.35 for business individual line service, in exchanges which would receive no new EAS. Higher increases could apply in some exchanges where additional EAS links are introduced.
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Further, the company provided a list of Bell/independent company and independent company/Bell links that could qualify for EAS under the proposed criteria. As well, it provided the results of an economic evaluation study which assumed that the contiguity criterion only would be eliminated.
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The Commission noted in CRTC Telecom Public Notice 1987-15, 20 March 1987, at p. 5, that it would determine, after receipt of the Report and the EAS Update, procedures for disposition of the company's EAS proposal. In light of the information filed, the Commission has concluded that Bell's EAS proposal should be dealt with separately from the company's rate rebalancing plan. The Commission prescribes the following procedures to aid it in its determination of Bell's EAS application:
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1. A copy of the application, the EAS Update and related material may be examined at any of Bell's business offices or at the offices of the CRTC, Room 201, Central Building, Les Terrasses de la Chaudière, 1 Promenade du Portage, Hull, Québec or Complex Guy-Favreau, East Tower, 200 Dorchester Blvd. West, 6th Floor, Montréal, Québec.
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2. Interested persons who have not already received a copy of the application, the EAS Update or related material may obtain a copy by writing to Mr. E.E. Saunders, Q.C., c/o Mr. Peter J. Knowlton, Assistant General Counsel, Bell Canada, 25 Eddy Street, 4th Floor, Hull, Québec, J8Y 6N4.
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3. Interested persons wishing to comment may write to Mr. Fernand Bélisle, Secretary General, CRTC, Ottawa, Ontario, K1A 0N2, by 26 October 1987. A copy of your letter should be sent to Mr. E.E. Saunders, Q.C., c/o Mr. Peter J. Knowlton, at the address noted above.
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4. Bell may reply to comments from interested persons by 25 November 1987.
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Fernand Bélisle
Secretary General
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