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Ottawa, 6 June 1990
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Telecom Decision CRTC 90-11
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BRITISH COLUMBIA TELEPHONE COMPANY - EXTENSION OF SERVICE TO REMOTE COMMUNITIES
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I BACKGROUND
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In British Columbia Telephone Company - Revenue Requirement for the Years 1988 and 1989 and Revised Criteria for Extended Area Service, Telecom Decision CRTC 88-21, 19 December 1988 (Decision 88-21), the Commission began an examination of the extension of service to unserved and underserved communities in remote areas of the operating territory of British Columbia Telephone Company (B.C. Tel). That examination continued in the annual review of the company's construction program (CPR) for both 1988 and 1989. Following the 1988 CPR, B.C. Tel was directed to identify all remote unserved and underserved communities in its operating territory and to propose, for consideration during the 1989 CPR, a means to extend or improve service to these locations. In response to the Commission's direction, B.C. Tel proposed the Service Extension Program (SEP) prior to the 1989 CPR meeting.
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The examination begun in the proceeding leading to Decision 88-21 focused originally on the 22 communities identified under B.C. Tel's Capital Program Management System 32000 (CPMS 32000), Service to Remote Communities. To qualify for service under this program, a community must meet certain density criteria and have at least 50 residents. Most locations covered under CPMS 32000 are served by means of a single coin telephone or toll station line (TSL) that provides the entire community with 24-hour publicly available telephone access to the outside world. The Commission regards communities receiving coin telephone or TSL service under CPMS 32000 as underserved.
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When started in 1979, CPMS 32000 was intended to introduce coin telephone or TSL service, but not full exchange service, to eligible communities. However, some communities originally covered under the program subsequently obtained full exchange service. During the 1989 CPR, B.C. Tel stated that the remaining unserved or underserved communities have a long history of habitation and are not "company towns" dependent on a particular business or industry. It is expected that all of the 22 communities originally identified under CPMS 32000 will have some type of service by 1991.
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Also of relevance to the Commission's examination is B.C. Tel's CPMS 32200, Rural Service, under which the company provides full exchange service to communities that meet certain density and cost criteria and have at least 50 potential subscribers. However, some eligible communities have not been able to afford service because of charges levied by B.C. Tel for the extension of outside plant facilities to subscriber premises.
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In addition, in June 1989, the Commission approved tariffs for Exchange Area Radiotelephone Service (EARS). EARS is a new radiotelephone service that provides telephone service similar in many respects to the standard rural four-party service. EARS is intended to replace conventional VHF radiotelephone service and is particularly well suited for small clusters of individuals situated in remote areas.
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In its submissions at the 1989 CPR, B.C. Tel noted that, despite the programs described above, a significant number of remote locations are still requesting service. B.C. Tel stated that these include: (1) communities that may or may not have met eligibility requirements but, in any event, were not identified under CPMS 32000; (2) communities included in CPMS 32000 and now requesting a higher level of service; (3) "company towns" dependent upon a particular business or industry; and (4) communities that did not meet the original CPMS 32000 eligibility criteria.
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The review meeting for the 1989 CPR was held in December 1989. The Government of British Columbia (BCG) and the British Columbia Public Interest Advocacy Centre (representing the B.C. Old Age Pensioners' Organization and several other groups, referred to hereafter as BCOAPO) subsequently filed comments on SEP. The Commission has not as yet issued a decision with respect to the 1989 B.C. Tel CPR. In order to expedite the implementation of plans for providing or improving service to remote communities, the Commission has decided to issue a separate decision with respect to this issue.
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II SERVICE EXTENSION PROGRAM
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At present, B.C. Tel General Tariff Item 99 provides for a free allowance for construction on public property when the construction required to furnish service to a principal premises does not exceed 165 metres. In addition, when two or more premises are to be served by new construction, the company permits subscribers to "pool" their free construction allowances. Construction charges not covered by the free allowance, up to a maximum of 1,650 metres, are prorated between the company and subscribers, with subscribers paying $50 per 30 metres or part thereof. Above that allowance, subscribers pay the full amount of any construction charges. General Tariff Item 99 also specifies that, when new construction is required to furnish EARS beyond existing coverage areas, B.C. Tel will bear the cost of that construction up to an amount equal to $5,000 per subscriber, provided that the premises are publicly accessible.
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B.C. Tel's proposed SEP would extend eligibility for service beyond well-defined established communities to others, such as seasonal communities and ribbon developments, that did not qualify under previous programs. SEP is intended to eliminate all eligibility criteria related to size, density, population and location, and to replace them with a universally applicable per-subscriber cost allowance for extending service. This allowance would supersede both the current free construction allowance of 165 metres and the allowance of $5,000.00 for EARS. Under SEP, any construction charges levied against subscribers would be shared equally by all those receiving service.
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The revised allowance would redefine General Tariff Item 99 on the basis of a dollar value, rather than on the length of plant extension. The value of the proposed allowance is based on a funding formula that provides for: (a) a basic initial free allowance of up to $1,500 per subscriber; (b) a contribution from the subscriber receiving service of an amount equal to the lesser of 20% of the next $7,500 of the per-subscriber construction costs, or $1,000; and (c) full subscriber contribution for any further per-subscriber construction costs beyond $9,000. Under this formula, the maximum contribution by the company would be $8,000 per subscriber. B.C. Tel presented this funding formula for illustrative purposes only and stated that it might change before a proposed SEP tariff is filed.
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B.C. Tel identified 56 potential serving areas for consideration under the proposal. Included in those 56 serving areas are the communities identified under CPMS 32000 that have not as yet received full exchange service.
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III IMPACT ON THE FIVE-YEAR CAPITAL PLAN
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The company's planned capital expenditures for providing service to remote communities under the revised program have increased significantly over previous views for CPMS 32000. The 1988 View and 1989 View forecast capital expenditures for this program are as follows:
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1989 1990 1991 1992 1993 1994 TOTAL
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($ Millions/millions de dollars)
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1988 VIEW/Aperçu de 1988 0.26 0.07 ---- 0.04 0.15 0.52
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1989 VIEW/Aperçu de 1989 1.46 3.35 4.50 4.50 4.25 18.06
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This substantial increase in forecast expenditures is matched by a corresponding increase in forecast expenditures for the Radiotelephone Automation program, reflecting plans for the implementation of EARS. Forecast expenditures under CPMS 32200 do not differ significantly from previous views.
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IV POSITIONS OF PARTIES
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A. Interveners
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BCG expressed the view that SEP would not improve the means of providing service to unserved and underserved areas or reduce subscriber contribution charges. Moreover, BCG argued that SEP would transfer the burden of construction costs from the company to the subscriber. BCG submitted that the needs of subscribers in remote areas would be better served by: (1) defining population and density criteria for eligibility for exchange service; (2) establishing the company's commitment to provide specific capital costs for facilities; and (3) specifying a formula for subscriber contribution to construction costs for plant facilities on public rights-of-way.
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Moveover, in BCG's view, it is not clear at what point a community becomes eligible for exchange service under CPMS 32200, either through the provision of central office facilities without the assessment of construction charges or by other means. BCG submitted that, despite inconsistencies and problems with eligibility criteria in existing programs, redefinition of existing criteria would serve the needs of rural and remote subscri- bers better than the proposed SEP.
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BCG noted that approximately $15.5 million would have to be expended to provide service to the 56 communities identified by B.C. Tel under SEP. BCG noted that this represents less than 1% of total annual expenditures in the 1990-1994 capital plan. BCG was of the opinion that the general body of subscribers would not be unduly burdened if B.C. Tel substantially increased its contribution towards construction costs.
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BCG also stated that, although the total planned expenditures for a revised CPMS 32000 would suffice to provide service to all 56 communities on the list, it might prove impossible for many of the communities to raise the required contribution, thereby reducing the company's actual expenditures under this program to a level substantially below those projected.
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BCOAPO noted that a 5% reduction in the company's total planned expenditures in any year would more than cover the expenditures required to implement SEP without requiring any subscriber contribution. BCOAPO submitted that B.C. Tel should develop a better plan for extending service, i.e., a plan that would reduce or eliminate the subscriber contribution charge.
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B. B.C. Tel
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B.C. Tel stated that one of its key objectives was to develop a program that would eliminate undue discrimination among subscribers. In addition, noting that the most costly of the 56 locations listed would require per-subscriber expenditures in the range of $20,000 to $50,000, B.C. Tel stated that the subscriber contributions specified in its tariffs are a fundamental element for ensuring that extending service to new subscribers does not unduly burden existing subscribers. B.C. Tel also noted that many of the locations in question are accessible only by helicopter or boat and that providing service in these areas entails an ongoing commitment to substantial maintenance and repair, thus increasing the company's costs.
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B.C. Tel admitted that there are inconsistencies in the application and interpretation of the existing programs, which are themselves costly and complex to administer. The company also stated that there are several policy conflicts between the rural central office policy and the construction tariff. In B.C. Tel's view, SEP would address these problems by ensuring that the option with the least subscriber contribution would also be the most economic overall, thereby minimizing the burden on the general body of subscribers.
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B.C. Tel stated that eligibility criteria, which would be defined under SEP guidelines, would establish a consistent basis for determining extraordinary construction costs.
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B.C. Tel asserted that defining a community on the basis of a population criterion of 50 permanent residents would eliminate almost half of the 56 locations identified in its proposal. Any reasonable density criterion would eliminate even more serving areas. B.C. Tel also stated that basing eligibility on population and density criteria would tend to eliminate recreational communities and ribbon developments.
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B.C. Tel disagreed with BCG's contention that SEP would transfer the burden of costs from the company to the subscriber, and argued that SEP would be substantially more generous than existing tariffs and policies in a number of ways. B.C. Tel pointed out that, in many cases, the distances involved are well in excess of the 1,650 metre maximum assumed in BCG's analysis, and that the application of direct costs above that distance could result in subscriber charges significantly above what would be considered affordable. It stated that the SEP proposal could result in reduced subscriber contributions in the locations in question because SEP imposes no distance limit. With respect to the assessment of construction charges under General Tariff Item 99, B.C. Tel noted that, if more than 10 subscribers are to be served, the prorating of costs between subscribers and the company does not apply. SEP would provide a prorated amount per subscriber, regardless of the number of subscribers.
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In response to BCG's contention that the company's policies are unclear as to the applicability of construction charges to new central offices, B.C. Tel pointed out that no construction charges apply to the provision of the central office itself, but will always be assessed for the supporting outside plant facilities. The charges vary with distance and with the number of subscribers.
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V CONCLUSIONS
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The Commission considers it appropriate that any program for the extension or improvement of service to remote areas attempt to bring the cost of full exchange service down to such a level that larger remote communities are not only eligible for service, but can also afford it. On the other hand, the Commission must also ensure that the program does not impose an excessive cost burden on the general body of subscribers in order to extend exchange-type service to widely dispersed, individual households. In addition, the program should be simple to understand and administer, yet flexible enough to be applicable under various circumstances.
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In making a determination with respect to B.C. Tel's proposed SEP, the Commission has attempted to balance these considerations. The Commission has also taken into account the potential role of EARS in bringing significant improvements to service in remote communities. Of the 56 serving areas identified under SEP, 32 also lie within an existing VHF coverage pattern and could therefore receive EARS without the assessment of construction charges provided the VHF site is converted. Finally, the Commission has considered BCG's suggestion that, rather than approve the proposed SEP, the Commission should redefine the population and density criteria, and the suggestion made by both BCG and BCOAPO that the company's contribution towards the cost of extending service be increased.
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In assessing the suggestion that existing programs should be redefined, the Commission considered the result if the population criterion specified in CPMS 32200 were reduced. Such a reduction would imply the establishment of new central offices in communities of less than 50 potential subscribers and thus a reduction in the construction charges paid by individual subscribers for the extension of outside plant to the subscriber's premises. Specifically, the Commission examined the possible outcome with respect to the 56 communities identified under SEP if the community size requirement were set at 40 potential subscribers, rather than at 50 as is presently the case with CPMS 32000. Of those 56 locations, 15 have 40 or more potential subscribers.
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On the basis of this sample, the Commission concludes that there are difficulties that would not be resolved by redefining eligibility criteria. A settlement comprising 30 potential subscribers may exhibit more community characteristics than a serving area with 40 potential subscribers that are dispersed throughout a remote area or along a highway. Even if the Commission were to reduce the minimum population criterion or liberalize density requirements, some less populous serving areas that are "communities" in the true sense of the word would still not be eligible for service. Moreover, some communities qualifying for full exchange service under the existing rural service program (CPMS 32200) have not received it because residents have been unable to afford the contribution required from the subscriber for the extension of outside plant. A redefining of criteria would not solve this problem.
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As indicated above, the 15 locations with more than 40 potential subscribers vary significantly with respect to their nature and circumstances. As a result, the per-subscriber costs of serving the 15 locations vary significantly, ranging from $1,300 to $14,000. If the Commission were to require B.C. Tel to waive charges for the construction of outside plant or to establish new central offices in order to provide full exchange service to these 15 locations, the costs to the company in some cases would exceed a level that, in the Commission's view, is a reasonable burden to impose on the general body of subscribers.
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In light of the above, the Commission concludes that population and density criteria are not flexible enough to meet the variety of demands for service in remote areas; nor can the Commission eliminate the requirement for some contribution from the subscriber. In the Commission's view, there are more appropriate ways of extending service to remote communities than under programs such as CPMS 32000 or CPMS 32200, in either present or expanded form.
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Because it does not rely on population or density criteria, SEP (in conjunction with EARS) has the potential to increase the provision of exchange or exchange-type service to communities and to permanent and seasonal households that may be dispersed over wide areas, around lake perimeters or along public highways. However, the degree to which service would be extended depends on the charges assessed to the subscriber, since this will determine the affordability of service.
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In considering an appropriate level for the free allowance, the Commission examined the 15 SEP locations with over 40 potential subscribers. The Commission's analysis reveals that, if the maximum contribution by the company were increased to $10,000 (while retaining the initial $1,500 free allowance and a contribution from the subscriber of 20% of the next $9,500 up to a maximum of $1,000), 12 of the 15 locations with 40 or more potential subscribers could obtain full exchange service at a per-subscriber charge that would not exceed $1,000. Moreover, 2 of the other 3 locations would be eligible for EARS conversion and therefore not subject to significant construction charges. In addition, 15 locations with less than 40 potential subscribers could obtain full exchange service at a charge that would not exceed $1,000 per subscriber.
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Furthermore, based on the record of the proceeding, the Commission is of the view that an increase in the maximum contribution by the company from $8,000 to $10,000 per subscriber would not impose an excessive or unreasonable cost burden on the general body of subscribers.
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In light of the above, the Commission concludes that the company's maximum contribution under SEP should be increased to at least $10,000 per subscriber.
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As indicated above, in assessing B.C. Tel's proposal, the Commission has also considered the potential role of EARS in bringing significant improvements to existing service in remote communities. Of the 56 serving areas identified under SEP, 32 also lie within an existing VHF coverage pattern. Under the EARS conversion program, potential subscribers in most of these locations will be able to obtain EARS without the assessment of significant subscriber contribution charges, once existing VHF services are converted to EARS.
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The Commission expects that most of these subscribers would choose EARS without significant construction charges, rather than full exchange service with significant charges, since EARS is similar in many respects to standard exchange service in remote areas. While EARS provides an affordable alternative for many locations, the Commission considers that affordable exchange service is more desirable for most larger remote locations, assuming per-subscriber costs are within reason. As indicated above, the Commission has concluded that the company's per-subscriber contribution should be increased. That increase will make exchange service more affordable for those larger remote locations.
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Even with a free allowance of $10,000, approximately 16 serving areas would be unable to obtain either EARS or full exchange service without substantial per-subscriber charges. B.C. Tel acknowledged that the implementation of SEP will not resolve the problem of extending service to all locations and stated that it might be necessary to consider other alternatives for such areas. In the Commission's view, such an approach is reasonable in light of the isolation of many of these 16 locations, and the costs of providing service to them.
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In summary, the Commission has concluded that:
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(1) the company's proposed SEP, assuming an increase in the company's maximum contribution, is a more reasonable approach to extending service to remote and rural areas than the current approach under General Tariff Item 99 and CPMS 32000 and CPMS 32200;
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(2) a maximum contribution by the company of at least $10,000 would be appropriate, assuming that the actual per-subscriber construction costs are similar to the illustrative cost estimates provided in the CPR;
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(3) B.C. Tel is directed to file proposed tariff revisions to implement its proposed SEP by 4 July 1990;
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(4) B.C. Tel is directed to explore other options (for example, TSL service) for extending service to locations that are unable to afford the costs associated with providing full exchange service under SEP and that are not included in the EARS conversion program; and
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(5) B.C. Tel is directed to file with its 1991-1995 capital plan a report proposing serving options for locations specified in (4) above, including (a) geographic and demographic community profiles, (b) estimated costs of alternative serving arrangements, such as extending EARS beyond existing VHF coverage, and (c) an assessment of the feasibility of providing a minimum of 24-hour publicly available TSL or coin telephone service under a program resembling CPMS 32000.
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Rosemary Chisholm
Acting Secretary General
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