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TELECOM DECISION
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Ottawa, 30 November 1990
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Telecom Decision CRTC 90-26
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BRITISH COLUMBIA TELEPHONE COMPANY -TARIFF NOTICE 1958: RESTRUCTURING OF MOBILE SERVICES
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I INTRODUCTION
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On 11 August 1989, British Columbia Telephone Company (B.C. Tel) filed, under Tariff Notice 1958, proposed revisions to the Radiotelephone services section of its General Tariff providing for the following:
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(1) the withdrawal and transfer to B.C. Mobile Limited (B.C. Mobile) of Autotel I VHF Service (Autotel VHF);
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(2) the destandardizing and withdrawal of Autotel I UHF Service (Autotel UHF);
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(3) the selective withdrawal of VHF Mobile Stations (Mobiltel) Service; and
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(4) tolls and limitations of liability regarding the relationship between B.C. Tel and B.C. Mobile for the provision of Autotel VHF.
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On 25 September 1989, the Commission issued CRTC Telecom Public Notice 1989-45 (Public Notice 1989-45) calling for comment on the application. On 25 September 1989, the Commission also wrote to B.C. Tel directing it to issue to subscribers by 24 October 1989 copies of Public Notice 1989-45 and the company's application filed under Tariff Notice 1958. On 20 October 1989, B.C. Tel advised the Commission that it had provided its subscribers with information in accordance with the Commission's instructions.
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On 18 December 1989, B.C. Tel filed its reply to the comments submitted in response to Public Notice 1989-45. However, one intervener, Finning Ltd. (Finning), submitted a second letter, dated 30 January 1990, commenting on B.C. Tel's reply. Concluding that the Finning submission contained information that could be useful in disposing of the application, the Commission directed B.C. Tel to reply to it. B.C. Tel filed this further reply on 1 March 1990.
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On 25 September 1990, B.C. Tel filed Tariff Notice 1958A covering a proposed amendment to General Tariff Item 260.A, specifying that, upon approval of the transfer of Autotel VHF to B.C. Mobile, B.C. Tel would no longer provide Autotel VHF terminal units, but would continue to provide Autotel UHF units.
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II BACKGROUND
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Autotel VHF and Autotel UHF are both automated mobile radiotelephone services. The former is offered extensively in B.C. Tel's territory, while the latter is confined to the lower mainland.
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Mobiltel Service is B.C. Tel's manual mobile radiotelephone service. In British Columbia Telephone Company - Destandardizing of Radio Toll Station Service and Provisioning Changes for Mobiltel Radiotelephone Service, Telecom Decision CRTC 86-20, 21 November 1986 (Decision 86-20), the Commission denied B.C. Tel's applications to discontinue Mobiltel Service and Radio Toll Station Service, the company's fixed station version of manual mobile service. The Commission stated that it would reconsider its position if B.C. Tel could demonstrate that Mobiltel imposes a significant burden on the general body of B.C. Tel's subscribers.
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In Telecom Letter Decision CRTC 88-7, 26 August 1988 (Letter Decision 88-7), the Commission denied a B.C. Tel application to withdraw Autotel VHF and transfer it to B.C. Mobile. The Commission noted that B.C. Tel is the sole supplier of radiotelephone services in certain areas of its territory. The Commission stated that consideration of B.C. Tel's application would be premature until the company addressed its overall plans for its Mobiltel network.
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On 16 June 1989, in Telecom Letter Decision CRTC 89-14 (Letter Decision 89-14), the Commission approved Tariff Notice 1866 providing for the introduction of Exchange Radio Telephone Service (EARS). EARS provides a fixed radiotelephone service, replacing existing fixed radiotelephone services, which are overcrowded and technically outmoded. The Commission also approved Tariff Notice 1865, which covered tariffs for the continued provision of manual fixed station radiotelephone service, under the name Remote Radiotelephone Service, in certain very remote areas where EARS will not be available.
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III TARIFF NOTICE 1958
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A. General
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B.C. Tel indicated that its proposals in Tariff Notice 1958 reflect its objective of moving away from the technically inefficient manual mobile network that underlies Mobiltel Service and Radio Toll Station Service, and towards a fully automated mobile radiotelephone system. B.C. Tel submitted that the revisions for Autotel VHF would be appropriate in view of the fact that conventional mobile service has been competitive since Radio Common Carriers (RCCs) were permitted to interconnect with the public switched telephone network (PSTN) pursuant to Radio Common Carrier Interconnection With Federally Regulated Telephone Companies, Telecom Decision CRTC 84-10, 22 March 1984 (Decision 84-10).
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B. Autotel VHF
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B.C. Tel stated that, upon taking over the provision of Autotel VHF, B.C. Mobile would expand coverage and improve quality as frequencies become available from the manual network.
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B.C. Tel submitted that Autotel VHF operates in a largely competitive environment. B.C. Tel stated that it had undertaken an extensive investigation of the RCC market, the results of which it filed with its application. According to the company, there are currently 52 registered public service RCCs providing alternatives to B.C. Tel's mobile services, including Autotel VHF. It added that there are numerous locations where Autotel VHF and one or more RCCs operate. B.C. Tel acknowledged that there are many locations where an RCC is present, but not Autotel VHF, and still others where Mobiltel is the only mobile service available.
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B.C. Tel submitted that cellular services provided by B.C. Cellular and Rogers Cantel Inc. would provide further competitive alternatives. It added that both cellular companies have plans for extensive expansion, covering major highways, Okanagan and Vancouver Island. B.C. Tel also noted Northwestel Inc.'s "Cellular 400" offering in the Peace River area. B.C. Tel stated that, even with all these alternatives, demand for Autotel VHF, with its wide coverage, is and would remain high.
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The company stated that there are two manufacturers of Autotel VHF terminal equipment, with a third expected shortly. It added that the units are compatible with other systems, which contributes to reduced prices.
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B.C. Tel argued that deregulation of Autotel VHF would contribute to growth and to a broader customer base through innovation in equipment and service development. The result would be improved quality and reduced prices.
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As far as service continuation questions were concerned, B.C. Tel referred to post-closing agreements in the Purchase and Sale Agreement, in which B.C. Mobile committed itself to providing Autotel VHF to existing customers for 60 months after transfer. B.C. Tel stated that this would be an adequate period for customers to make whatever alternate arrangements they may prefer. B.C. Tel noted, however, that B.C. Mobile has no plans to discontinue Autotel VHF after the five-year period.
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B.C. Tel provided a copy of its proposed agreement 02445 for the provision to B.C. Mobile of maintenance services and of its proposed agreement 02447 for provision of space and power for the Autotel VHF system. In response to interrogatory B.C.Tel(CRTC)22Sept89-7, B.C. Tel explained the derivation of its hourly labour overhead rate (comprising the hourly productive labour rate and the fringe benefit rate) and its hourly motor vehicle rate, both of which are integral to the proposed rates for maintenance. B.C. Tel also requested, pursuant to section 341 of the Railway Act, approval of special limitations of liability in both agreements.
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B.C. Tel also filed an agreement providing for the sale of Autotel VHF assets, the proposed price for which was based on net book value and set at $4.8 million.
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C. Autotel UHF
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B.C. Tel proposed to destandardize Autotel UHF and to withdraw it about 16 months later. B.C. Tel said that growth of cellular has limited Autotel UHF's acceptance. B.C. Tel indicated that almost 80% of users are B.C. Tel personnel, using the service for the company's internal purposes. As of 1988, there were 155 customers that were not B.C. Tel personnel. B.C. Tel stated that 50% of terminal units used by these 155 customers are B.C. Tel-provided, and the rest are customer-owned or under a purchase plan.
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D. Mobiltel
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B.C. Tel proposed to phase out, over six years, the manual radiotelephone network underlying Mobiltel Service and Radio Toll Station Service. B.C. Tel noted that, in Decision 86-20, the Commission had ordered B.C. Tel to raise Mobiltel rates rather than shut down the service; the Commission had stated that if, at the end of 1988, the network was demonstrably burdensome to the general body of subscribers, the Commission would reconsider its decision.
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B.C. Tel stated that, for 1989, it projected losses of over $1 million on its manual network radiotelephone services. This compares with total revenues of $6 million. It also stated that usage on the Mobiltel network is well below that of Autotel VHF, i.e., 23 minutes per mobile per month, as against Autotel's 175 minutes. It also stated that, in three months in 1987, 22% of the 12,000 Mobiltel customers made no calls and 72% made fewer than five calls, while 38% of Autotel VHF customers averaged nine calls, 18% averaged 30 calls and the balance averaged over 50 calls.
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B.C. Tel acknowledged the non-discretionary nature of the radio toll stations that use the Mobiltel networks. It noted that, in approving EARS, the Commission had approved tariff revisions that provide for Radio Toll Station Service in remote areas until EARS is available. In each such area, the tariff revisions provide for a 60-day minimum notice period before conversion to EARS takes place. In response to interrogatory B.C.Tel(CRTC)22Sept89-8, B.C. Tel also set out its undertaking that each time a conversion from Radio Toll Station Service to EARS is proposed, approval of proposed tariff revisions will be required to implement an EARS serving area and, once conversion to EARS is completed, approval of a further filing to withdraw the Radio Toll Station serving area will be required. B.C. Tel stated that, thus, no remote area will be without service.
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With respect to Mobiltel Service, B.C. Tel stated that the proposed tariffs provide for continued service in remote areas until such time as Autotel VHF and an RCC or other supplier such as a cellular provider are present. B.C. Tel stated that it will file tariff revisions whenever a Mobiltel rate centre is proposed to be removed from service.
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IV POSITIONS OF INTERVENERS
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Expressing concern over the proposed elimination of Mobiltel, some interveners contended that, particularly in more remote areas where there is no Autotel coverage, Mobiltel is the only service available for all communications, including those related to emergencies. They submitted that Mobiltel should therefore be maintained until an equally functional system is available.
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Province of British Columbia, Ministry of Regional and Economic Development (BCG-RED), noted with approval B.C. Tel's stated intention to support fixed stations until EARS is available and to maintain Mobiltel Service in areas where Autotel VHF and an RCC are not available. BCG-RED stated that, in those cases where the manual mobile network is the only service (i.e., non-discretionary), cross-subsidization arguments do not apply. BCG-RED and British Columbia Ministry of the Environment submitted that only a system with coverage as extensive as Mobiltel's could be a true substitute for Mobiltel. Otherwise, a user travelling extensively would have to subscribe to several RCCs to have full coverage. Lakeland Mills Ltd. (Lakeland Mills) stated that it is on the fringe of Autotel VHF coverage, so that its Autotel VHF call attempts are often not successful. Lakeland Mills expressed concern over being able to connect to emergency services.
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Finning expressed the view that the undertaking to maintain Mobiltel Service in non-discretionary circumstances and the proposed five-year guarantee of continued Autotel VHF service should be written into the Commission's decision in this proceeding. Further, stated Finning, B.C. Mobile should be required to obtain the Commission's permission for any discontinuation of Autotel VHF Service.
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With regard to costs, parties argued that connecting to Autotel VHF would force them to replace Mobiltel terminal equipment with Autotel VHF equipment. Lakeland Mills submitted that it had acquired Mobiltel terminal equipment when B.C. Tel was the sole provider of public radiotelephone service. It stated that, with Autotel VHF terminal units costing up to $3,500, costs to Lakeland Mills and its contractors for conversion to Autotel VHF would amount to $200,000. Lakeland Mills argued that, given such expenses, Mobiltel Service should continue until Autotel VHF provides 100% coverage of the province.
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BCG-RED submitted that costs would possibly be driven up further owing to the need for varying equipment; for example, if a Mobiltel subscriber changed to RCC use, that subscriber would still require Autotel VHF coverage when crossing areas not served by an RCC.
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Spilsbury Communications Ltd. (Spilsbury) submitted that B.C. Mobile has concentrated most of its capital resources on cellular service, which would likely continue to the detriment of Autotel VHF. Spilsbury argued that such restraint on Autotel VHF expansion would discourage any third Autotel VHF terminal unit manufacturer from entering the market. Stating that Spilsbury and Glenayre Electronics Ltd. (Glenayre) are the only two manufacturers at present, and that B.C. Mobile had chosen to distribute Glenayre products exclusively, Spilsbury submitted that it could be eliminated from the market, leaving one manufacturer and one equipment supplier. Spilsbury argued that the Commission should require specific commitments regarding capital and the timetable for Autotel VHF expansion before any transfer of Autotel VHF takes place.
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Glenayre submitted that Mobiltel should be turned down within four years, not six, freeing up badly needed spectrum to permit growth of automatic mobile services. Approval of the application would confer benefits on Autotel VHF in terms of the manufacture, retail distribution and repair of terminal units. Glenayre submitted that, if the application is not approved, the manual network would become congested and sales of Autotel units would decline, leading to a decline in the manufacture of the equipment and a consequent loss of jobs.
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Concerning the proposed purchase agreement, BCG-RED questioned whether net book value is appropriate to represent fair market value. It suggested that an independent evaluation is needed to ensure the inclusion of all eligible corporate expenditures for an assets transfer. BCG-RED also questioned whether the agreements for the transfer of assets and for the provision of maintenance, space and power by B.C. Tel to B.C. Mobile are consistent with B.C. Tel's policy and guidelines for intercorporate transactions.
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V B.C. TEL'S REPLY
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Noting that up to half of the comments were concerned with the elimination of Mobiltel in areas where no alternatives exist, B.C. Tel stated that Mobiltel would be retained wherever Autotel VHF and at least one RCC are not present.
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B.C. Tel addressed arguments that Mobiltel should be continued until Autotel VHF coverage is as extensive as that of Mobiltel. B.C. Tel stated that, first, Autotel VHF terminal sets can access Mobiltel, thus enhancing Autotel coverage. Second, conversion of Mobiltel to Autotel VHF would improve coverage in remote areas, as Autotel VHF transmitters would provide stronger signals. Third, conversion to Autotel VHF would improve the efficiency of spectrum utilization and thus improve Autotel VHF service grades in certain areas.
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B.C. Tel disagreed with arguments that the cost of Autotel VHF terminal equipment should prevent approval of the application, as in some areas there is not a more competitively-priced service with local or wider coverage. B.C. Tel replied that RCC coverage in various defined areas is competitively priced, as shown in the response to interrogatory B.C.Tel(CRTC)22Sept 89-4. B.C. Tel stated further that the price of the Autotel VHF terminal unit has dropped by about 30% in the last two years and will continue to drop as the number of manufacturers and the extent of retail level competition increase. Finally, B.C. Tel noted that the peak-hour usage charges for Autotel VHF are $.25 per minute below manual network usage charges.
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B.C. Tel disagreed that the Autotel VHF post-transfer five-year guarantee should be extended or subject to regulatory process before Autotel VHF could be discontinued. B.C. Tel submitted that it should not be required to force an unregulated subsidiary to continue providing a service in areas where revenues are below causal costs, owing to demand erosion.
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B.C. Tel addressed specifically the submission from Spilsbury regarding the latter's contention that B.C. Mobile will continue to direct capital to the growth of cellular to the detriment of Autotel VHF. B.C. Tel stated that there is an organization called B.C. Mobile, which is a division of B.C. Cellular, that distributes Glenayre Autotel terminal equipment. This is not the same as the B.C. Mobile Limited described in Tariff Notice 1958 to which B.C. Tel proposes to transfer Autotel VHF. B.C. Tel also submitted that Autotel connections have increased, not declined as Spilsbury asserted. B.C. Tel added that capital expenditures for Autotel VHF in 1989 exceeded those for all previous years.
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As far as the issue of multiple suppliers of Autotel terminal equipment is concerned, B.C. Tel stated that it has been testing a model from a third manufacturer, and that prices per unit have been dropping, showing that the market is not, as Spilsbury suggests, reverting to a single supplier.
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VI CONCLUSIONS
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A. Mobiltel
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The Commission concludes that the withdrawal of Mobiltel is justified. In arriving at this conclusion, the Commission has taken into account, among other things, continuity of service and the significant losses incurred by Mobiltel.
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In Letter Decision 89-14, the Commission approved EARS as an alternative to Radio Toll Station Service. The Commission also approved Remote Radiotelephone Service, a fixed station service for use in those very remote areas where EARS will not be offered. In addition, in response to interrogatory B.C.Tel(CRTC)22Sept89-8, B.C. Tel undertook to file tariff revisions identifying each EARS serving area as service becomes available, and further, once conversion of Radio Toll Station customers to EARS has been completed in such an area, to file tariff revisions to remove the serving area from the list of Radio Toll Station serving areas. The above-noted approvals, in conjunction with B.C. Tel's undertaking, are sufficient to satisfy the Commission's requirements for the availability of fixed station services.
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The Commission notes that there are similar safeguards for the continuity of Mobiltel Service, given B.C. Tel's commitment not to withdraw a Mobiltel rate centre until both Autotel VHF and service from at least one RCC are available. Again, B.C. Tel proposes to file tariff revisions for approval of the withdrawal of each Mobiltel rate centre. Interested parties raised concerns about whether Autotel VHF and RCCs would provide the same coverage as Mobiltel. In its application, B.C. Tel provided estimates of RCC coverage. In order to address concerns regarding coverage, the Commission directs that, when B.C. Tel files tariffs to withdraw a Mobiltel rate centre, it provide written confirmation that the area served by that Mobiltel rate centre is fully covered by each of (1) Autotel VHF and (2) at least one RCC.
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There were objections from interveners that the alternatives to Mobiltel (Autotel plus an RCC) would not offer the same roaming capability. However, many mobile customers stay within a particular geographical area, so that either Autotel VHF or an RCC could satisfy their needs. Further, the Commission notes that an Autotel VHF unit can access Mobitel subscribers.
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In the Commission's view, the presence of RCCs in the market will serve to encourage pricing restraint with respect to Autotel VHF usage and terminal units after the transfer to B.C. Mobile. Furthermore, purchase price is not the only consideration. The Commission notes that the current Mobiltel tariff states that maintenance of manual (i.e., Mobiltel) terminal units is contingent upon the availability of parts, which indicates greater limits on maintenance availability for Mobiltel units than for automatic units.
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The other major issue in Decision 86-20 concerned Mobiltel network losses. In Decision 86-20, the Commission stated that B.C. Tel should make further attempts, through rate changes, to make Mobiltel compensatory. However, the Commission also stated that, if by the end of 1988, Mobiltel could be shown to be imposing a significant burden on the general body of subscribers, the Commission would consider a further application.
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In this regard, the evidence filed in this proceeding indicates losses in 1989 exceeding $1 million on total revenues of close to $6 million. To add to direct evidence of financial deterioration, B.C. Tel provided comparisons showing the clear preference of mobile customers for Autotel VHF over Mobiltel.
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As stated earlier, the Commission is of the view that withdrawal of Mobiltel is justified. The service is incurring significant losses, which must be borne by the general body of subscribers. Given that alternatives will be available, the Commission's requirements as to service continuity will be met. Finally, in the Commission's view, the evidence on the record of the proceeding responds adequately to objections raised by interveners regarding the roaming capability and prices of the service alternatives, especially given that Autotel is a more modern and more commonly preferred system.
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B. Autotel VHF
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When, in Letter Decision 88-7, the Commission denied B.C. Tel's application to transfer Autotel VHF to B.C. Mobile, availability of service was again a central issue. The Commission stated that it would not consider permitting the transfer without knowing B.C. Tel's plans for its Mobiltel network. In this Decision, the Commission has found acceptable B.C. Tel's proposals for its Mobiltel network, subject to certain conditions for ensuring service continuity.
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B.C. Tel, noting the presence in the market of 52 public RCCs together with cellular and other mobile service providers, contended that the mobile market is competitive, and requested the transfer of Autotel VHF to B.C. Mobile, an unregulated subsidiary. B.C. Tel indicated that it is confident that Autotel will be successful in an unregulated competitive environment. B.C. Tel supported this confidence by tying the withdrawal of Mobiltel directly to the expansion of a deregulated Autotel VHF. Given the requirements established in this Decision for the withdrawal of Mobiltel rate centres, if B.C. Mobile's plans to expand Autotel do not materialize over the next five years, B.C. Tel will be unable to fully withdraw the Mobiltel network.
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Some interveners were concerned that, after the five-year transition period, B.C. Mobile may cease to provide Autotel VHF. These interveners urged regulatory intervention to ensure retention of the service beyond the five-year period. The Commission notes, however, the availability of a regulated alternative (i.e., Mobiltel) in areas where no RCC is available, while the competitive market matures during the five-year period. The Commission considers it appropriate that the success of Autotel VHF be governed by market forces after this period ends.
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BCG-RED questioned whether net book value is appropriate for the valuation of the Autotel VHF assets that B.C. Tel proposes to transfer to B.C. Mobile. However, in Bell Canada - Review of Revenue Requirements for the Years 1985, 1986 and 1987, Telecom Decision CRTC 86-17, 14 October 1986, and again in Cellular Radio - Adequacy of Structural Safeguards, Telecom Decision CRTC 87-13, 23 September 1987 (Decision 87-13), the Commission stated that, where it is not practical to determine fair market value for assets, as in the case of plant and equipment, these assets are to be transferred at net book value. The Commission notes that Decision 87-13 involved the transfer of assets by Bell Canada and B.C. Tel to their cellular affiliates, and considers the present case comparable. On this basis, the Commission concludes that valuation of the assets at net book value is appropriate.
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B.C. Tel proposed maintenance rates at causal costs plus 25%. The proposed rates provide for a contribution consistent with that of other services. The Commission therefore finds them acceptable.
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In light of these considerations, the Commission finds acceptable B.C. Tel's application to transfer Autotel VHF to B.C. Mobile.
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C. Autotel UHF
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No objections were submitted to the proposed destandardization and withdrawal of Autotel UHF. The evidence indicates that 80% of the demand for service arises from B.C. Tel. Given that non-B.C. Tel demand has dropped from 404 in 1984 to 155 in 1989, destandardization and withdrawal would result in little disruption to users. Therefore, the Commission approves destandardization effective 30 November 1990, and withdrawal of the service on or after 30 March 1992.
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D. Conclusions
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In light of all the foregoing, and subject to the conditions set out in this Decision, the Commission approves B.C. Tel's application.
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As noted above, where B.C. Tel proposes to withdraw any Mobiltel rate centre, it must provide written confirmation that the area served by the Mobiltel rate centre is fully covered by each of (1) Autotel VHF and (2) at least one RCC. This requirement applies to the rate centres proposed for withdrawal in the tariff revisions accompanying Tariff Notice 1958.
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Allan J. Darling
Secretary General
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