|
Telecom Letter Decision
|
|
Ottawa, 4 November 1991
|
|
Telecom Letter Decision CRTC 91-10
|
|
To: British Columbia Telephone Company Government of British Columbia
|
|
Re: Service Standard in Rural Areas
|
On 4 May 1990, pursuant to British Columbia Telephone Company - 1988 Construction Program Review, Telecom Decision CRTC 89-13, 6 November 1989, British Columbia Telephone Company (B.C. Tel) filed a study on the impact of moving from a four-party to a two-party service standard in rural areas. In this context, the term "rural area" refers to that area of an exchange that is located outside the Base Rate Area (BRA). The BRA is the urban portion of the exchange in which subscribers are offered individual-line service (ILS) or two-party service at basic exchange service rates. Currently, subscribers in rural areas who wish to receive two-party service or ILS must pay additional monthly charges based on the number of miles they are located from the boundary of the BRA.
|
|
In its study, B.C. Tel stated that the net present value (NPV) of converting all four-party subscribers in rural areas to two-party service over a ten-year period would be -$7.6 million and that the average annual impact on revenue requirement would be $2.2 million, assuming that monthly mileage charges for two-party service were eliminated at the start of the program. B.C. Tel did not consider that this would require immediate rate increases.
|
After considering B.C. Tel's report, the Commission directed the company (in CRTC Telecom Public Notice 1990-59, 22 June 1990) to study the impact of moving from a four-party to an ILS standard in rural areas. In its report, filed 25 October 1990, B.C. Tel estimated that the NPV of converting all four-party and two-party rural subscribers over a ten-year period would be -$31 million and that the average annual impact on revenue requirement would be $9.5 million, assuming that monthly mileage charges for both two-party service and ILS were eliminated at the start of the program. The company submitted that an ILS standard should be adopted only if explicit cost recovery measures are also adopted.
|
|
By letter dated 13 February 1991, the Commission directed B.C. Tel to study the financial impact of implementing an ILS standard under a range of alternative approaches. The results were filed 30 April 1991, indicating NPVs ranging from -$32.4 million, assuming a one-time charge was levied, to -$14 million, assuming that mileage charges for ILS and two-party service were capped rather than eliminated. The company also considered eliminating mileage charges on an exchange-by-exchange basis (-$18.8 million NPV), and reducing the charges (NPVs ranging from -$16.5 to -$19 million).
|
|
B.C. Tel was of the view that the most reasonable alternative would be to cap the mileage charges. The company stated that capping the charges, rather than eliminating them, would recover the costs from both existing and future beneficiaries of the program. B.C. Tel noted, however, that only about 20% of subscribers currently paying mileage charges would experience a reduction. In addition, the financial commitment required was twice that which the company was willing to undertake to implement a two-party standard. If the ILS standard was to be implemented, B.C. Tel recommended that the capped approach be adopted and paid for in part by an increase in basic exchange service rates.
|
|
On 21 May 1991, the Government of British Columbia (BCG) commented on B.C. Tel's study. BCG favoured an ILS standard. It suggested that eliminating the mileage charges as each exchange was upgraded, or capping the mileage charges, would be a reasonable means of recovering the costs. BCG was of the view that any rate increase arising from implementing ILS would be more appropriately addressed in a general rate increase proceeding.
|
|
In its reply, filed 4 June 1991, B.C. Tel suggested a third possible alternative for upgrading the standard, involving an exchange-by-exchange roll-out. Under this alternative, when an exchange was upgraded, the mileage charges for two-party service would be eliminated and the charges for ILS would be capped. The NPV of implementing this option would be -$11.9 million. B.C. Tel noted that, under this option, subscribers who upgraded to a higher standard before their exchange was upgraded would pay mileage charges, while those who waited until the exchange was upgraded would not.
|
|
B.C. Tel stated that other members of Telecom Canada had adopted a similar approach, retaining mileage charges until an exchange was upgraded. The disadvantage of such an approach would be pressure from subscribers to have their exchanges upgraded early in the program. B.C. Tel reiterated that, if ILS were adopted as the standard, mechanisms to recover additional costs would be needed.
|
|
In determining whether or not B.C. Tel should move to a higher service standard in rural areas and, if so, what that standard should be, the Commission must take into account both the possible benefits to rural subscribers and the financial burden that would be placed on the general body of subscribers.
|
|
Of the options presented, the Commission considers that the removal of both two-party and ILS mileage charges on an exchange-by-exchange basis over the ten-year period assumed in the economic studies best accommodates these interests. Under this option, all rural subscribers would, by the end of the ten-year period, be able to upgrade to ILS without paying mileage charges. On the other hand, subscribers wishing to move to a higher grade of service before the exchange itself was upgraded would pay mileage charges. In addition, the company would be in a position to adjust the exchange-by-exchange roll-out in response to economic conditions and other factors that might have an impact on its revenues. Thus, it is unlikely that the combined revenue loss and capital expenditure would, in itself, necessitate a general increase in local service rates.
|
|
In light of the above, the Commission directs B.C. Tel to proceed with adoption of an ILS standard in rural areas on the basis of an exchange-by-exchange roll-out over a ten-year period, removing all mileage charges as an exchange is upgraded.
|
|
As indicated above, the Commission considers it appropriate that B.C. Tel be afforded flexibility in managing the roll-out plan based on economic and technical considerations. Nonetheless, the Commission expects the company to achieve the uniform ILS standard within the ten-year period and wishes to remain informed of the company's progress. B.C. Tel is therefore directed to file annually, in the Construction Program Review, information concerning its proposed roll-out. The company is to include (1) a list of the exchanges to be upgraded over each of the next two years and the number of subscribers in each, (2) aggregate data, by year, on the number and percentage of exchanges and subscribers that have already been upgraded, and (3) aggregate data on the number and percentage of exchanges and subscribers expected to be upgraded in each remaining year of the ten-year roll-out period.
|
|
Allan J. Darling
Secretary General
|
|