ARCHIVED -  Telecom Decision CRTC 92-22

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Telecom Decision

Ottawa, 9 December 1992
Telecom Decision CRTC 92-22
In Bell Canada - Revised Criteria for EAS, 29 September 1988, Telecom Decision CRTC 88-15 (Decision 88-15), the Commission approved the following criteria for the provision of Extended Area Service (EAS) between exchanges in the operating territory of Bell Canada (Bell):
(1) at least 60% of subscribers in one exchange must call the other exchange at least once a month (known as Community of Interest, or COI);
(2) the distance between the exchanges' rate centres (normally the main switching centre in an exchange) must not exceed 40 miles; and
(3) a simple majority (51%) of subscribers whose basic local rates would be increased must approve of the new service.
On 1 April 1992, Bell filed Tariff Notice 4321, providing for the introduction of Neighbourhood Calling Plan (NCP). Bell stated that this proposal was intended to address the needs of customers who do not qualify for extended local calling under the criteria for EAS. Bell stated that NCP would allow customers in contiguous exchanges whose rate centres are within 40 miles of each other to call one another without incurring long distance charges. NCP would differ from EAS in that exchanges would have to be contiguous. In addition, there would be no requirement as to COI and no vote would be held, although Bell indicated that a survey could be conducted with the results assessed on a company-wide basis.
Bell stated that implementation of NCP would begin in 1993 and would take four years. Full implementation would result in approximately 645 NCP links, serving customers in 534 exchanges. Taking into account both cost and revenue (including lost long distance revenues), the implementation of NCP would result in a Net Present Value of negative $50.5 million over a ten-year period and an annual additional revenue requirement of $17.6 million. In order to fully recover the costs of providing the proposed service, Bell planned to increase two of the telephone count weighting factors, which apply to new and existing exchanges with extended local calling areas. These increases would affect the weighting factors for the 1 to 10 and 11 to 15 mile mileage bands and would occur in two phases. Bell was of the view that increases to the shorter-distance weighting factors would be appropriate since 88% of the NCP exchanges are within 20 miles of each other.
Of the 534 exchanges in which Bell proposed to introduce NCP, subscribers in 223 would pay higher local rates immediately (based on the 1992 weighted telephone number count), with monthly rates rising from between $0.30 and $2.40 for residential subscribers and from between $2.10 and $13.20 for business subscribers. In 83% of these exchanges, the increase in local rates would be $1.00 or less for residence subscribers and $6.55 or less for business subscribers.
Bell stated in its application that 82% of customer pressure for expanded local calling comes from the 534 exchanges where NCP would be introduced. Bell noted that, in a survey of over 1,100 subscribers in 7 exchanges, 86% were in favour of NCP. The company stated that it had no reason to believe that the opinions of customers in other exchanges would be different.
Bell did not propose to offer NCP on an optional basis or, as noted above, to provide for a subscriber vote. Bell was of the view that the calling needs of subscribers would not be met if NCP were provided only in those exchanges where a majority of subscribers voted in favour of local calling to each contiguous exchange. Bell stated that the pressure for expanded local calling comes from customers in small non-urban exchanges, where the calling is usually not concentrated into one large core exchange, but rather is divided among smaller surrounding exchanges. Due to the two-way nature of NCP, should one exchange reject NCP with one or more neighbouring exchange, these neighbouring exchanges would have to be re-surveyed in order to determine whether NCP was still wanted without the exchange that opted out.
Bell stated that one-way NCP could be considered as an alternative, although providing NCP on any basis other than company-wide two-way would be contrary to the objective of meeting customer need for extended local calling.
On 14 May 1992, the Commission issued Bell Canada - Introduction of Neighbourhoad Calling Plan, Telecom Public Notice CRTC 92-30, inviting comment on Bell's proposal. More than half of the 700 submissions received in response to that Public Notice were letters from subscribers, subscriber groups or municipal governments who, while supporting Bell's proposal in principle, requested links with exchanges that would not be provided under NCP. Approximately 200 of the remaining submissions were form letters supporting Bell's application in principle, but expressing concern regarding the potential cost. Unitel Communications Inc. (Unitel), Call-Net Telecommunications Ltd. (Call-Net), Inter-City Network, the Competitive Telecommunications Association and three municipal governments either did not support or recommended denial of Bell's proposal. Call-Net and Unitel expressed concern regarding the recovery of costs through increases to weighting factors. Unitel and Rural Dignity of Canada expressed concern regarding customer support for NCP. The Ontario Ministry of Culture and Communications and Angry People Against Long Distance (on behalf of the residents of West Carleton) proposed the provision of NCP to all exchanges within a 40 mile radius, rather than limiting the service to contiguous exchanges.
Bell filed its reply to these comments on 23 July 1992.
In Decision 88-15, the Commission discussed the considerations relevant to the setting of criteria for the creation of extended local calling areas. In that Decision, the Commission noted that, in any particular exchange, there are subscribers whose calling patterns are such that they would benefit from the introduction of EAS, and other subscribers whose telephone bills would be higher. The Commission stated that the EAS criteria must attempt to balance the benefit to the one group against the disadvantage to the other. The Commission noted that the requirement that a vote be conducted is intended to prevent the introduction of EAS in those exchanges where a majority of subscribers believe that they would be disadvantaged thereby.
In Decision 88-15, the Commission also noted that, while the creation of a new EAS link generally results in an increase in local rates for the smaller exchange in an exchange pair, such rate increases only partially recover the associated costs. Therefore, further extension of EAS entails rate increases for other EAS subscribers. The Commission stated that, in order to protect the interests of the general body of EAS subscribers whose local rates might ultimately be affected, a very substantial social and commercial dependency between subscribers should be demonstrated in order for two exchanges to qualify for EAS. The Commission indicated that it is the COI criterion that provides the measure of the social and commercial ties between subscribers in two exchanges.
In the Commission view, Bell's proposed NCP raises concerns similar to those discussed in Decision 88-15. In this context, the Commission notes that, of the 966 exchanges currently in Bell's operating territory, almost 55% would receive extended toll-free calling under NCP. However, subscribers in the vast majority of those exchanges that would not benefit from NCP would nonetheless be affected by the proposed changes in the weighting factors. The Commission has determined that 32% of all exchanges have existing EAS links with exchanges within 15 miles. Due to the proposal to increase the weighting factors used to calculate rate groups, the date when these exchanges would move into the next higher rate group would be advanced. Indeed, a large proportion of the increased revenue included in Bell's economic study is attributable to the accelerated upgrouping of EAS exchanges that would not benefit from NCP.
Overall, Bell's proposed changes to the weighting factors would advance the rate upgrouping of all but 120 of Bell's 966 exchanges. As a result, the recovery of the costs of NCP would be spread broadly among subscribers, thereby minimizing the impact on any single group of subscribers. Bell stated that this broad-based recovery of costs is consistent with Decision 88-15, which resulted in the expansion of the number of exchanges eligible to receive EAS. Following Decision 88-15, the Commission approved Bell's proposed increases to the weighting factors to recover the costs associated with the expanded EAS.
While the Commission considered it appropriate to increase weighting factors following Decision 88-15, the Commission is of the view that there is a significant difference between the expansion of EAS resulting from that Decision and the expansion of the local calling area proposed in Bell's NCP. As stated in Decision 88-15, the EAS criteria are intended to ensure that any additional cost burden placed on EAS subscribers, and the upward pressure on local rates that results, is justified. The COI between EAS exchanges is the key indicator of whether that additional cost burden is in fact justified. The Commission notes that NCP would not require any demonstrated COI and, in fact, that the majority of the NCP exchanges have a COI of less than 20%. Based on confidential information provided by Bell, the Commission has determined that the majority of subscribers within the exchanges that would meet the NCP criteria do not regularly make toll calls to their neighbouring NCP exchanges. Furthermore, subscribers would not have an opportunity to vote on whether to incur a local rate increase associated with receiving NCP.
In light of the above, the Commission concludes that, while the benefits of Bell's proposal would accrue to a few subscribers who regularly make toll calls between exchanges that would be eligible for NCP, a major portion of the cost of the service would be recovered from EAS subscribers who, for the most part, would receive no benefit from the service. The Commission finds that the additional cost burden on the majority of Bell subscribers is not justified by the demand for this type of expanded toll-free calling. Accordingly, the Commission denies Bell's application to introduce NCP.
Although some of the submissions in this proceeding demonstrated support for NCP, the Commission also received many letters from subscribers and communities who indicated that they would prefer regional toll-free calling. These letters included requests for extended toll-free calling to exchanges not included in Bell's NCP proposal. The Commission notes that, historically, much of the pressure for extended toll-free calling has been for regional toll-free calling and for EAS from suburban to core exchanges.
While the Commission would be prepared to consider departures from the EAS criteria for the creation of toll-free calling areas, it is of the view that the incremental costs of any such departures should be borne primarily by subscribers within the affected regions. Furthermore, subscribers faced with a local rate increase should have the opportunity, through some form of vote, to express their views on the proposal in question. In addition, it may be appropriate for the region or municipality affected by the proposal, rather than the general body of subscribers, to bear some of the costs of such a vote.
Allan J. Darling
Secretary General

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