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Telecom Public Notice
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Ottawa, 27 March 1992
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Telecom Public Notice CRTC 92-16
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BELL CANADA AND BRITISH COLUMBIA TELEPHONE COMPANY - RESTRUCTURING OF TARIFFS FOR PBX TRUNKS AND CENTRAL OFFICE LINES
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I BACKGROUND
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On 22 April 1991, the Commission wrote to Bell Canada (Bell), British Columbia Telephone Company (B.C. Tel), The Island Telephone Company Limited (Island Tel), Maritime Telegraph and Telephone Company Limited (MT&T), The New Brunswick Telephone Company Limited (NBTel), Newfoundland Telephone Company Limited (Newfoundland Tel) and Northwestel Inc. (Northwestel), advising them of the February 1991 finding of the Terminal Attachment Program Advisory Committee (TAPAC) that mutually exclusive technical definitions for key systems and PBXs are no longer practical. The Commission's letter noted that current rates for trunks and Central Office (C.O.) lines are generally dependent on the classification of the equipment on which they terminate. The Commission stated that, if the distinction between key systems and PBXs is no longer practical, the relevance of tariffs based on that distinction is called into question. The telephone companies were requested to provide their comments.
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NBTel replied that its General Tariff Items 100.2(B) and (C) do not distinguish between key systems and PBXs, but rather between line group sizes; therefore, it did not need to file a report. Northwestel stated that it would file a report by June 1992. The other companies informed the Commission that they would provide reports in the 4th quarter of 1991. Bell, B.C. Tel, Island Tel and MT&T filed reports in December 1991. Newfoundland Tel filed proposed rates as part of its
10 February 1992 application for a general rate increase.
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II BELL'S REPORT
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A. General
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In its report, Bell acknowledged that, without mutually exclusive key system/PBX distinctions, its current rate structure cannot be sustained. Bell noted, however, that the key system/PBX rates are the foundation of the rate structure for various business access services. Bell stated that any change would have to be undertaken carefully to "maintain the positioning of these services" and to contain customer and revenue effects. Bell stated that simple repricing of trunk lines to C.O. line rates would result in revenue losses of $100 million per annum. It submitted that the right approach is one that would be revenue neutral.
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Bell stated that lines and trunks are substitutable, with differences relating to value of service and usage sensitive costs. Bell submitted that rating options should be considered in terms of:(1) higher value associated with higher usage per channel as channel quantities increase; and (2) setting trunk and line rates in a way that would control costs, contain rate increases and maintain positioning (rate relationships) for various access services.
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Bell provided three possible rating approaches: (1) Blended Rate, (2) Sliding Scale, and (3) Threshold Pricing.
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B. Blended Rate Approach
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Bell stated that the Blended Rate approach would entail moving the C.O. line rate up and the PBX trunk rate down to a common rate. Bell submitted that the major advantage of this approach would be its minimal incremental cost, as there would be no large billing system changes or operational effects. However, Bell rejected this option because of the effect it would have on customers; specifically, although PBX trunk rates would drop substantially, C.O. line rates would climb sharply. Further, Bell stated that this approach would affect rates for related services.
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C. Sliding Scale Approach
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Bell stated that, under this approach, an ascending rate scale for access channels would replace PBX trunk and C.O. line rates. Rates would vary with the size of the channel group, i.e., the larger the group, the higher the rate, with the largest channel group priced at current PBX trunk rates.
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Bell stated that the Sliding Scale approach offers several advantages over the Blended Rate approach. Specifically:
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(1) it reflects the added value and efficiency of channel groups;
(2) it recovers usage sensitive costs; and
(3) it supports existing rate relationships with other access services (because larger channel groups would be priced at current PBX trunk rates), thus reducing revenue losses from cross effects on the other access services.
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Bell listed the disadvantages as follows:
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(1) a complex rate structure that would be hard for customers to understand and for the company to administer;
(2) the need for significant billing and order system changes, giving rise to substantial costs;
(3) customer resistance to adding channels when additions would push up the price for each channel; and
(4) its inconsistency with the current pricing approach and with customer expectations of volume discounts.
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Bell stated that this option could eliminate many current inequities. However, Bell also stated that a full analysis is needed in order to assess cost and feasibility.
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D. Threshold Pricing
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Bell stated that, under this option, a business customer would pay a flat rate for local service, which would cover the access channel and a specified amount of local usage. The customer would be charged for local usage in excess of the specified amount.
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Bell stated that its objective with this approach would be to charge specifically for network usage above the norm. Bell stated that rates would be set to target heavy users, so that the majority of customers would be below the threshold and would continue to pay flat rates. Bell also stated that rates would be set so as to be revenue neutral.
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Bell acknowledged that, in the past, it has opposed a usage sensitive approach because of customer preference, flat usage growth and the high costs of measurement and billing. However, Bell submitted that conditions have changed. It provided information showing growth in local usage of over 2% per annum through the 1980s. Bell also stated that technological evolution has significantly changed the costs of measuring local usage. It submitted that, in these circumstances, Threshold Pricing would permit the accumulation of revenue based on local network usage. It would also target heavy users, thus providing a more equitable approach than one that spreads all usage costs over the full base of business subscribers.
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Bell stated, however, that Threshold Pricing must be approached with caution, because the full costs are not yet known. Furthermore, costs would be affected by network evolution, billing system development and resource needs. Finally, the likely customer response to usage-based pricing is not clear. Bell submitted, therefore, that a full business analysis would be required to order to assess Threshold Pricing.
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III B.C. Tel's Report
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A. General
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B.C. Tel described several options in its report, specifically, (1) a Blended Rate approach, (2) a Sliding Scale approach (which it called Multi-Level Tiers), (3) an approach described as Unbundled Rates for Features, and (4) a Standard/Premium approach.
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B. Blended Rate
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B.C. Tel rejected this approach for reasons similar to Bell's.
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C. Sliding Scale (Multi-Level Tiers)
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B.C. Tel is of the view that its customers would not accept an ascending rate scale. Rather, they would prefer a descending scale, consistent with traditional volume discount pricing. However, stated B.C. Tel, such an approach may not reflect costs. Furthermore, it would be several years before its billing system could accommodate such an approach.
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D. Unbundled Rates for Features
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Under this approach, a surcharge for each additional feature (for example, ground start, loop enhancement) would be added to the basic rate. B.C. Tel opposed this approach because it expected customer opposition due to confusion and "nickel and dime" pricing.
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E. Standard/Premium
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B.C. Tel stated that this approach would involve retaining two rates. The lesser rate (preferably, at the overline rate) would apply to small line quantities with no features. The greater rate (preferably, at the PBX trunk rate) would apply to larger line quantities and/or additional features.
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According to B.C. Tel, this approach would offer the following advantages:
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(1) it would have a minimal effect on customers and would result in minimal customer confusion;
(2) it would minimize cross effects on related services; and
(3) it would eliminate the difficulty arising from the TAPAC finding with respect to key systems and PBXs.
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B.C. Tel described the disadvantages as follows:
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(1) large key system customers would pay more; and
(2) company monitoring would be required in order to ensure that customers are paying the right rates.
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B.C. Tel stated that further study would be needed to determine if its billing and administrative systems could accommodate the Standard/ Premium approach. B.C. Tel stated that it would file tariffs or provide an update in the 4th quarter of 1992.
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IV ISLAND TEL, MT&T and NEWFOUNDLAND TEL
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Island Tel and MT&T proposed a Blended Rate approach. They forecasted C.O. line rate increases of up to 10%, while PBX trunk decreases could amount to 26% in MT&T territory. On 31 January 1992, the companies filed applications (under Island Tel Tariff Notice 136 and MT&T Tariff Notice 206) to implement this approach. In The Island Telephone Company Limited and Maritime Telegraph and Telephone Company Limited - Restructuring of Tariffs for Network Exchange Service, Telecom Public Notice CRTC 92-15, 27 March 1992, the Commission initiated a proceeding to consider those applications.
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The rates proposed by Newfoundland Tel in its application for a general rate increase are based on a Blended Rate approach. They will be considered in the proceeding established in response to that application.
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V FURTHER PROCEDURE
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The Commission agrees with Bell and B.C. Tel that further investigation of the options is required. As stated above, Bell has proposed to complete further studies by year-end 1992 and to submit the results in the 1st quarter of 1993. B.C. Tel has proposed to file further submissions in the 4th quarter of 1992.
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In the Commission's view, the filing dates proposed by Bell and B.C. Tel entail unnecessary delay. Accordingly, the Commission directs Bell and B.C. Tel to file their submissions by 31 August 1992. B.C. Tel is directed to include in its submission its position on Threshold Pricing.
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Once the companies' reports have been filed, the Commission will initiate a public proceeding to consider their submissions. A Public Notice setting out further procedure will be issued at that time. In the interim, however, anyone wishing to register for the proceeding and to acquire copies of the companies' reports should do so by writing to Mr. Allan J. Darling, Secretary General, CRTC, Ottawa, Ontario, K1A 0N2, by 30 June 1992.
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Allan J. Darling
Secretary General
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