ARCHIVED -  Telecom Decision CRTC 93-7

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Telecom Decision

Ottawa, 29 June 1993
Telecom Decision CRTC 93-7
On 22 December 1992, BC TEL filed Tariff Notice 2776 proposing the expansion of local calling and changes to the local rate structure in the Lower Mainland of British Columbia, effective 15 November 1993. The company defines the Lower Mainland as comprising the 21 exchanges from Bowen Island in the west to Abbotsford and Mission in the east and from the international border in the south to the boundary of the Coastal Mountains in the north. Under BC TEL's proposal, existing Extended Area Service (EAS) links in the Lower Mainland would be replaced by an expanded local calling area, affecting the rating and service of approximately one million access lines, or almost 55% of the company's total lines.
Under BC TEL's proposed rating structure, four zones would be created. Existing monthly local rates, which are based on rate group size, would be replaced by zonal rates. Zone 1, the core zone, would comprise the Vancouver and New Westminster exchanges and would have the lowest rate. Zone 4, the most distant from the core, would comprise the Abbotsford and Mission exchanges and would have the highest rate. The impact of this proposal on subscribers' overall bills would depend on each customer's current local rate and long distance calling pattern within the Lower Mainland. BC TEL estimated that 27% of residential customers in the Lower Mainland would experience a reduction in their total monthly bills as a result of its proposal.
In support of its proposal, BC Tel filed an economic evaluation study indicating that its approach was neutral on a net revenue basis over the five-year study period.
In its application, BC TEL noted that the Lower Mainland is the fastest growing metropolitan area in Canada, but that the rapid population growth has not been accompanied by corresponding changes to local free-calling areas. BC TEL described the Lower Mainland as a patchwork of local coverage areas and rates involving 21 exchanges, 15 different EAS configurations and 11 different rates. The company further noted that the fact that telephone exchange boundaries differ from municipal boundaries has led to subscriber confusion and apparent inequities. BC TEL added that perceived inequities have been raised by interveners in general rate increase proceedings dating back to 1981.
BC TEL submitted that typical Community of Interest (COI) statistics and mileage limitations, as they apply to calling patterns between individual exchanges for the determination of EAS requirements, are not appropriate considerations with respect to its application because of the regional nature of the proposal.
On 11 January 1993, the Commission issued B.C. Tel - Expansion of Toll-Free Calling and Restructuring of Local Rates In the Lower Mainland, Telecom Public Notice CRTC 93-3, in which it invited public comment and announced that it would hold a public hearing to consider BC TEL's application. In response, the Commission received approximately 1,600 letters, containing nearly 4,500 signatures, supporting or opposing the proposal. As well, BC TEL stated that it received over 2,000 telephone calls with respect to the issue, primarily in support of the proposal.
The public hearing was held in Vancouver from 24 to 26 March 1993 before Commissioners Louis R. (Bud) Sherman (chairman of the hearing), Adrian Burns and Peter Senchuk. During the first part of the hearing, members of the general public were permitted to make oral submissions. The second, more formal part of the hearing entailed examination of the company's witnesses.
In addition to letters submitted by individuals, governments and associations, the following interveners filed argument and/or participated during the formal phase of the public hearing: B.C. Rail Telecommunications (B.C. Rail); Call-Net Telecommunications (Call-Net); Government of British Columbia (BCG); Smart Talk Network; British Columbia Old Age Pensioners' Organization, Counsel of Senior Citizens' Organizations, West End Seniors' Network, Senior Citizens' Association of B.C., Federated Anti-Poverty Groups of B.C., and Local 1-217 IWA Seniors (BCOAPO et al); and Unitel Communications Inc. (Unitel).
Major issues raised in the course of the proceeding included the impact on competitive service suppliers, the impact on subscribers' rates, and the fact that BC TEL did not propose to hold a subscriber referendum.
B.C. Rail, Call-Net, Smart Talk Network and Unitel objected to the application because they considered it anti-competitive. These parties argued that, by expanding the local free-calling area in the Lower Mainland, BC TEL was restricting the size of the market area for competitive long distance service providers. Moreover, they argued that BC TEL's proposal would adversely affect competitors through changes to contribution rates and to rates for certain access arrangements.
B.C. Rail and Call-Net noted that there are optional toll services available from both BC TEL and competitors and that these would be fairer and more efficient than expanded flat-rate calling.
BC TEL's position was that its application involves only a small segment of the British Columbia toll market and that this segment consists of low-revenue, low-margin traffic. It argued that its proposal would entail positive benefits for competitors because it would increase the number of potential customers who would have toll-free access to a competitor's point of presence. Further, BC TEL stated that optional calling plans are not acceptable substitutes for expanded local calling as they do not satisfy customer demand for expanded toll-free calling; nor would they resolve current problems with the Lower Mainland calling structure and its confusing mix of local and long distance routes within one metropolitan area.
BCOAPO et al, BCG, Call-Net and Unitel expressed concern with respect to subscriber drop-off as a result of a significant increase in monthly rates. They noted that some residential subscribers would experience an increase of over 150% in their monthly local bills as a result of the proposal, and that estimates provided by BC TEL indicated that 73% of residential subscribers in the Lower Mainland would see their average monthly bills increase.
In response to questions on the affordability of the proposed rates, BC TEL noted that the proposed residential individual line rate for Abbotsford and Mission, which would increase to $22.35 from the existing $9.15, would be only 10% higher than the current highest monthly rate of $20.30 for subscribers in Aldergrove; yet there was no empirical evidence of drop-off when subscribers in Aldergrove voted in favour of EAS with Vancouver and the residential individual line rate increased from $9.75 to $20.30 a month. BC TEL also noted that, because of calling stimulation resulting from an expanded free-calling area, the benefits to subscribers would be much greater than the simple impact on monthly bills would indicate.
BC TEL indicated that it did not plan to hold a subscriber referendum for the Lower Mainland proposal, citing the $3 million expense and the complexity of the process. As well, because of the public proceeding and the demonstrated level of support both from customers and from municipal councils, BC TEL was of the view that a referendum is not needed.
Several interveners, including BCG, B.C. Rail and Call-Net, submitted that a referendum should be held, arguing that this would be consistent with the Commission's practice with respect to the extension of EAS links and that it is subscribers who should ultimately decide.
Traditionally, the Commission has limited the provision of extended local flat-rate calling to calling between exchanges within some reasonable distance of each other (for example, 40 miles) and between which there is an indication of significant COI. The principal reason for such limitations has been to control the amount of subsidization generally required to provide EAS. In addition, the Commission has required that subscribers have the opportunity to vote whenever the provision of a new EAS link would result in increases in their local rates.
In assessing BC TEL's application, the Commission has examined the extent to which the company's proposal departs from the principles underlying existing EAS criteria. Further, the Commission has taken into account the particular nature of the Greater Vancouver region, the need expressed by subscribers and municipal governments for a more rational approach to local service pricing, opposition expressed to the proposed rate increases and the potential impact on competitive service suppliers.
In this context, the Commission notes that, in the Greater Vancouver Regional District (GVRD), which is comprised of many exchanges, measures based on calling between particular exchange pairs may not accurately reflect COI within the region, since calling is diffused across many EAS links. Furthermore, where links already exist, calling between exchanges cannot be measured, which creates further difficulties in measuring COI across the region. Generally, subscribers in the core find that their community-wide calling needs have been adequately addressed, since the development of EAS links has tended to be geared towards calling into the core rather than across the core. Subscribers outside the core may have significantly less flat-rate calling, although they are members of the same community.
Taking the above into account, the Commission concludes that, while its traditional EAS criteria remain appropriate with respect to the provision of flat-rate calling between most exchanges, there is merit to the concept underlying BC TEL's proposal for dealing with the particular circumstances of the Lower Mainland. However, bearing in mind the various competing pressures, the Commission has concerns with respect to the inclusion of Zone 4 in the free-calling area. In this regard, the Commission notes that communities such as Abbotsford are a considerable distance from the Vancouver core and rest outside the GVRD. Furthermore, the majority of correspondence that the Commission received on the Lower Mainland proposal was from subscribers in Zone 4, with the vast majority opposing it. Moreover, notwithstanding the significant increase in Zone 4 local rates that would result from BC TEL's proposal, the inclusion of that Zone would nonetheless require a subsidy from other local subscribers in the GVRD that would be inappropriately high, particularly in light of the fact that, in a competitive environment, higher volume toll users in these distant exchanges do have increased alternatives by which they can reduce their long distance costs.
In light of the above, the Commission concludes that it would be inappropriate to include Zone 4 in a local calling plan for the Lower Mainland. However, in the opinion of the Commission, a modified local calling plan that excluded Zone 4 would rationalize many of the anomalies associated with the rates in effect in the area and would remove some of the impediments to economic growth in particular exchanges. Moreover, a local calling plan that excluded Zone 4 would result in smaller local rate increases for subscribers in Zones 1, 2, and 3 and would reduce the impact on competitors.
The Commission notes that the record of this proceeding presents somewhat conflicting evidence on the degree to which subscribers in Zones 1, 2 and 3 would be willing to pay significantly higher local rates in return for extended local calling. In the Commission's view, in light of the benefits associated with the creation of a free-calling area in the GVRD, local residential rate increases of up to $1.00 per month do not warrant holding a referendum. However, with respect to those exchanges where the increase in the residential individual line rate would exceed $1.00 per month, the Commission is not persuaded that subscribers should be obliged to accept higher local rates without an opportunity to express their views. Rather, subscribers in such exchanges should be granted the opportunity to participate in a referendum, across all three Zones, on the creation of an extended local calling area and the attendant local rate increases. The Commission notes that this approach would assist somewhat in containing the costs involved in conducting such a referendum.
Based on the record of this proceeding and in light of the above, the Commission is not prepared to approve BC TEL's application as filed under Tariff Notice 2776. However, the Commission invites the company to file a new application for a revised version of the Lower Mainland toll-free area that would include the proposed Zones 1, 2 and 3, with rates established so that the proposal is neutral on a net revenue basis, including provision for the recovery of the costs of holding a referendum involving subscribers in exchanges where the residential individual line rate would increase by more than $1.00 per month. The Commission would require that, prior to implementation, a simple majority of subscribers participating in the referendum vote in favour of the proposal. The Commission would also require that BC TEL submit, for the Commission's prior approval, the proposed wording of the question(s) to be put before subscribers in the referendum.
Allan J. Darling
Secretary General

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