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Telecom Order
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Ottawa, 30 December 1994
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Telecom Order CRTC 94-1507
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IN THE MATTER OF an application by Bell Canada (Bell) under Tariff Notice 5102 dated 25 February 1994, to increase the rates for local channels by an average of 20% in 1994 and a further 18% in 1995.
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WHEREAS in support of its application, Bell submitted 1994 and 1995 local channel resource cost studies and an analysis of customer impacts;
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WHEREAS in Telecom Public Notice CRTC 94-21, 8 April 1994, the Commission invited comment on the company's application and joined to the record of the proceeding information filed during previous Bell local channel rate increase proceedings;
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WHEREAS the rate increases proposed to be implemented in 1994 were approved in Telecom Order CRTC 94-803, 13 July 1994 (Order 94-803);
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WHEREAS, in Order 94-803, the Commission directed Bell to file evidence substantiating its case that circuit conditioning and signalling equipment are fungible, a detailed description of the equipment involved including the alternative uses to which it may be put, a breakout of the 1994 and 1995 resource costs into portions associated with signalling/ conditioning equipment and transmission equipment as well as further information substantiating the 1994 over 1992 cost increases;
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WHEREAS Bell replied that the signalling and conditioning equipment included in the local channel resource cost study is comprised of digital channel plugs associated with the channel banks and analogue quad voice frequency (QVF) equipment;
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WHEREAS Bell argued that the digital channel plugs are highly reusable and therefore fungible but that the QVF equipment may be considered non-fungible;
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WHEREAS Bell identified the types of QVF equipment employed in the provisioning of local channel services and the alternative services to which the QVF equipment could be put;
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WHEREAS Unitel Communications Inc. (Unitel) submitted that Bell's current estimate of the reduction in costs under the assumption that the signalling and conditioning equipment is non-fungible contradicts previous Bell statements regarding the costs of these facilities;
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WHEREAS Bell replied that the cost reduction arises only under the assumption that analogue QVF equipment is fungible while, on the other hand, the estimate referred to by Unitel incorporates the costs of both the analogue QVF equipment and digital signalling and conditioning equipment;
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WHEREAS the Canadian Business Telecommunications Alliance (CBTA), Telezone Corporation and Unitel argued that the Commission, in Order 94-803, specifically ordered Bell to provide details substantiating the increases for each of the four cost increase categories identified by Bell (Transmission Equipment, Life Estimates, Financial and Tax Parameters and Other) yet Bell did so for only the Transmission Equipment category;
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WHEREAS Unitel submitted that between 1992 and 1994, the change in the financial parameters would significantly decrease the costs of providing local channels;
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WHEREAS Bell replied that the cost changes due to Financial and Tax Parameters contained an error that it had corrected in an attached revised estimate;
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WHEREAS Bell considered the categories of Life Estimates and of Financial and Tax Parameters to be explained satisfactorily;
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WHEREAS Bell indicated that the Other category is a combination of several small revisions made over time including changes in demand, cost increase factors and changes in functional operating expenses;
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WHEREAS Bell argued that the Commission did not request further evidence on the changes in costs attributable to changes in Life Estimates, Financial and Tax Parameters and Other causes and that it has been responsive to the Commission's directives;
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WHEREAS Distributel Communications Limited (Distributel) considered that the bundling of the distance-insensitive signalling and conditioning costs into the initial 400 meter segment would be inappropriate as there would be some correlation between the channel length and the amount of these resources required;
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WHEREAS Distributel considered that statistical methods could be used to apportion the distance-insensitive costs between the initial and additional billing units;
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WHEREAS Bell argued that the cost of restructuring local channel rates to address Distributel's concerns would be excessive;
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WHEREAS Bell was of the view that recovering all distance-insensitive costs from the initial billing unit best aligns the rates with the costs;
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WHEREAS Unitel noted that, in the 1993 economic study supporting Primeline Service, Bell included as a cost of providing Primeline the 1992 tariffed local channel initial 400 meter rate as a measure of the costs of local private line facilities employed and assumed that this rate would remain constant over the 10 year life of study;
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WHEREAS Unitel considered it inappropriate that Bell is proposing to increase the rates for local channels while not proposing to increase the rates for services such as Primeline and 800 accesses which employ similar local facilities;
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WHEREAS Bell replied that it used approved rates in evaluating the economic viability of Primeline Service because, at that time, the company had no assurance as to the timing or the level of approved rate changes for local channels;
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WHEREAS Unitel argued that Bell's proposed 1995 local channel voice grade rate would be well in excess of a comparable BC TEL local channel rate that is compensatory and that it would be inappropriate to approve Bell's 1995 rate increase prior to an explanation for the difference being received;
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WHEREAS Bell replied that such a rate comparison is meaningful only if the cost components associated with the rate elements are the same for both companies;
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WHEREAS Bell submitted that it and BC TEL do not necessarily have the same cost components given that the underlying applications of the service are not necessarily the same;
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WHEREAS the Commission notes that the alternative uses for QVF equipment cited by Bell arise largely from within the class of local channel services and notes Bell's submission that the functionality of the QVF equipment has been partially replaced by digital channel plugs and the associated channel banks;
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WHEREAS the Commission therefore considers that the analogue QVF equipment is not fungible;
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WHEREAS the Commission is of the view that the 1994 over 1992 increases in costs associated with Life Estimates and Other were not adequately justified as was directed in Order 94-803;
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WHEREAS the Commission is therefore not prepared to approve rate increases based on the 1994 over 1992 increases in the costs associated with the Life Estimates and Other categories;
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WHEREAS the Commission is cognizant of the cost of restructuring local channel rates to meet Distributel's concerns;
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WHEREAS the Commission is of the view that with the likelihood of increased competition in the local market the need for the Commission to be concerned with the relationship of each rate element to its cost as opposed to the relationship of the revenues for the service as a whole to costs is reduced;
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WHEREAS the Commission notes that adjusting the Primeline study to incorporate compensatory local channel rates would not materially affect the profitability of Primeline Service;
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WHEREAS the Commission therefore considers that corresponding adjustments to Primeline Service rates are not necessary;
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WHEREAS the Commission considers it more appropriate to rely on cost evidence rather than rate comparisons in determining whether increases to the rates for local channels are required;
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WHEREAS in Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994 (Decision 94-19) the Commission noted that Channels Between Buildings on Continuous Property and Channels Within the Same Building are considered terminal equipment pursuant to Attachment of Subscriber-Provided Terminal Equipment, Telecom Decision CRTC 82-14, 23 November 1982; and
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WHEREAS, in Decision 94-19 the Commission decided to refrain from the exercise of its powers under section 34(3) of the Telecommunications Act with respect to the sale, lease and maintenance of terminal equipment effective 1 January 1995 -
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IT IS HEREBY ORDERED THAT:
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1. The proposed rate increases for 1995 are denied.
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2. The company is directed to file, within 21 days, proposed tariff pages, excluding tariffs for Channels Between Points in the Same Building and Channels Between Buildings on Continuous Property, effecting an increase in local channel rates to the level of its 1995 Local Channel Resource costs adjusted to remove the 1994 over 1992 cost increases attributable to Life Estimates and Other Factors and adjusted to recognize the finding that the analogue QVF equipment is not fungible.
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Allan J. Darling
Secretary General
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