ARCHIVED -  Telecom Order CRTC 94-803

Telecom Order

Ottawa, 13 July 1994

Telecom Order CRTC 94-803

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.

WHEREAS, in support of its application, Bell submitted 1994 and 1995 local channel resource cost studies and an analysis of customer impacts;

WHEREAS, in Telecom Public Notice CRTC 94-21 dated 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;

WHEREAS the Commission received comments from Canada Popfone Corporation (Popfone), Canadian Association of Message Exchanges Inc. (Cam-X), Canadian Business Telecommunications Alliance (CBTA), Distributel Communications Limited (Distributel), The Municipality of Metropolitan Toronto (Metro), RadioComm Association of Canada (RadioComm), Research Overload Ltd. (Research Overload), Telezone Corporation (Telezone), Unitel Communications Inc. (Unitel), and Via Security Systems Inc. (Via Security);

WHEREAS reply comments were filed by Bell;

WHEREAS CBTA noted that in Telecom Decision CRTC 90-9, the Commission indicated that there was some question as to whether equipment associated with signalling and conditioning equipment is fungible;

WHEREAS CBTA and Metro argued that the resolution of the degree of non-fungibility is essential prior to the Commission accepting the proposed increases and suggested that Bell be required to file an updated Net Present Value (NPV) study incorporating sensitivity analysis with respect to fungibility;

WHEREAS Metro considered that its 7 April 1993 review application should be resolved prior to a decision being made on Tariff Notice 5102 and that the record of that proceeding should be included as a part of this proceeding;

WHEREAS Bell replied that if all the signalling and conditioning equipment were considered non-fungible, the net effect on the resource cost of the initial 400 metre billing unit would be insignificant;

WHEREAS Telezone and Unitel noted that the 1994 cost of the initial billing unit has increased by 31.9% over the 1992 level and that a change in life estimates constitute a portion of the increase in costs;

WHEREAS Metro, Telezone and Unitel submitted that the 1994 over 1992 cost increases appear to be excessive and should be well substantiated;

WHEREAS Bell indicated that a life reduction to a deferrable plug-in analogue transmission account approved in Telecom Order CRTC 93-991 accounts, in part, for changes in these costs;

WHEREAS Unitel argued that, according to its calculations, there is no basis on which to support a cost for initial 400 metre channel segments that is substantially higher than the cost of a WATS access line;

WHEREAS Bell replied that Unitel's estimation of the initial 400 metre cost is in error;

WHEREAS Unitel submitted that a comparison of BC TEL's and Bell's costs for voice-grade circuits reveals that Bell's costs are overestimated;

WHEREAS Unitel submitted that to ignore the results of a benchmarking exercise even if they contradict cost study results would indicate that the benchmarking exercise is superfluous;

WHEREAS Bell replied that the comparisons cited by Unitel are highly selective, misleading and self-serving and should not form the basis of generalized conclusions;

WHEREAS Cam-X, Metro, Research Overload and Via Security objected to the level of rate increases proposed;

WHEREAS Bell considered its proposed increases a compromise between moving local channel rates to a compensatory level and mitigating customer impacts;

WHEREAS CBTA and Telezone noted that the proposed increases would generate significant revenues for Bell;

WHEREAS CBTA was of the view that corresponding toll rate reductions should accompany any increases;

WHEREAS Bell replied that maintaining local channel rates at levels which do not recover their costs acts as a deterrent to market entry by other service providers and retains the requirement for a subsidy from the general body of subscribers;

WHEREAS Popfone and RadioComm noted that Digital Cordless Telephone (DCT) service providers have been negotiating with Stentor regarding the rates for an access technology and that General Tariff 950 local channels are a proposal under consideration;

WHEREAS these interveners were of the view that the proposed increases would be detrimental to the negotiations under way and would render General Tariff 950 local channels a non-viable access technology;

WHEREAS Bell replied that the objective of its application is to move local channel rates to compensatory levels as has been supported by the Commission;

WHEREAS Distributel considered Bell's position, that all costs associated with signalling and conditioning equipment and central office terminations are distance insensitive and should therefore be recovered though the initial 400 metre rate, to be flawed;

WHEREAS Distributel contended that these costs are, in part, correlated to the length of the channel as longer channels would often require more signalling and conditioning equipment and central office resources;

WHEREAS Cam-X considered it unfair that the proposed increases are concentrated on the initial billing unit;

WHEREAS, in reply, Bell argued that the cost of converting the local channel portfolio of services to an unbundled rate structure and the resulting customer impacts would be prohibitive;

WHEREAS it was Bell's view that, under the existing structure, recovering distance insensitive costs from the initial billing unit most appropriately aligns the rates with costs;

WHEREAS the Commission notes that Metro's 7 April 1993 application has been dealt with in Telecom Order CRTC 94-614 dated 3 June 1994;

WHEREAS the Commission considers that under an assumption of non-fungibility of the signalling and conditioning equipment employed in providing local channel services, 1994 proposed rates would not be compensatory;

WHEREAS the Commission is of the view that the rationale for the 1994 over 1992 increases in the monthly resource costs were not adequately justified;

WHEREAS the Commission notes that the evidence indicates that, in aggregate, proposed 1994 rates are below the 1992 monthly resource costs;

WHEREAS the Commission notes that the cost for the initial 400 metre channel segment estimated by Unitel is in error;

WHEREAS the Commission notes that consideration of the actual cost for the initial 400 metre channel segment does not support Unitel's assertion that the cost differences between a WATS access line and the cost of the first 400 metre segment are inconsistent;

WHEREAS the Commission considers that Unitel's assumption that all BC TEL's local channel rate elements are compensatory is not supported;

WHEREAS the Commission therefore is of the view that a comparison of Bell's and BC TEL's specific local channel rates does not necessarily provide a meaningful benchmark;

WHEREAS, in this instance, the Commission is of the view that reliance on the cost evidence, as opposed to benchmarking, is a more appropriate method to assess the proposed rate increases;

WHEREAS the Commission considers that it is appropriate to move local channel rates to compensatory levels over time and agrees that maintaining local channel rates at levels which do not recover their costs acts as a deterrent to market entry by other service providers;

WHEREAS the Commission notes that local channel customers were previously informed of the company's plans to move local channel rates to compensatory levels through a series of rate increases;

WHEREAS, with respect to Distributel's comments, the Commission notes that the rate/cost relationships for the specific rate elements mitigates any inconsistency regarding the recovery of costs;

WHEREAS, in light of the potential impacts of restructuring local channel rates, the Commission considers the proposed approach to be satisfactory; and

WHEREAS in light of all the comments submitted and the replies thereto -

IT IS HEREBY ORDERED THAT:

1. The rate increases proposed to be implemented in 1994 are approved.

2. Bell is directed to file, within 30 days, 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, further information substantiating the 1994 over 1992 cost increases, as well as its views, with justification, regarding the appropriate amount of contribution to be generated from local channel services.

3. Interested parties who submitted comments relating to CRTC Telecom Public Notice 94-21 are to receive a copy of the evidence filed pursuant to paragraph 2 above and may submit comments within 30 days of the receipt of that information.

4. Bell may file its reply to any comments within 10 days of receipt of those comments.

Allan J. Darling
Secretary General