ARCHIVED -  Telecom Decision CRTC 95-23

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Telecom Decision

Ottawa, 4 December 1995
Telecom Decision CRTC 95-23
This decision constitutes the Commission's determination regarding the issues raised in De-Averaged Per-Minute Contribution Mechanism, Telecom Public Notice CRTC 94-59, 29 December 1994 (Public Notice 94-59), as well as the application by Stentor Resource Centre Inc. (Stentor) on behalf of AGT Limited (AGT), BC TEL, Bell Canada, The Island Telephone Company Limited, The Manitoba Telephone System, Maritime Tel & Tel Limited, The New Brunswick Telephone Company, Limited, and Newfoundland Telephone Company Limited (collectively, "the telephone companies"), dated 3 August 1995, concerning the loadings used to calculate the per-circuit contribution charges.
In Competition in the Provision of Public Long Distance Voice Telephone Services and Related Resale and Sharing Issues, Telecom Decision CRTC 92-12, 12 June 1992 (Decision 92-12), the Commission established a contribution mechanism applicable to long distance competitors to assist in the subsidization of basic local telephone service. This contribution mechanism involves per-circuit charges that are applied to interconnecting circuits, international circuits and Canada-United States circuits carrying public switched long distance voice traffic. The per-circuit charges are derived from an estimate of the number of minutes that are carried on these circuits and the per-minute contribution amounts calculated to recover the Utility segment shortfall. To the degree that competitors' actual circuit usage exceeds the assumed levels, competitors realize discounts to their contribution payments beyond those explicitly established in Decision 92-12.
In Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994 (Decision 94-19), the Commission directed that the per-circuit mechanism be replaced with a per-minute mechanism for trunk-side interconnection. The per-circuit mechanism was to remain for line-side connections and international circuits due to measurement difficulties.
On 30 September 1994, Sprint Canada Inc. (Sprint) and Unitel Communications Inc. (Unitel) filed applications to review and vary that part of Decision 94-19 that directed the implementation of a per-minute contribution charge with respect to competitors utilizing trunk-side access to the public switched telephone network. The central argument made in these applications was that the averaged per-minute contribution charge contemplated by Decision 94-19 would have a negative impact on consumers and competitors since it would discourage competition in off-peak lower margin services, which are used mainly by residential subscribers. The applicants also argued that such a change in the contribution mechanism would necessitate significant changes to their operations, and accordingly should not be made without giving competitors adequate time to make these changes.
In Applications by Unitel Communications Inc. and Sprint Canada Inc. to Review and Vary Part of Decision 94-19, Telecom Decision CRTC 94-27, 29 December 1994 (Decision 94-27), the Commission determined that the submissions made by Sprint, Unitel and other interested parties raised serious concerns regarding the negative impacts of moving to an average per-minute contribution mechanism on the incentives for competitors to serve the off-peak market. The Commission acknowledged that there was substantial doubt as to the correctness of Decision 94-19 with respect to the adoption of an average per-minute contribution charge and the timing of its implementation. However, for the reasons given therein, the Commission indicated that it remained of the view that a move from a per-circuit to a per-minute mechanism is necessary.
Subsequently, with the issuance of Public Notice 94-59, the Commission initiated a proceeding to determine the appropriateness of a per-minute mechanism de-averaged by peak and off-peak periods and to determine the timing of implementation of a per-minute mechanism. In Public Notice 94-59, the Commission proposed a per-minute mechanism whereby the off-peak rate was set at one-half the peak rate.
In response to a request from Sprint dated 16 March 1995, the Commission indicated, by letter dated 8 May 1995, that any implementation of a de-averaged per-minute contribution mechanism would not occur until at least 1996.
With respect to Public Notice 94-59, comments were received from London Telecom Network (London), ACC Long Distance Ltd. (ACC), Sprint, Westel Telecommunications Ltd. (Westel), fONOROLA Inc. (fONOROLA) and Stentor on behalf of the telephone companies.
By letter dated 3 August 1995, Stentor filed an application pursuant to Part VII of the CRTC Telecommunications Rules of Procedure with respect to the calculation of 1995 per-circuit contribution rates. Stentor requested that the Commission increase the number of minutes used in the calculation of the final contribution charges by 33%, effective 1 January 1995, to partially reflect the fact that many competitors are carrying more minutes of traffic than was anticipated by the Commission in Decision 92-12, and thus correct for contribution avoidance associated with these "extra" minutes, pending the adoption of a per-minute contribution mechanism as contemplated in Decisions 94-19 and 94-27. Stentor further requested that the contribution charges resulting from the proceeding initiated by Telecom Public Notices CRTC 94-52, 94-56 and 94-58 be approved on an interim basis, pending a decision respecting this application. [The proceeding initiated by the above-noted Public Notices has been concluded with the issuance of Implementation of Regulatory Framework - Splitting of the Rate Base and Related Issues, Telecom Decision CRTC 95-21, 31 October 1995 (Decision 95-21)].
In a letter dated 31 October 1995, the Commission denied Stentor's request that the contribution charges be made interim and in Decision 95-21, the Commission gave final approval to the contribution charges for 1995, with the exception of those for AGT.
Comments with respect to Stentor's application were received from Sprint, ACC, Westel, London, Cam-Net Communications Inc., fONOROLA, Unitel and the Alberta Consumers' Coalition.
For the reasons cited in Decisions 94-19 and 94-27, the Commission remains of the view that it is appropriate to change the contribution mechanism from the present per-circuit charge to one based on the actual minutes of usage. Also, the Commission is of the view, based on the evidence submitted in the proceeding initiated by Public Notice 94-59 and in the proceeding to consider Stentor's 3 August 1995 application, that the circuit loading assumptions underlying the present per-circuit contribution charges no longer reflect the actual circuit usage in most cases. In this regard, the Commission notes that a per-minute contribution mechanism would result in all interexchange carriers paying appropriate contribution charges regardless of circuit usage patterns.
With respect to whether the per-minute contribution should be averaged or de-averaged, the Commission notes that carriers will be affected in different ways depending on their mix of peak and off-peak traffic. The Commission notes that Sprint, Unitel and fONOROLA favoured the de-averaged mechanism while Stentor had no preference. Consistent with its rationale and preliminary findings in Decision 94-27, the Commission is of the view that a de-averaged mechanism is preferable. The Commission is of the view that an averaged charge may result in disincentives to serve low margin off-peak traffic, which is largely residential traffic, and would thereby limit the availability of the benefits of competition in that segment of the market.
With respect to the level of the de-averaged rates, the Commission is of the view that no compelling evidence was filed in this proceeding to demonstrate that the mechanism proposed by the Commission in Public Notice 94-59 is not appropriate. The Commission is therefore adopting the de-averaged mechanism, which provides that the peak contribution charge will apply to originating minutes switched at the point of origin between 8 a.m. and 5 p.m. Monday to Friday. Similarly for terminating traffic, the time of day at the terminating point will determine whether the peak or off-peak contribution charge will apply.
Most interveners argued that, if the Commission is to adopt a per-minute contribution mechanism, there should be a significant delay in its implementation. These interveners submitted that changing to a per-minute contribution mechanism would require competitors to make significant changes to their operations including their network configurations and that sufficient time should be allowed for them to adjust. In addition, Sprint submitted that the change should not be implemented until greater market stability is achieved and, more generally, until it is determined that such a fundamental change will not jeopardize the attainment of the Commission's broad policy objectives in regard to competition. Sprint argued that, at a minimum, implementation of a per-minute contribution charge should be contingent on the implementation of price caps. ACC argued that a per-minute mechanism should not be implemented until 1 January 1998, as anti-competitive behaviour still occurs because of the telephone companies' access to bottleneck facilities and that introducing a per-minute contribution mechanism would further disadvantage the competitors.
The Commission considers that sufficient time must be provided to allow competitors to adjust to the new mechanism. In this regard, the Commission notes that competitors may have to make modifications to billing and marketing arrangements as well as significant changes to network configurations. The Commission also acknowledges that changing to a per-minute mechanism may well have some negative financial effects on some competitors, if insufficient time is provided to allow them to adjust. However, the Commission is of the view that unnecessary delays in moving to a per-minute contribution mechanism should be avoided. The Commission is concerned that, under the current regulatory regime, any shortfall in contribution revenues would have a negative impact on the earnings of the Utility segment, resulting in upward pressure on local rates. Accordingly, in moving to a per-minute contribution mechanism, the Commission must balance the potential negative effects on competitors against the desire to mitigate any upward pressures on local rates.
In light of all of the above, the Commission concludes that the de-averaged per-minute contribution mechanism be implemented on 1 June 1996. Accordingly, when filing their submissions in the proceeding to determine 1996 contribution charges, the federally regulated Stentor member companies are directed to file proposed de-averaged contribution charges, to be applicable to trunk-side connections.
The Commission notes its finding associated with Switched Call Completion Service in Telecom Order CRTC 95-569, 18 May 1995, that if any de-averaging of contribution charges results in an increase in contribution charges applying in the peak period, all toll rates approved since Decision 94-19 would be required to continue to pass the imputation test using the new contribution charges. Accordingly, depending on the level of the peak contribution rate that will be established for 1996, the Commission may require the filing of imputation test results.
In its 3 August 1995 application, Stentor proposed that the circuit loadings used in the calculation of the per-circuit contribution charge be increased to better reflect actual usage levels. The Commission considers that it would be inappropriate to increase circuit loadings as an interim measure pending the implementation of the per-minute contribution mechanism. In this regard, the Commission is of the view that the adjustments required to adapt to an increase in the circuit loadings would be significantly different than those required to adapt to the de-averaged per-minute contribution mechanism. Accordingly, the Commission is of the view that increasing circuit loadings prior to the implementation of a per-minute charge would undermine the provision of an adjustment period for the per-minute mechanism.
In light of the above, Stentor's application is denied.
The Commission notes that, due to technical limitations, the per-minute contribution mechanism contemplated in this Decision applies only to traffic on trunk-side connections. As noted above, the Commission considers that the implementation of a per-minute contribution mechanism is more effective and equitable than increasing the circuit loadings used to calculate the per-circuit contribution charge. Accordingly, the Commission would be willing to consider an application to apply the per-minute mechanism to other types of connections if the technical limitations can be overcome.
Allan J. Darling
Secretary General

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