ARCHIVED -  Telecom Decision CRTC 96-10

Telecom Decision

Ottawa, 15 November 1996

Telecom Decision CRTC 96-10

LOCAL SERVICE PRICING OPTIONS

Table of Contents

OVERVIEW

I INTRODUCTION

II AFFORDABILITY OF TELEPHONE SERVICE IN CANADA

III AFFORDABILITY SOLUTIONS SHOULD LOCAL RATES BECOME NON-AFFORDABLE

A. Budget/Optional Services

B. Targeted Subsidies

C. Other Proposals

IV BILL MANAGEMENT TOOLS

A. Obstacles to Accessing and Remaining on the Telephone Network

B. Toll Restriction Service

C. Instalment Payment Plans

D. Security Deposits

E. Other Issues

F. Promotion of the Bill Management Tools

G. Applicability of Bill Management Tools to Independent Telephone Companies

V MONITORING AFFORDABILITY

VI SERVICE TO HIGH-COST AREAS

OVERVIEW

(Note: This overview is provided for the convenience of the reader and does not constitute part of the Decision. For details and reasons for the conclusions, the reader is referred to the various parts of the Decision.)

In this Decision, the Commission, among other things:

(1) finds that rates for local telephone service are currently affordable to the vast majority of Canadian households;

(2) finds that there is no conclusive evidence indicating that local rates will not remain affordable in the future, but orders the Stentor companies, AGT and ED TEL to develop an affordability monitoring plan;

(3) decides that, should the affordability monitoring plan indicate the existence of an affordability problem in the future, a narrowly focused targeted-subsidy program would be the best approach to deal with the situation;

(4) finds that the budget/optional services proposed by the Stentor member companies do not address the calling needs of most Canadians and hence are not considered appropriate services to address any present or future affordability concerns;

(5) finds that the major obstacles to obtaining telephone service for low income Canadians are the payment of up-front installation charges and security deposits;

(6) finds that the predominant reason for subscribers dropping off the telephone network is the inability to pay long distance bills;

(7) orders the Stentor members, AGT and ED TEL to (1) file tariffs for bill management tools, allowing customers to have free toll restriction service and to spread their payment of up-front charges over six months, and (2) revise their policies for collecting security deposits;

(8) directs the independent telephone companies, who were not parties to this proceeding, to show cause as to why they should not offer bill management tools to their subscribers; and

(9) notes the possible future need to examine the issue of service to high-cost serving areas (remote/rural), including the issue of extending service to unserved areas and upgrading existing service to underserved areas, to the extent that such issues will not have been addressed in the local competition proceeding.

I INTRODUCTION

In Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994 (Decision 94-19), the Commission set out, for the Stentor member companies, a regulatory framework for the provision of telecommunications services which included placing a greater reliance on market forces. The Commission recognized that meaningful regulatory reform could not be undertaken without a significant reduction in the subsidy that users of long distance services are currently providing in order to keep rates for local/access service low. The Commission was of the opinion that the current subsidy is much larger than necessary to maintain affordable service.

In Implementation of Regulatory Framework - Splitting of the Rate Base and Related Issues, Telecom Decision CRTC 95-21, 31 October 1995 (Decision 95-21), the Commission maintained its view, as expressed in Decision 94-19, that a targeted subsidy or a lifeline program was not necessary at the time, in light of the form and degree of rate rebalancing mandated by the Decision. The Commission went on to state that such proposals should be considered in the context of a broad public process.

On 18 October 1995, AGT submitted Tariff Notice 686, in which it set out a proposal for optional local services. In Local Service Pricing Options, Telecom Public Notice CRTC 95-49, 22 November 1995 (PN 95-49), as modified by Local Service Pricing Options: Revised Procedures and Regional Consultations, Telecom Public Notice CRTC 95-56, 20 December 1995 (PN 95-56), the Commission initiated a proceeding to "consider whether it is appropriate to establish specific mechanisms to ensure that local (residential) service continues to be universally accessible at affordable rates...". The Commission noted that subsection 7(b) of the Telecommunications Act affirms that Canadian telecommunications policy has as one of its objectives the rendering of "reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada."

Following the issuance of PN 95-49, Stentor Resource Centre Inc. on behalf of BC TEL, Bell Canada, The Island Telephone Company Limited, MTS NetCom Inc. (MTS), Maritime Tel & Tel Limited, The New Brunswick Telephone Company, Limited, NewTel Communications Inc., Northwestel Inc., and Québec-Téléphone (collectively, Stentor), submitted tariff notices detailing their proposed local service pricing options. In general, the options offered a reduced level of service at a lower rate, combined with bill management tools. These tariff filings were made part of the public record in this proceeding for the purpose of considering the merits of various approaches to local service pricing options, but not for the purpose of disposing of the specific applications.

In order to consider the issue of affordability, the Commission, in PN 95-49, asked that submissions address specific issues such as: the range within which rates for local service would be affordable; the minimum level of service to be offered; whether a budget service, targeted subsidy program or other approach offers the most effective means of ensuring affordability of local service, and the pros and cons of such approaches; whether local service pricing options should be uniform across all telephone companies; and, the appropriate way to address other costs incurred by subscribers in obtaining local service, including security deposits, installation and related service costs, in order to assist in the delivery of affordable service.

On 18 April 1996, in a letter to all interested parties, the Commission clarified the scope of the proceeding with regard to high-cost service areas. The Commission indicated that it would not require or seek further clarification or elaboration at the hearing on submissions relating to the cost of providing local service to high-cost service areas as these matters are being considered in the proceeding initiated by Implementation of Regulatory Framework - Local Interconnection and Network Component Unbundling, Telecom Public Notice CRTC 95-36, 11 July 1995.

Regional hearings were held in St. John's, Charlottetown, Fredericton, Halifax, Montréal, Toronto, Winnipeg, Calgary, Edmonton, Vancouver and Whitehorse between 26 February 1996 and 28 March 1996. A central hearing took place in Hull over the period 28 May 1996 to 3 June 1996. The Commission also received written comments from numerous individuals and organizations regarding the proposed local service pricing options of the telephone companies. The following parties were either present or represented at the central hearing and/or filed arguments: ACC TelEnterprises, Sprint Canada, Unitel Communications Company, now AT&T Long Distance Services Company (collectively, the competitors); AGT Limited, now TELUS Communications Inc. (AGT); Alberta Council on Aging (ACA); B.C. Old Age Pensioners' Organization, Council of Senior Citizens' Organisation of B.C., Federated Anti-Poverty Groups of B.C., West End Seniors' Network, Consumers' Association of Canada [B.C.], Local 1-217 IWA Seniors Network, End Legislated Poverty, B.C. Coalition for Information Access, Senior Citizens' Association of B.C. (collectively, BCOAPO et al.); Mr. Viateur Bergeron; Bruce Municipal Telephone System, Dryden Municipal Telephone System, Keewatin Municipal Telephone System, Kenora Municipal Telephone System, Corporation of the City of Thunder Bay - Telephone Department (collectively, the PUCs); Canada's Coalition for Public Information (CCPI); Canadian Cable Television Association (CCTA); City of Calgary (Calgary); Consumers' Association of Canada (CAC); Consumers' Association of Canada [Alberta] (CAC Alberta); Consumers' Association of Canada [Manitoba], Manitoba Society of Seniors Inc. (collectively, CAC/MSOS); ED TEL Communications Inc., now TELUS Communications (Edmonton( Inc., (ED TEL); Fédération nationale des associations de consommateurs du Québec/National Anti-Poverty Organization/One Voice (collectively, FNACQ et al.); Mr. Carlyle Gilmour; Gouvernement du Québec (Quebec); Government of British Columbia (B.C.); Government of Ontario; Government of Saskatchewan (Saskatchewan); Industry Canada - Director of Investigation and Research, Bureau of Competition Policy (the Director); Information Technology Association of Canada (ITAC); Manitoba Keewatinowi Okimakanak Inc. (MKO); Ontario Federation of Agriculture (OFA); Ontario Northland Transportation Commission, O.N.Tel; Ontario Telephone Association (OTA); Mr. Yves Rabeau; Sogetel Inc. (Sogetel); Stentor; Télébec ltée (Télébec); The McLuhan Program in Culture and Technology at the University of Toronto, Local Global Access Inc., Toronto Information Highway Working Group (McLuhan Program); and, Westel Telecommunications Ltd. (Westel).

II AFFORDABILITY OF TELEPHONE SERVICE IN CANADA

The Commission heard numerous views on the concept of affordability, whether telephone service in Canada is affordable today, and whether it will continue to be affordable in the future.

Stentor, CAC Alberta and other parties stated that the concept of affordability should be viewed as a combination of price, income, spending priorities and choice made by an individual as to whether or not to purchase a service. AGT and the Director stated that the relevant determination of affordability is whether people can afford a product or service on a continuous basis. AGT noted that for the period 1985 to 1995, the overall price of telephone service in Canada decreased by 44% in real terms and that the telephone penetration rate increased from 98.2% to 98.5% over the same period.

Numerous parties including AGT, B.C., CAC, CCTA, the competitors, the Director, Saskatchewan and Stentor maintained that the nation-wide telephone penetration rate computed by Statistics Canada is the most appropriate and reliable indicator of affordability. Statistics Canada's 1995 national telephone penetration rate indicates that 98.5% of Canadian households had telephone service. The same source estimated that, of the 1.5% or approximately 169,000, out of almost 11.24 million households which did not have telephone service, 35% or less than 60,000 households, had terminated service for one month or more since January 1, 1995, because they regarded telephone service as "too expensive". Other non-subscribers were in the process of moving, or had other reasons for not having a telephone.

BCOAPO et al. agreed that telephone penetration and affordability are linked, but argued that the linkage is imperfect to the extent that the demand for basic telephone service is inelastic. In the same vein, FNACQ et al. emphasized that penetration rates as indicators of affordability are helpful only to a limited degree, since telephone service is considered essential and will be retained by those in difficult financial circumstances by giving up other important consumption items. Furthermore, BCOAPO et al. and other parties noted that national telephone penetration rates computed by Statistics Canada exclude households on Indian reservations and residents of the Yukon and Northwest Territories.

Alternatively, FNACQ et al. and others contended that affordability thresholds increase with income and that it would be more appropriate to focus on low-income households when discussing this issue. FNACQ et al. proposed that, in addition to penetration rates for specific sub-groups of the population, the percentage of household income spent on basic local telephone service should be monitored, and a maximum established. Specifically, FNACQ et al. proposed that households with an income below a representative poverty line, should spend a maximum of 1% of their income on local telephone service. Based on this approach, FNACQ et al. proposed a rate of $15 per month for basic telephone service as being a reasonable indicator of affordability. According to FNACQ et al., approximately 20% of Canadian households could experience difficulties paying for basic local telephone service if rates were to increase above $15 per month.

The Commission observes that, on an aggregate basis, telephone penetration rates for local services have been sustained at high levels in all rate groups. This includes rate groups with rates currently in excess of $15 per month for basic local service. The Commission notes that while rates for local telephone service vary widely across Canada, penetration rates do not necessarily vary in a similar manner; where rates are relatively low, penetration rates are not necessarily high. The Commission also notes, however, that penetration rates for lower income groups have generally been lower than the overall average telephone penetration rate. Accordingly, the Commission considers that telephone service is affordable to the vast majority of Canadian households.

With respect to the future affordability of monthly rates for basic local telephone service, numerous survey results were filed by parties which asked telephone subscribers for their views on the affordability of present and future rates. The Commission considers that these surveys provide useful information on customers' present attitudes and perceptions of how they will behave in the future should local rates increase. The Commission also concurs with the position of several parties that views expressed by customers regarding anticipated behaviour may be less reliable than observations gained from actual behaviour. Based on these surveys, the Commission notes that there was no consensus among parties with respect to defining a range of affordable rates.

To address these concerns, the Stentor companies and AGT proposed a number of bill management tools designed to help subscribers access and remain on the telephone network.

B. Toll Restriction Service

In their tariff filings, Stentor proposed to offer toll blocking to residence customers at no monthly rate. Some of the companies proposed to make free monthly toll restriction service conditional on subscription to one of their local service pricing options. Some of the companies proposed a one-time service charge for toll restriction service, others proposed to offer the service without such a charge.

AGT proposed to offer free toll restriction service only to subscribers of its proposed Basic Service local service pricing option.

A number of parties objected to tying free toll restriction to the companies' proposed local service pricing options. At the central hearing the Stentor member companies, with the exception of AGT, indicated that if their proposed local service pricing options were not implemented, each company would be prepared to offer toll restriction at no monthly charge to all residential customers.

Stentor stated that customers with toll restriction would continue to be able to use the prepaid calling cards of any carrier for access to the network in order to place long distance calls.

The Commission notes that the companies' proposal to offer toll restriction at no monthly charge to residence customers received widespread support in this proceeding and that it would serve to address one of the main causes for involuntary disconnection. The Commission considers, as did many parties in this proceeding, that toll restriction at no monthly charge should not be conditional on subscription to a local service pricing option.

A number of parties did not object to the idea of a nominal service charge, in the order of $10, being associated with toll restriction service. The Commission notes that there are administration and provisioning costs associated with the implementation of toll restriction and in the reconnection of toll service. Further, the Commission concurs with Stentor that a service charge might be needed to deter customers who might repeatedly activate and de-activate toll restriction service.

To avoid imposing hardship on customers seeking toll restriction because of difficulties in paying toll bills and, as well, noting that some companies already provide free partial disconnection (of toll service) for subscribers with large outstanding toll bills, the Commission is of the view that there should be no up-front service charge to activate toll restriction service. However, the Commission is of the preliminary view that a one-time charge, up to a maximum of $10, to reinstate toll access (i.e., to deactivate toll restriction) for residential customers would be appropriate.

The Commission agrees with the competitors that toll restriction service should not include blocking access to the networks of other carriers using line side access or 1+800/1+888 access.

The Commission is of the view that toll restriction implemented through 0+/1+ blocking at the local switch as proposed by Stentor is not anti-competitive. A customer should be permitted to choose to block access to all of the toll carriers. Furthermore, the Commission does not consider that competitive equity requires that toll carriers be advised when one of their subscribers chooses toll restriction service. Accordingly, the Commission rejects the competitors' demand that such notice be provided.

Some parties asserted that telephone companies should not be permitted to continue the practice of disconnecting local service for the non-payment of toll bills by subscribers. The Commission considers that the approved procedures which must be followed by the companies in order to suspend or terminate service are adequate to prevent unjust discrimination against other long distance service providers or the conferral of an undue preference in favour of the Stentor member companies. The Commission therefore rejects the suggestion made by FNACQ et al., the competitors and Westel that the telephone companies be prohibited from disconnecting local service for non-payment of toll bills.

The Commission directs the telephone companies to file proposed tariff pages, where required, to offer toll restriction at no monthly charge which may include a one-time charge to deactivate the service of up to $10, within 30 days of the date of this Decision.

C. Instalment Payment Plans

In their tariff filings, the Stentor member companies proposed to provide residential customers with the ability to extend service charge payments over a period of up to six months, including applicable interest charges. However, some of the companies proposed to restrict the availability of the six month instalment payment plan for connection charges to subscribers of their respective local service pricing options.

AGT proposed a six month instalment payment plan with no interest charges to subscribers of their proposed Basic Access local service pricing option.

A number of parties objected to tying the six month instalment payment plan to the proposed local service pricing options. At the central hearing, Stentor indicated that the companies would be prepared to extend the six month instalment payment plan to all residential customers.

The Commission notes that Stentor's proposal to allow subscribers up to six months to pay connection charges received widespread support in this proceeding and that it would serve to address one of the main barriers to access to local service identified. The Commission considers, as did many parties in this proceeding, that access to the six month instalment payment plan should not be restricted to subscribers of a local service pricing option. The Commission notes and commends Stentor for its willingness to extend the instalment payment plan offer to all residential customers.

The Commission notes that some parties objected to Stentor's proposal to charge interest on outstanding amounts. The Commission is of the view that in accepting payment over a six month period, the telephone companies would be extending credit to customers, and that for this reason the application of interest to outstanding amounts is justified.

FNACQ et al. objected to the rates of interest charged by the companies. The Commission notes that the formula "prime + 7%", used by Bell and BC TEL in respect of late payments, was based on costs and given approval in 1984. The Commission notes, however, that some of the telephone companies are charging rates greater than "prime + 7 %".

FNACQ et al. argued that the instalment payment plan should cover lump sum charges other than connection charges; for example, repair charges. The Commission considers that these other lump sum charges are not barriers to access to the telephone network by low income households and, accordingly, telephone companies should not be required to offer instalment payment plans for these charges. Further, the Commission notes that Stentor indicated that there are no separate charges for repair work as it is considered part of local service. An exception is a separate charge for the repair of inside wire and this is applicable only in the serving areas of those companies where the responsibility for inside wire has been transferred to the customer. In the case of repairing inside wire, the Commission notes that once responsibility for inside wire has been transferred, the customer requiring repairs may choose persons or companies other than the telephone company to do the work.

In light of the above, the Commission directs the telephone companies to file, where required, proposed tariffs within 30 days of the date of this Decision, providing all residential customers with the opportunity to spread any payment associated with connection charges over a period of up to six months. The monthly payment should be based on the amount owed divided by the number of months over which the payment is deferred, plus applicable interest on the unpaid balance of the instalment plan based on the late payment charges applicable under the member company's tariffs.

The Commission also hereby directs the telephone companies to show cause, within 30 days of this Decision, why the interest rate applicable to late payments should not be based on a formula such as that approved by the Commission for Bell and BC TEL.

D. Security Deposits

FNACQ et al. stated that a security deposit should only be required where the customer is a proven credit risk and, further, that it should not be assessed where a customer subscribes to toll blocking. FNACQ et al. also argued that the amount of any security deposit should not exceed the potential bad debt to the company associated with that customer. Finally, FNACQ et al. maintained that customers for whom a security deposit will be assessed, if and when they take toll service, should be permitted to have free toll restriction, and to pay the assessed security deposit in instalments while toll restriction is in place.

Stentor stated that the companies' Terms of Service set out their policies and practices with respect to security requirements. Stentor also indicated that customers do not have to meet a security requirement when subscribing to telephone service, as long as they have a favourable credit history, and that only customers who either have a proven unsatisfactory credit rating or cannot prove their creditworthiness as a new customer are required to provide security. Stentor further noted that a customer who subscribes to toll restriction, in all but the most exceptional circumstances, would not be asked to provide security unless that same customer were to utilize an exceptionally large amount of local service, for example, where a three-month bill would amount to over $150. Lastly, Stentor indicated that all the companies allow customers to defer payment of the security deposit required for access to toll over any given period of time while subscribing to toll restriction.

CAC and the competitors were of the view that security deposits tied to toll usage should not be sought when long distance service is being provided by an alternative provider. CAC also submitted that deposits should apply separately to the provision of local, optional and toll services.

Stentor stated that it was possible for customers of alternative providers of long distance service to make toll calls over the companies' networks and that as such the companies should be permitted to ask these customers for a deposit in anticipation of possible toll losses, where circumstances warrant it. With respect to CAC's request for separate deposits, Stentor stated that this would require the companies to implement major changes to their accounting systems. Stentor submitted that the associated costs could not be justified in light of the fact that security deposits are only required in exceptional cases for services other than toll.

The Commission considers that the companies' current practices with respect to security deposits are appropriate with one exception. The Commission is not convinced that the experience of the telephone companies to date, as presented in this proceeding, constitutes sufficient justification for maintaining their practice of requiring customers of alternative toll providers to provide security with respect to their potential usage of the companies' toll network through casual calling. Accordingly, the Commission directs the telephone companies to discontinue this practice, at least until such time as they are able to produce evidence, satisfactory to the Commission, of a pattern of losses associated with such customers.

E. Other Issues

FNACQ et al. requested that all customers have the option of blocking 900/976 calls, either free of charge or for an up-front charge of no more than $10. FNACQ et al. also requested that the telephone companies be required to provide customers with the ability to block usage-based calling features.

Stentor indicated that each company already offers customers the option of having calls to 900/976 services blocked for either a one-time service charge of $10 or at no charge, depending on the company. Stentor also indicated that blocking of usage-based calling features was available upon request to all the companies' residence customers at no charge.

The Commission considers that no action need be taken on these issues.

F. Promotion of the Bill Management Tools

The Commission notes that parties were in agreement that information and outreach programs would be essential in order to promote bill management tools. Further, parties also generally agreed on the nature and type of programs required to inform the public, such as bill inserts, telephone directory introductory pages, etc.

In response to survey results which indicate that a significant percentage of people do not read their bill inserts, Stentor proposed to work with social agencies to determine if there are more focused ways of promoting bill management tools so as to ensure that customers who can benefit from these tools are aware of them.

The Commission directs that the telephone companies design bill inserts and modify the front pages of their telephone books to attract attention to the fact that bill management tools are available to those who need them. The new inserts should be included with the January 1997 telephone bills. Front pages should be modified for the next issuance of the telephone book.

In addition, the Commission directs that, as proposed by Stentor, the telephone companies work with social agencies to determine how best to inform, on an ongoing basis, those customers who require these tools of their availability. A concrete plan of action must be submitted to the Commission by 30 April 1997.

G. Applicability of Bill Management Tools to Independent Telephone Companies

The Commission considers that bill management tools, such as those approved above, could assist subscribers in accessing and maintaining telephone service. The Commission further considers that these tools should be made available by all telephone companies currently offering basic local telephone service. Accordingly, all independent telephone companies that provide basic local telephone service are directed to provide, within 30 days of the date of this Decision, any reasons why those aspects of this Decision should not apply to them.

V MONITORING AFFORDABILITY

In PN 95-49, the Commission indicated that one of its objectives was to determine how best to ensure that local service remains universally accessible at affordable rates. In this Decision, the Commission concludes that basic telephone service is currently affordable throughout Canada. However, the Commission must also ensure that local service remains affordable in the future. To this end, the Commission has decided to require implementation of a monitoring program for the purpose of detecting, early on, the development and specific nature of any affordability concerns. This will allow the Commission to take the appropriate action, if and when it becomes necessary to do so.

Parties to this proceeding proposed a number of indicators, which, in their opinions, should be monitored to indicate the level of affordability of basic telephone rates in the future. Among the indicators suggested were telephone penetration rates at various levels of aggregation, particularly, income level, disconnection statistics, local telephone rate indices, customer research data, as well as the percentage of household income spent on basic telephone service.

As discussed earlier, the Commission considers that the national telephone penetration rate is the key indicator of overall affordability. It considers, however, that statistics on telephone penetration rates by household income group and by province would be useful as they would assist in identifying the regions and income brackets where affordability concerns may lie.

The Commission agrees with BCOAPO et al., CAC Alberta, FNACQ et al. and Stentor that the penetration rates traditionally published annually by Statistics Canada and reported with a time lag of nearly one year will not provide a sufficient tool to effectively monitor the affordability of future rates. The Commission considers that, if they are to be used as policy inputs, penetration data must be reported in a more timely and frequent manner. Accordingly, the Commission supports Stentor's proposal to monitor national and provincial penetration rates, broken down by income category, on a quarterly basis, and to provide a report to the Commission three to four months after data collection. In the Commission's view, this approach ensures effective monitoring of affordability while minimizing the costs related to data collection.

The Commission also agrees with AGT, B.C., CAC Alberta, CAC, CCPI, Calgary, ED TEL, FNACQ et al., Quebec and Stentor that the monitoring of penetration data would be enhanced if it were supplemented with analysis of other indicators. To this end, the Commission supports many of the initiatives put forth by various parties.

One such initiative, proposed by Stentor, is to continue monitoring Statistics Canada socio-demographic statistics that can be used to assess the affordability of telephone service. Such statistics include income levels, source of income, age and education of the household head, or household characteristics and population mobility. Stentor submitted that such statistics may be useful in the categorization and comparison of households with and without telephone service. The Commission further agrees with Stentor that this information may, at least in part, help to explain both changes in the national penetration rate as well as the frequent variations in the penetration rates in the lower household income groups.

A second initiative, also proposed by Stentor, was to monitor the information obtained from a limited number of supplementary quarterly Statistics Canada survey questions, that would be developed by Stentor, to help identify whether non-subscription is due to the level of the monthly rate for basic telephone service, other charges or to other factors. The Commission supports the collection and analysis of non-subscription data as this information cannot be obtained from the use of penetration statistics alone. The Commission notes Stentor's stated intention to involve interest groups and the Commission in the formulation of appropriate survey questions.

The Commission also supports the suggestion put forth by BCOAPO et al., CAC and Stentor, that the telephone companies conduct marketplace analysis of disconnection information obtained from customers dropping off the network. Specifically, Stentor proposed that its member companies compile disconnection information obtained from a statistically valid sample of customers. Stentor further suggested that reasons for termination be categorized by broad groupings. In cases where affordability could be the reason for disconnection, Stentor proposed that the telephone companies first inform customers of the availability of bill management tools. The Commission agrees that this procedure could assist customers in determining whether these tools would be helpful. Stentor also submitted that, when initial data gathering suggests that affordability could be the reason for disconnection, further information could be obtained to determine whether that is the case, through the use of services provided by independent research and survey organizations, rather than through Stentor, in order to alleviate any concerns of infringing on customers' privacy. Finally, the Commission notes Stentor's stated intention to work with the Commission and consumer groups in the development of survey questions.

The Commission further notes and supports Stentor's proposal to monitor and perform market analyses on the take rates for their bill management tools. The Commission is of the view that such monitoring would serve to assess the target customers' awareness of the availability of such options. It would also provide insight as to the effectiveness of the bill management tools in addressing affordability concerns.

The Commission rejects CAC's proposal to monitor a price index of telephone services. In the Commission's view, the most widely available and reliable such index does not adequately measure the price of what is considered to be basic service by most interested parties in this proceeding and does not provide a reasonable representation of the current toll discounts available in the competitive market.

As to the issue of whether or not the Commission should establish affordability benchmarks, most parties, with the exception of FNACQ et al., opposed the concept. For a number of reasons, the Commission agrees with these parties. Among other things, the Commission is of the view that setting benchmarks for one or more of its affordability indicators could lead to the inappropriate implementation of an affordability solution, as a movement toward a specific benchmark level may not necessarily be due to an increase in the price of telephone service. The Commission agrees with AGT that such a change may be due to one or more exogenous factors, such as an economic recession, which would not necessarily warrant the implementation of an affordability solution. Accordingly, the Commission considers that the setting of an affordability benchmark would not be appropriate. The Commission will need to assess a variety of factors to determine whether or not affordability is in fact a problem.

Accordingly, the Commission considers that it would not be appropriate to rely on predetermined benchmarks to establish when a targeted subsidy program is required. Instead, the Commission has determined that it will closely monitor the indicators selected above. Should the Commission observe a material and sustained downward trend in national telephone penetration rates and should it be satisfied that other efforts (such as bill management tools) have failed to address any affordability concerns detected through the monitoring of other indicators discussed in this Decision, the Commission will set out to implement the appropriate affordability solution.

In light of the above discussion, the Commission directs the telephone companies to file an Initial Submission and Quarterly Monitoring Reports as set out below.

The Commission directs the telephone companies to file collectively an Initial Submission, as detailed below, by 30 April 1997. The Initial Submission is to include the following: i) the survey methodology associated with the Statistics Canada Labour Force Survey (LFS) supplemental questions; ii) the proposed LFS supplemental questions; iii) an estimate of the completion date of the first report based on LFS supplemental questions, as well as any other relevant milestone dates; iv) the names of the interest groups which participated in the development of LFS supplemental questions; and v) the survey methodology, administrative instructions and specific questions to be used by both the telephone companies and any independent research firms in the preparation of disconnection information.

Following the filing of the telephone companies' Initial Submission, the Commission will seek comments from parties to this proceeding. Upon completion of this process, the Commission will finalize the particulars of the monitoring program and will determine when the first Quarterly Report is to be filed with the Commission.

The Quarterly Monitoring Report is to include: i) the LFS supplemental statistics, including penetration rates, non-subscription and other questions yet to be determined; ii) relevant disconnection information categorized by termination reasons, and when affordability could be an issue, further categorized to establish whether or not affordability is the reason for disconnection; iii) the take rates for Stentor's bill management options, at the national and provincial levels, monthly and quarterly, with the timing of the first three-month period to be determined in the process discussed above; and iv) any analysis which could further assist the Commission to determine the variables and/or events which best explain a given change in penetration rates, disconnection statistics and take rates of bill management options.

The Commission further directs the telephone companies to file an annual supplementary report containing the following items: an affordability analysis based on the socio-demographic statistics reported in the Statistics Canada HIFE microdata file and, HIFE-based telephone penetration rates at both the national and provincial levels, broken down by income levels.

Finally, the Commission welcomes comments from interested parties informing it of the availability of any additional data, studies and surveys which could assist it in monitoring the affordability of future rates.

VI SERVICE TO HIGH-COST AREAS

In this proceeding, submissions were received from various parties including B.C., MKO and Saskatchewan, expressing concerns regarding service to rural and remote communities. Moreover, at the Vancouver Regional Hearing, the Commission heard from Mr. John Kerr representing the Tatlayoko Think Tank as well as other organizations and individuals, and at the Whitehorse Regional Hearing, from the Yukon Government, the Marsh Lake Telephone Committee, and the Yukon Utilities Consumer Group and at the Toronto Regional Hearing from OFA. All commented on the need for reliable and affordable communications in remote communities. Some parties further commented on the need for specific mechanisms to ensure service to high-cost areas as rates move towards costs as a result of competition in the provision of telecommunications services.

In its letter of 18 April 1996 to all interested parties, the Commission indicated that it would not require or seek further clarification or elaboration regarding submissions relating to the cost of providing local service to high-cost service areas, as these matters are being considered in the Commission's proceeding on local competition.

The Commission considers that the matter of service to high-cost areas, including the extension of service to unserved areas and the upgrading of existing service to underserved areas is an important one. The Commission intends to consider these issues following the conclusion of the local competition proceeding, to the extent that these issues have not been addressed in that proceeding.

MKO stated that the major impediments to obtaining telephone service in its communities include among other things, the high cost of basic local and access service, remoteness, widespread poverty, and poor service quality. Although local rates for most households in these communities are under $10 per month, MKO stated that long distance bills and the inability to pay them are significant factors in customer drop-off.

In response to MKO's concerns, MTS stated that it considered the MKO situation to be unique. MTS contended that the low penetration rate in the MKO communities could not be addressed from the issue of local telephone rate affordability since in its view, the problem is related to poverty, remoteness, and long distance rates, rather than the level of local rates currently being charged to the residents. MTS further indicated that improved satellite service will be installed in 1997 to improve the service to six remote communities in MKO territory.

The Commission concurs with MTS that the MKO situation cannot be resolved on the basis of consideration of local rates alone. To the extent there is an inability for some subscribers to manage their payment of toll bills, the bill management tools discussed above should be of assistance.

Finally, the Commission notes that MTS has offered to improve the telephone service to some remote communities. The Commission encourages all telephone companies, where appropriate, to collaborate with community representatives and/or government agencies to arrive at reasonable solutions for the provision of reliable telephone service to remote areas.

Allan J. Darling
Secretary General

DEC96-10_1_1