ARCHIVED -  Telecom Decision CRTC 96-11

Telecom Decision

Ottawa, 10 December 1996

Telecom Decision CRTC 96-11

1996 CONTRIBUTION CHARGES

I BACKGROUND

A. Introduction

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, among other things, set out a program of rate rebalancing, implemented the splitting of the rate bases for BC TEL, Bell Canada (Bell), The Island Telephone Company Limited (Island Tel), MTS NetCom Inc. (MTS), Maritime Tel & Tel Limited (MT&T), The New Brunswick Telephone Company, Limited (NBTel), NewTel Communications Inc. (NewTel) and TELUS Communications Inc. (TCI) (formerly AGT Limited) (the telephone companies) and established the contribution requirement for the purpose of setting final 1995 contribution rates for the telephone companies, with the exception of TCI. The final 1995 contribution rate for TCI was determined in Contribution Regime in Alberta, Telecom Decision CRTC 95-22, 27 November 1995 (Decision 95-22). As a result, the contribution requirement for Alberta is derived by combining the TCI and the TELUS Communications (Edmonton) Inc. (TCI Edmonton) (formerly ED TEL Communications Inc.) contribution requirements.

In Revisions to the Mechanism to Recover Contribution Charges, Telecom Decision CRTC 95-23, 4 December 1995 (Decision 95-23), the Commission confirmed that it is appropriate to change the per-trunk based contribution charge for trunk-side access to one based on the actual minutes of usage, effective 1 June 1996. The Commission also determined that, coincident with the implementation of a per-minute mechanism, the contribution rates for trunk-side access should be de-averaged by peak and off-peak periods.

In 1996 Contribution Charges, Telecom Public Notice CRTC 95-52, 8 December 1995 (PN 95-52), the Commission initiated a proceeding to consider annual contribution charges for 1996, taking into account directives contained in Decisions 95-21, 95-22 and 95-23, noted above.

In PN 95-52, the Commission stipulated that the 1996 contribution charge proceeding would be limited to an examination of contribution estimates and supporting information, based on Utility segment shortfall projections in accordance with Decision 95-21, and would not address issues such as reductions of contribution discounts and the Direct Access Line (DAL) surcharge.

BC TEL, Bell, Island Tel, MTS, MT&T, NBTel, NewTel and TCI (the telephone companies), ACC TelEnterprises Ltd. (ACC), Cam-Net Communications Inc. (Cam-Net), fONOROLA Inc. (fONOROLA), Sprint Canada Inc. (Sprint), AT&T Canada Long Distance Services Company (AT&T Canada LDS) (formerly Unitel Communications Company), Westel Communications Ltd. (Westel) (the entrants) and TCI Edmonton were made parties to the proceeding.

The Commission received comments from AT&T Canada LDS, the Canadian Cable Television Association (CCTA), the City of Calgary (Calgary), Sprint, TCI, TCI Edmonton and Stentor Resource Centre Inc. (Stentor) on behalf of BC TEL, Bell, Island Tel, MTS, MT&T, NBTel and NewTel, on matters raised in this proceeding. AT&T Canada LDS, fONOROLA, Stentor, TCI, TCI Edmonton and Westel filed reply comments.

B. 1996 Interim Contribution Charges

In Telecom Orders CRTC 95-1374 to 1377, 95-1379, 95-1380 and 95-1382 issued 15 December 1995, the Commission granted interim approval to the 1996 contribution rates filed by BC TEL, Bell, Island Tel, MTS, NBTel, NewTel and TCI pursuant to the directives of Decision 95-21.

With respect to MT&T, the Commission, in Decision 95-21, noted that MT&T had received an interim local rate increase in 1995, and that the implementation date for the introduction of rate rebalancing for MT&T would be dependent on the Commission's final determination with respect to MT&T's request for a general rate increase. In PN 95-52, the Commission stated that it would issue further instructions related to MT&T's 1996 contribution charges and that, in the circumstances, the 1995 final contribution charges for MT&T were appropriate for use in 1996, on an interim basis. In Telecom Order CRTC 96-335, 11 April 1996, the Commission granted interim approval to MT&T's proposed 1996 contribution charges.

In PN 95-52, the Commission stated that the TCI Edmonton component of the 1996 interim contribution rate for Alberta would be based on the 1995 final contribution requirement level, as established in Decision 95-22.

C. 1996 Interim De-Averaged Per-Minute
Contribution Charges

Following the issuance of PN 95-52, the telephone companies filed applications, pursuant to Decision 95-23, seeking interim approval for tariff revisions, to be effective 1 June 1996, based on the de-averaged per-minute mechanism for trunk-side access detailed in that Decision. In addition, the telephone companies proposed revised rates to be effective 1 July 1996 to reflect the change in entrant discount from 25% to 15%, excluding NBTel and NewTel whose entrant discounts changed on 1 January 1996, as set out 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) and modified in Unitel Communications Inc. - Application for Extension of the Contribution Discount Period and Other Matters, Telecom Decision CRTC 93-5, 19 April 1993 and as modified for TCI in AGT Limited - Interconnection of Interexchange Carriers and Related Resale and Sharing Issues, Telecom Decision CRTC 93-17, 29 October 1993 (Decision 93-17).

In Telecom Order CRTC 96-503, 27 May 1996, the Commission, among other things, granted interim approval to the proposed contribution rate revisions for de-averaged trunk-side connections submitted by the telephone companies, to be effective 1 June and 1 July 1996.

In PN 95-52, the Commission noted that TCI Edmonton was not a party to the proceeding leading to Decision 95-23 and, accordingly, not subject to that Decision. The Commission directed TCI Edmonton to provide comment as to why the de-averaged per-minute contribution mechanism established in Decision 95-23 should not apply to the TCI Edmonton component of the 1996 province-wide contribution rate for Alberta.

In response to PN 95-52, TCI Edmonton filed an application seeking, among other things, interim approval of tariff revisions reflecting the de-averaged trunk-side regime required by Decision 95-23 and the change in entrant discount from 25% to 15% as set out in Decision 92-12, modified by Decision 93-17.

In Telecom Order CRTC 96-502, 27 May 1996, the Commission granted, among other things, interim approval to (1) TCI Edmonton's de-averaged trunk-side 1996 contribution rates; and (2) the province-wide blended contribution rate for Alberta.

II ISSUES

A. Alberta Blended 1996 Contribution Rate

In Decision 95-22, the Commission established a blended contribution mechanism for the province of Alberta using the combined forecasted shortfalls and minutes of TCI and TCI Edmonton.

Both TCI and TCI Edmonton submitted, as requested in this proceeding, their estimated contribution requirements as well as forecast company and entrant minutes used to calculate their proposed 1996 contribution rates.

The Commission notes that, on 22 March 1996, TCI filed an application for a general rate increase and revenue requirement proceeding for 1996 and 1997. The Commission's decision with respect to TCI's application is still pending. Therefore, in view of the impact that the determinations with respect to TCI's application for a general rate increase may have on TCI's contribution requirement and, consequently, on the blended Alberta rate, the Commission considers it appropriate that the current interim 1996 TCI, TCI Edmonton and blended Alberta contribution rates remain interim. The Commission will finalize the 1996 TCI, TCI Edmonton and blended Alberta contribution rates in the decision to be issued with respect to TCI's application.

B. TCI Edmonton Contribution Requirement

In Decision 95-22, TCI Edmonton was directed to: (1) refine its costing methodology to be more consistent with the approved Phase III methodology; and (2) file its 1996 contribution requirement based on this methodology. In its submission, TCI Edmonton estimated, based on a modified Phase III study, a contribution shortfall of $23.1 million. In calculating this shortfall, TCI Edmonton included revenues of $6.6 million from its proposed rate rebalancing initiative filed under Tariff Notice 21, dated 21 February 1996, to be effective 1 April 1996.

In interrogatory EDTEL(CRTC)10Apr96-3, the Commission referred to Order-in-Council P.C. 1994-1779, 25 October 1994, wherein the Governor in Council issued a directive to the Commission, pursuant to section 75 of the Telecommunications Act, regarding the regulation of TCI Edmonton during the transitional period ending 25 October 1998 (the TCI Edmonton directive). In the TCI Edmonton directive, the Commission was required, among other things, to approve for TCI Edmonton a 200 basis point range of regulated return on common equity (ROE) with a midpoint of 12.5%.

In view of the TCI Edmonton directive, interrogatory EDTEL(CRTC)10Apr96-3 requested TCI Edmonton to calculate the contribution requirement for 1996 for the total company based on the methodology described in interrogatory ____(CRTC)7Apr95-2401 filed in the proceeding leading to Decision 95-21 (the Decision 95-21 methodology) and to provide TCI Edmonton's view on the appropriateness of using that methodology, with supporting rationale.

TCI Edmonton estimated its contribution requirement for 1996 using the Decision 95-21 methodology to be $21.3 million (inclusive of the rate rebalancing revenues). With respect to the appropriateness of the Decision 95-21 methodology, TCI Edmonton stated that it would expect to obtain the same results in determining its contribution requirement using the revenue surplus/shortfall methodology filed in its submission or the Decision 95-21 methodology. TCI Edmonton submitted that the difference between the two methodologies arose as a result of the company using in its submission the maximum (13.5%) of its allowed ROE range that was set under the TCI Edmonton directive, as opposed to using the midpoint (12.5%) required by the Decision 95-21 methodology.

The Commission notes that in response to interrogatory EDTEL(CRTC)10Apr96-3, the company stated that it did not undertake the rigorous analysis of its financial data and did not conduct the special studies that would be essential to accurately assign its investments, revenues and expenses to the approved Phase III categories.

The Commission notes that the TCI Edmonton modified Phase III study still requires further refinement, and, therefore, TCI Edmonton is to continue to refine its Phase III costing methodology in preparation for a change to its regulatory framework in 1998.

In order to be consistent with the TCI Edmonton directive, the Commission considers it appropriate to calculate TCI Edmonton's contribution requirement on a total company basis. In addition, in order to be consistent with the methodology used by the telephone companies, the Commission considers it appropriate to calculate TCI Edmonton's contribution requirement using the Decision 95-21 methodology. Accordingly, TCI Edmonton's contribution requirement for 1996 has been determined on a total company basis using the Decision 95-21 methodology. TCI Edmonton is directed to use the Decision 95-21 methodology to calculate the contribution shortfall until the end of the transitional period.

In Telecom Order CRTC 96-758, 16 July 1996, the Commission approved TCI Edmonton's Tariff Notice 21 effective 1 August 1996. TCI Edmonton estimated that the additional revenues from its rate rebalancing would be $3.7 million in 1996 (rather than the $6.6 million originally estimated by the company). Therefore, the Commission determines TCI Edmonton's 1996 contribution requirement to be $24.2 million based on the Decision 95-21 methodology.

C. De-Averaged Per-Minute Contribution
Mechanism for TCI Edmonton

As noted above, in PN 95-52, the Commission noted that TCI Edmonton was not a party to the proceeding leading to Decision 95-23 and, accordingly, was not subject to that Decision. The Commission also noted that TCI Edmonton employed an average per-minute contribution mechanism. As previously noted, the Commission directed TCI Edmonton to provide comment as to why the de-averaged per-minute contribution mechanism established in Decision 95-23 should not apply to the TCI Edmonton component of the 1996 province-wide contribution rate for Alberta.

TCI Edmonton responded that it did not object to the concept of a de-averaged contribution mechanism as established in Decision 95-23, but considered that it would increase the differential between TCI Edmonton's shortfall and contribution actually recovered. The company stated that, during the period of explicit contribution discounts for entrants and resellers, if the entrants experience a higher peak/off-peak ratio than the provincial average used to establish the province-wide blended contribution rate for Alberta, the entrants would enjoy further discounts over and above the explicit discounts and TCI Edmonton would collect less of the contribution required to recover its shortfall.

Given that there is a province-wide blended rate, the Commission considers that the de-averaged per-minute contribution mechanism established in Decision 95-23 should also apply to the TCI Edmonton component of the blended Alberta rate.

With respect to TCI Edmonton's concerns that, if the entrants experience a higher peak/off-peak ratio than the provincial average, TCI Edmonton would collect less of the contribution required to recover its shortfall, the Commission notes that, as indicated by AT&T Canada LDS, the converse is true as well. The Commission further notes that, in general, contribution rates are set based on certain assumptions which may not always materialize and, in such cases, there will be some parties that will benefit and others that will be disadvantaged.

In view of the above, the Commission directs that the de-averaged per-minute contribution mechanism established in Decision 95-23 apply to the TCI Edmonton component of the 1996 province-wide contribution rate for Alberta.

D. Phase III Adjustments

AT&T Canada LDS, supported by Westel, raised concerns with respect to certain Phase III assignment methodologies resulting from changes in procedures directed in Decision 95-21, namely the assignment of expenses related to postage, Centralized Mail Remittance, bill printing and customer profile information; and the treatment of the Official Telephone Service adjustment. They stated that these items should be brought into line with the Commission's directives in Decision 95-21 before final 1996 contribution rates are approved.

The Commission agrees with AT&T Canada LDS and Westel that the procedures used in the assignment of the above-mentioned expenses do not comply with the Decision 95-21 directives. In Telecom Order CRTC 96-862, 9 August 1996 (Order 96-862), the Commission directed the telephone companies to file update procedures for 1995 which assign the above-noted and certain other expenses in accordance with Decision 95-21.

Given that TCI's revenue requirement for 1996 is being assessed in a separate proceeding, the Commission will take into account in that proceeding the determinations made in Order 96-862. With respect to the other telephone companies, given that their revenue requirements for 1996 are not being assessed and that the impacts of each of the Phase III assignment methodologies identified above are not material, the Commission has determined that no adjustments are required.

E. NBTel Fibre Optic Transmission
Systems Investment

In the 15 January 1996 Phase III update submission, NBTel stated that for split rate base regulatory purposes all of its Fibre Optic Transmission Systems (FOTS) investment incurred both before 1 January 1995 and on, and after, 1 January 1995 would be included in the Competitive segment irrespective of any use by Utility segment services. In its 28 June 1996 Construction Program submission, the company stated that reports providing investment data (at gross book value), as of year-end 1994, indicated the actual aggregate costs of FOTS facilities deployed in each of the access network and the metropolitan inter-office portion of the trunk network amounted to approximately $29 million.

In Decision 95-21, the Commission stated that the telephone companies' existing fibre or other broadband-capable investments and related expenses assigned to the Utility segment prior to 1995 will remain so assigned, but that if they become useful for the provision of Beacon or other broadband services as of 1 January 1995, they must be re-assigned to the Competitive segment at gross book value. The Commission notes that NBTel has not asserted that the pre-1995 FOTS facilities are used for Beacon or other broadband-capable services. In the circumstances and consistent with Decision 95-21, the Commission considers that the FOTS investment that had been assigned to the Utility segment before 1 January 1995, should remain so assigned and has adjusted NBTel's 1996 contribution rate accordingly.

F. Gross Receipts Tax

In Decision 92-12, the Commission noted that Bell's Monopoly Toll costs included an allocation of the Gross Receipts Tax (GRT) levied by Ontario and Quebec on behalf of the municipalities in those provinces. In order to ensure parity in the treatment of the GRT for Bell and its potential competitors, the Commission found that an interim adjustment was required to reduce the competitors' contribution payments until the status of the competitors under the provincial legislation was resolved. The Commission approved an adjustment of 6% for the GRT, stating that the adjustment would be discontinued should competitors be permitted to deduct contribution payments for tax purposes prior to calculating the GRT payable. In 1994 Contribution Charges, Telecom Decision CRTC 94-18, 14 September 1994 (Decision 94-18), it was determined that for the Province of Quebec, AT&T Canada LDS was deducting contribution payments to determine its tax liability. The Commission determined that it was appropriate to reduce the GRT adjustment to 4%.

Stentor, on behalf of Bell, submitted that the GRT adjustment for Bell should be eliminated effective 1 January 1996 until such time as the GRT is shown to be applicable to individual entrants. Stentor submitted that, since AT&T Canada LDS' liability with respect to GRT in Ontario is still unresolved, AT&T Canada LDS has not been required to pay the Ontario GRT to date. Stentor further noted that there is no evidence that any entrant has been required to pay Ontario's GRT since the issuance of Decision 92-12, yet all entrants have benefited from the lower contribution rates resulting from this adjustment.

AT&T Canada LDS submitted that it has worked diligently with the taxing authority in the province of Ontario in an attempt to clarify AT&T Canada LDS' obligation for the GRT. AT&T Canada LDS also stated that it intends to fully comply with the requirement to inform Bell and the Commission as soon as the GRT situation is resolved with the province of Ontario. AT&T Canada LDS further submitted that, until such time, the Commission should maintain the GRT contribution adjustment established in Decision 92-12 in order to continue to ensure competitive equity as there is no basis for altering or eliminating the adjustment at this time.

fONOROLA submitted that, until this legal matter is resolved and entrants operating in Ontario are informed of their GRT liability, the Commission should uphold its position in Decision 92-12 and retain the GRT adjustment to the contribution calculation.

For the purposes of setting the 1996 contribution rates, the Commission considers it appropriate that the GRT adjustment continue to apply. However, AT&T Canada LDS and other entrants are directed to advise the Commission, within 30 days, the steps taken to resolve this issue. AT&T Canada LDS and other entrants operating in Ontario are directed to report for the next contribution proceeding, for each year since 1993, the amount of GRT paid in Ontario and the amount of contribution not paid as a result of the GRT adjustment. At the same time, entrants are to provide their views, with supporting rationale, as to why the GRT adjustment should be continued.

G. Bell's Depreciation Life Characteristics

CCTA noted that Bell's 1996 contribution requirement was based on unapproved depreciation life changes, which were of a significant nature, and were the subject of two other on-going proceedings, i.e., Bell's 31 May 1996 application for approval of depreciation life characteristics and the proceeding established by Price Cap Regulation and Related Issues, Telecom Public Notice CRTC 96-8, 12 March 1996 (PN 96-8). CCTA noted that Bell's use of the unapproved depreciation lives increased its 1996 Utility segment depreciation expense and thereby inflated the estimated 1996 contribution requirement.

CCTA expressed concerns that the current proceeding had not permitted a full review of the impact of the proposed depreciation changes on contribution rates, nor had it permitted an assessment of these proposed changes on price cap regulation. CCTA stated that if Bell's proposed depreciation life characteristic changes are incorporated into the 1996 contribution rate, the Commission will have pre-judged matters which should properly be the subject of the depreciation review process and the proceeding pursuant to PN 96-8.

AT&T Canada LDS supported CCTA's position. Both parties recommended that the calculation of Bell's 1996 contribution rate be based on the existing and currently approved depreciation life characteristics.

In Telecom Order CRTC 96-1122, 9 October 1996 (Order 96-1122) modified by Telecom Order CRTC 96-1122-1, 15 October 1996 (Order 96-1122-1), the Commission approved, on an interim basis, certain of the depreciation life characteristics proposed by Bell. In Orders 96-1122 and 96-1122-1, the Commission noted that the depreciation life characteristics listed in Table 2 of those Orders warranted further review during the proceeding initiated by PN 96-8.

In light of the above, the Commission approves the 1996 contribution rate for Bell as set out in Attachment A to this Decision, on an interim basis. Bell's 1996 contribution rate will remain interim until a decision has been rendered in the proceeding initiated by PN 96-8 with respect to appropriate depreciation life characteristics. The Commission considers that any adjustment to Bell's 1996 contribution rate, at that time, would only reflect changes in depreciation expense that may result from determinations on depreciation life characteristics made in that proceeding.

H. Minute Forecasts

1. Telephone Company Switched Minutes

Stentor stated that the telephone companies' forecast of their own minutes should be used to calculate the 1996 contribution rates.

Westel was the only entrant to comment on the telephone companies' forecasts and to question the reliability of BC TEL's minute forecast. Westel submitted that the Commission should increase BC TEL's forecast as it is unlikely that BC TEL would experience the degree of further market share loss that it forecasted for 1996 given that equal access in BC TEL territory has been in place for almost two years, and BC TEL has forecasted a Network Access Services growth of 3.2% for 1996.

With respect to BC TEL's forecast, the Commission notes that Westel questioned a 4.9% decrease in BC TEL's estimate for 1996 conversation minutes relative to 1995; the reported minutes, in fact, indicate only a 2.5% decrease. Further, the Commission notes that Westel, in its rationale for BC TEL's apparent poor forecasting record, questioned why BC TEL's actual 1995 minutes are 16.1% greater than previously filed actuals. The Commission agrees with Stentor that Westel mistakenly compared a full year's minute data to minutes reflecting only the first three quarters of 1995.

In light of the above, the Commission is of the view that no adjustments are necessary to the estimates of the telephone companies', including BC TEL's, switched originating and terminating minutes. Accordingly, the Commission accepts the telephone companies' forecasts of their respective 1996 switched originating and terminating conversation peak and off-peak minutes.

2. Entrant Switched Minutes

Stentor submitted the telephone companies' 1996 forecast of entrant minutes is the best available estimate and should be used to determine the 1996 contribution-eligible minutes. In addition, Stentor submitted that, should the Commission adjust a company's forecast of entrant minutes, then an offsetting adjustment should also be made to the company's minutes, thereby leaving the total market minutes unchanged.

Sprint submitted that Stentor's estimates of entrants' DAL usage are overstated and would result in substantial overpayment of contribution by entrants beyond what is required to achieve a rate of return equal to the midpoint of their allowed range.

In reply, Stentor submitted that, contrary to Sprint's submission, the loss of the implicit discount associated with the move to the per-minute contribution mechanism for trunk-side connections results in a significant increase in the incentive for entrants to use DALs.

Sprint's submission was supported by a number of entrants in their reply comments. fONOROLA submitted that Stentor cannot adequately estimate those differences, patterns and strategies that are taken into account by each entrant in formulating their own forecast minutes. Similarly, AT&T Canada LDS submitted that its estimates have been based on its 1996 business plan, which Stentor has presumably not reviewed, and therefore AT&T Canada LDS is in a better position than Stentor to estimate its own 1996 minute forecasts.

The Commission notes that Stentor has no way to accurately estimate the amount of traffic carried on entrant DALs as the entrants do not necessarily have to obtain their DALs from the telephone companies. The Commission is of the view that entrants have incorporated their strategic business plans into their individual forecasts and, therefore, are likely to be in a better position than Stentor to estimate their own minutes, including minute forecasts for DALs.

The Commission also notes the lack of dependable peak and off-peak historical entrant data and the absence of any other reliable basis on which to assess the proportion of peak and off-peak minutes to which de-averaged rates are applied.

Accordingly, the Commission accepts the entrants' forecasts of their respective 1996 switched originating and terminating peak and off-peak conversation minutes.

I. Refiling of Imputation Tests Using
De-Averaged Contribution Rates

AT&T Canada LDS noted that, in Telecom Order CRTC 95-569, 18 May 1995 (Order 95-569), the Commission stated that the telephone companies' price changes for existing service offerings and new services introduced since Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994 (Decision 94-19), would have to continue to pass the imputation test using de-averaged contribution rates.

AT&T Canada LDS asserted that failure to direct the telephone companies to file revised information is tantamount to allowing them to offer peak services at rates which are below their costs and contradicts the anti-targeting principles specified in Review of Regulatory Framework - Targeted Pricing, Anti-Competitive Pricing and Imputation Test for Telephone Company Toll Filings, Telecom Decision CRTC 94-13, 13 July 1994 (Decision 94-13) and in Decision 94-19.

AT&T Canada LDS proposed that where the 1996 final peak contribution rates are in excess of past rates, the Commission should direct the relevant company and Stentor, vis-à-vis national service offerings, to file imputation test results for all price changes to existing services and for new services since the release of Decision 94-19. AT&T Canada LDS requested that the telephone companies indicate whether the services pass or fail the imputation test, and that all information be put on the public record. In AT&T Canada LDS' view, this would allow interested parties to assess the extent to which the telephone companies' costing assumptions are reasonable. Westel supported AT&T Canada LDS' position.

AT&T Canada LDS identified for each of the companies the instances in which peak contribution rates exceed previous average contribution rates.

Stentor noted that, in the proceeding leading to Order 95-569, it expressed the view that retroactive imputation tests were inconsistent with the prospective basis only nature of imputation tests as implemented by Decision 94-13.

Stentor further stated that, as a result of the rulings in Order 95-569, it and the telephone companies have been cognizant of the results of each filed imputation test based on de-averaged contribution charges inferred through simple analytical techniques. In Stentor's view, the goal of these techniques is to determine if a service would have passed the original imputation test using de-averaged contribution rates.

Stentor noted that the companies' services targeted to residential markets have a higher than average proportion of off-peak traffic and would necessarily pass an imputation test based on de-averaged contribution rates.

Stentor submitted that AT&T Canada LDS' request for the companies to file complete imputation tests over the time frame in question would be unduly burdensome for the companies and for the Commission, and would provide no additional information, in terms of the result of the test, to the analytical techniques specified above.

With respect to AT&T Canada LDS' request for the release of imputation test results on the public record, Stentor submitted that AT&T Canada LDS is burdening the companies, and is seeking to garner competitive advantage by accessing sensitive market information.

TCI asserted that imputation tests assess average costs and average revenues comprised of both peak and off-peak rates and that services are priced above costs. TCI assumed that de-averaged prices will be above de-averaged costs, and there is no need to re-run imputation tests.

In Decision 94-13, the Commission indicated that an unfair advantage was accorded to the telephone companies as a result of the telephone companies not having to impute contribution as a cost of offering competitive services. The Commission instituted a service specific pricing test which took into consideration the telephone companies' cost of contribution.

The Commission notes that a de-averaging of contribution represents merely a change in the level in one of the components of the imputation test and not a fundamental change in policy concerning the appropriate composition of the price floor for the purposes of determining whether prices are anti-competitive.

Consequently, in Order 95-569, the Commission found that if any future de-averaging of contribution charges results in an increase in contribution charges applying in the peak period, the Commission will require that toll rate reductions, or new toll services approved since Decision 94-19, continue to pass the imputation test using the contribution charges that are then in effect.

In Decision 95-23, the Commission re-affirmed that a re-filing of imputation test information may be necessary.

The Commission concurs with Stentor's submission that, if the proportion of off-peak traffic relative to the total traffic exceeds that on which the de-averaged contribution rates are based, then the service specific weighted average contribution rates would be lower than the average rate on which the imputation test was originally submitted.

Therefore, the Commission directs that the following information be filed within 60 days:

(1) In cases where the 1996 final peak contribution rate exceeds the final contribution rate approved for any previous year since the release of Decision 94-19, each company is to file revised imputation tests for all new toll services and toll services subject to rate reductions approved by the Commission during the period over which the 1996 final peak contribution rate exceeds a previous final contribution rate with the following exceptions:

(a) services whose off-peak traffic proportion is greater than that on which de-averaged contribution rates are based;

(b) those services for which a company has already filed an imputation test employing de-averaged contribution; and

(c) new toll services or toll services subject to rate reductions approved by the Commission prior to the release of Decision 94-19;

2. For those services exempt by reason of 1(a), each company is to file the off-peak traffic proportion for the individual service in question for the overall toll traffic on which de-averaged contribution rates are based;

3. In instances where a service fails to meet the revised imputation test employing de-averaged contribution, each company is to propose corrective action, with justification, in order to bring the rates for the service in conformance with the new price floor; and

4. Each company is to identify the previous decision(s) approving final contribution rates which are lower than the peak contribution rates approved in this Decision.

With respect to AT&T Canada LDS' request for disclosure of all information associated with re-filed imputation tests, the Commission, in Decision 94-13, indicated that, in the context of an imputation test, the following information should be placed on the public record:

(i) a statement as to whether or not the imputation test is met and, if not, the justification for the proposed rates; and

(ii) details of the method used to perform the imputation test.

The Commission is of the view that the level of disclosure determined in Decision 94-13 continues to be appropriate. Therefore, AT&T Canada LDS' request for disclosure of all information filed in the context of any revised imputation test is denied.

III 1996 CONTRIBUTION RATES

Based on the determinations made in this Decision, the Commission gives final approval to the contribution rates for 1996 for BC TEL, Island Tel, MTS, MT&T, NBTel and NewTel as set out in Attachment A to this Decision. With respect to Bell, the 1996 contribution rates set out in Attachment A are given interim approval.

The following table provides a comparison of 1996 contribution rates, as approved in this Decision, to 1995 rates.

Percentage
Change/
Évolution en
percentage

1996 1995
(¢/minute / ¢ la minute)

BC TEL .0360 .0465 -22.6%
Bell* .0236 .0411 -42.6%
Island Tel .0401 .0458 -12.4%
MTS .0307 .0477 -35.6%
MT&T .0538 .0576 - 6.6%
NBTel .0420 .0544 -22.8%
NewTel .0349 .0349 --

*The 1996 contribution rate for Bell will remain interim until final determinations are made with respect to the company's depreciation life characteristics in the price caps proceeding.

The Commission directs BC TEL, Bell, Island Tel, MTS, MT&T, NBTel and NewTel to issue forthwith revised tariff pages reflecting the contribution rates set out in Attachment A to this Decision.

The final 1996 contribution rates and the Bell interim 1996 rates approved in this Decision differ from the interim 1996 rates currently in effect. The Commission directs the companies to make any necessary adjustments to amounts already billed to entrants, as expeditiously as possible.

As noted earlier, the final 1996 contribution rates for TCI, TCI Edmonton and the blended Alberta rate will be made final in the decision to be issued with respect to TCI's general rate increase application. In addition, the 1996 interim contribution rate approved for Bell in this Decision will remain interim until a final determination is made with respect to depreciation life characteristics in the proceeding initiated by PN 96-8.

IV INTERIM 1997 CONTRIBUTION
CHARGES

In Decision 95-21, the Commission considered it appropriate that contribution charges be reduced to take into account local rate increases. BC TEL, Bell, Island Tel, MTS, MT&T, NBTel and NewTel are directed to issue forthwith interim contribution charges for 1997 taking into account the 1997 local rate increase prescribed in Decision 95-21.

With respect to the 1997 interim contribution charge for TCI, TCI Edmonton and the blended Alberta rate, the Commission will issue further instructions in the decision to be issued with respect to TCI's general rate increase application.

V 1997 ANNUAL CONTRIBUTION
PROCEEDING

In PN 96-8, the Commission stated that the results of several proceedings, including the 1997 contribution charges proceeding, will impact on the final determination of the telephone companies' going-in rates under price caps. In addition, the Commission also stated that the telephone companies' financial forecasts for 1997 would likely have to be updated closer to the 1 January 1998 implementation date for price cap regulation. Therefore, the Commission considers that it would be more efficient to include the annual 1997 contribution charges proceeding with the 1997 follow-up proceeding to finalize the going-in rates for each telephone company. As indicated in PN 96-8, the Commission will set out, in the decision issued pursuant to the price cap proceeding, directions for the follow-up proceeding in 1997.

The Commission notes that TCI Edmonton is not a party to the price cap proceeding. In the circumstances, the Commission will decide at a later date: (a) to issue a public notice, coincident with the directions for the 1997 follow-up proceeding to determine TCI Edmonton's 1997 contribution rates, or (b) once the timing and scope of the 1997 follow-up proceeding, is announced, to roll into the follow-up proceeding the determination of TCI Edmonton's 1997 contribution rates.

Allan J. Darling
Secretary General