Telecom Decision

Ottawa, 7 August 1996

Telecom Decision CRTC 96-6

REGULATORY FRAMEWORK FOR THE INDEPENDENT TELEPHONE COMPANIES IN QUEBEC AND ONTARIO (EXCEPT ONTARIO NORTHLAND TRANSPORTATION COMMISSION, QUÉBEC-TÉLÉPHONE AND TÉLÉBEC LTÉE)

 Table of Contents Pages

 OVERVIEW iii

 I INTRODUCTION 1

 II METHOD OF REGULATION 3

 A. Regulation of Ontario and Quebec 3
Independent Telephone Companies

 B. Regulation of the Public Utility 15
Companies Excluding Cochrane Public
Utilities Commission

 C. Regulation of Abitibi-Price Inc. and 18
Cochrane Public Utilities Commission

 III INTEREXCHANGE COMPETITION 20
AND RELATED ISSUES

 A. Interexchange Competition 20

 B. Equal Access 24

 IV RATE ADJUSTMENTS 25

 V TOLL REVENUE SETTLEMENT 27
MECHANISM

 A. Contribution Charge 27

 B. Calculation of the Contribution 30
Requirement

 C. Recovery of the Start-up Costs for 31
Equal Access

 D. Recovery of Switching and 32
Aggregation Costs (Direct Toll Charge)

 E. 1995 and 1996 Carrier Access 34
Tariffs

 F. Contribution Rate Filing Requirements 34
for 1997 and Subsequent Years

 VI PHASE III METHODOLOGY 36

 A. Status and Use of Phase III Manuals 36
and Procedures

 B. Phase III Results 40

 C. Other Filing Requirements 40

 D. Other Costing Methods 42

 VII LOCAL COMPETITION 43

VIII TARIFF FILING REQUIREMENTS 44
AND TERMINAL EQUIPMENT
FORBEARANCE

 A. Tariff Filing Requirements 44

 B. Terminal Equipment Forbearance 45

 IX EXTENDED AREA SERVICE 48

 A. Extended Area Service Criteria 48

 B. Method for Recovering the Cost of 50
New Extended Area Service Links

 C. Resale of Extended Area Service 51

 X QUALITY OF SERVICE 52

 XI TERMS OF SERVICE 55

 A. General 55

 B. Additional Provisions Applicable to 59
All Independents

 XII CELLULAR ISSUES 61

 A. Forbearance 61

 B. Costing and Marketing Safeguards 64

 C. Access to Cellular Towers and 68
Antennas

 Appendix I

 Appendix II

 Appendix III

 Appendix IV

 Appendix V

 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.)

 On 26 April 1994, as a result of the Supreme Court of Canada's decision in Attorney-General of Quebec et al. v. Téléphone Guèvremont Inc., the independent telephone companies (the independents) in Canada were brought under the Commission's jurisdiction.

 In May 1994, the Commission hired two consultants to review the regulatory regimes for the independents in Ontario and Quebec and to provide recommendations on how to facilitate the transition from provincial to federal jurisdiction. The consultants engaged were Mr. Willie Grieve with respect to the Ontario independents and the late Mr. Jean-Pierre Mongeau with respect to the Quebec independents. The consultants filed their final reports with the Commission on 30 September 1994.

 In the proceeding leading up to this Decision, the Commission examined a number of issues to determine the regulatory framework for the Ontario and Quebec independents subject to this Decision. Notwithstanding the multiplicity of issues, the Commission has established for the independents the minimum regulatory intervention necessary while (i) providing an opportunity for complaint and review when warranted and (ii) complying with the requirements of the Telecommunications Act. The regulatory framework set out herein for these small companies is a lighter form of regulation than that in place, for example, for Stentor-member companies and, in some cases, is a lighter form of regulation than that proposed by the companies themselves.

 In this Decision, the Commission, among other things:

 (1) found that a streamlined incentive form of earnings regulation, with minimal filing requirements, was appropriate for the Ontario and small Quebec independents, including the Public Utility Companies other than the Cochrane Public Utilities Commission (Cochrane);

 (2) approved a rate of return on average common equity for the small Quebec independents in the range of 11% to 13% and increased the width of the return ranges for the Ontario independents to 200 basis points;

 (3) approved, effective 1 January 1997, a competitive interexchange regime in the territories of all the independents in Ontario and Quebec, except Abitibi-Price Inc. (Abitibi-Price), Cochrane and Northern Telephone Limited, based on the terms and conditions established 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 and Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994, subject to certain modifications;

 (4) expressed the preliminary view that the independents should implement annual increases of $2.00 per month per local access line effective 1 January in each of the years 1997 and 1998, in order to reduce their individual contribution requirements;

 (5) approved the use of company-specific contribution rates, effective 1 January 1997, for the independents other than Abitibi-Price and Cochrane;

 (6) stated its intention to issue a public notice to determine the terms and conditions for local competition in the territories of all the independents but not until a decision has been issued with respect to the terms and conditions of local competition in the territories of the Stentor-member companies;

 (7) found that economic studies would not be required for tariff filings for market trials or promotions but would be required under specified conditions for other tariff filings, such as new services or rates;

 (8) made a determination to forbear with respect to the sale, lease and maintenance of terminal equipment but not with respect to terminal equipment provided to two-party, four-party or multi-party services, and inside wiring;

 (9) approved, for the establishment of new Extended Area Service links, the Bell Canada (Bell) criteria modified by the one dollar voting rule for use by the Ontario independents and the criteria in place for Québec-Téléphone and Télébec ltée for use by all the small Quebec independents;

 (10) directed that issues pertaining to quality of service for those independents with less than 25,000 Network Access Service lines be addressed via a complaints procedure;

 (11) approved the use of Bell's Terms of Service, allowing for minor variations;

 (12) approved, except for certain required revisions, the Phase III Costing Manuals and procedures filed by the independents, and approved on a final basis the Ontario Telephone Association and the Association des Compagnies de Téléphone du Québec Phase III Manuals and procedures;

 (13) directed those independents offering cellular services through a division of a company that provides monopoly telephone services to either, as indicated in Regulation of Wireless Services, Telecom Decision CRTC 94-15, 12 August 1994 (Decision 94-15), submit a proposal for forbearance, or comply with the safeguards in Cellular Radio - Adequacy of Structural Safeguards, Telecom Decision CRTC 87-13, 23 September 1987 and Rogers Cantel Inc. v. Bell Canada - Marketing of Cellular Service, Telecom Decision CRTC 92-13, 29 June 1992; and directed any telephone company offering cellular services through a separate affiliate and which is requesting forbearance to file such a request under the terms and conditions established in Decision 94-15; and

 (14) accepted the continuation of the current method of regulation for Abitibi-Price and Cochrane, i.e., the traditional settlement agreement between these companies and the Ontario Northland Transportation Commission (ONTC), until the Commission carries out a separate proceeding for ONTC as noted in Regulatory Framework for the Independent Telephone Companies in Quebec and Ontario (Except Ontario Northland Transportation Commission), Telecom Public Notice CRTC 95-15, 23 March 1995.

 I INTRODUCTION

 On 23 March 1995, the Commission issued Regulatory Framework for the Independent Telephone Companies in Quebec and Ontario (Except Ontario Northland Transportation Commission), Telecom Public Notice CRTC 95-15 (Public Notice 95-15), initiating a proceeding to deal with the regulatory framework for the independent telephone companies (the independents) in Ontario and Quebec, with the exception of the Ontario Northland Transportation Commission (ONTC).

 The Commission outlined, in Appendix I to Public Notice 95-15, the key features of a suggested regulatory framework for the Ontario and Quebec independents. For Québec-Téléphone and Télébec ltée (Télébec), the Commission proposed and decided to use the same basic framework that applies to the Stentor Resource Centre Inc. (Stentor) member telephone companies under the Commission's jurisdiction (see Regulatory Framework for Québec-Téléphone and Télébec ltée, Telecom Decision CRTC 96-5, 7 August 1996 (Decision 96-5)). In addition, the Commission set out in Appendix II to Public Notice 95-15 a number of issues related to the municipal telephone companies.

 The following were made parties to this proceeding: Association des Compagnies de téléphone du Québec inc. (ACTQ); Ontario Telephone Association (OTA); the Ontario independents - Abitibi-Price Inc. (Abitibi-Price), Amtelecom Inc., Brooke Telecom Co-operative Limited, Bruce Municipal Telephone System (Bruce), Cochrane Public Utilities Commission (Cochrane), Coldwater Communications Inc., Dryden Municipal Telephone System (Dryden), Durham Telephones Ltd., Gosfield North Communications Co-Operatives Limited, Hay Communications Co-operative Limited, Huron Telecommunications Co-Operative Limited, Hurontario Telephones Limited, Keewatin Municipal Telephone System (Keewatin), Kenora Municipal Telephone System (Kenora), The Lansdowne Rural Telephone Co. Ltd., Manitoulin Tel Inc., Mornington Communications Co-operative Limited, North Frontenac Telephone Corporation, North Norwich Telephones Limited, North Renfrew Telephone Co. Ltd., Northern Telephone Limited (Northern), Otonabee Telephones Ltd., South Bruce Rural Telephone Company Ltd., People's Telephone Co. of Forest Ltd., Quadro Communications Co-operative Inc., Roxborough Telephone Company Limited, Thunder Bay Telephone (Thunder Bay), Tuckersmith Communications Co-operative Limited, Westport Telephone Co. Ltd., and Wightman Telephone Ltd.; and the Quebec independents - Co-op de téléphone de Valcourt, La Cie de Téléphone de Courcelles Inc., La Compagnie de Téléphone de Lambton Inc., La Compagnie de Téléphone de St-Victor (St-Victor), La Compagnie de Téléphone Upton Inc., La Compagnie de Téléphone de Warwick, Le Téléphone de St-Liboire de Bagot Inc., Le Téléphone de St-Éphrem Inc. (St-Éphrem) , La Corporation de Téléphone de la Baie (1993), Québec-Téléphone, Télébec, Téléphone Guèvremont Inc. (Guèvremont), Téléphone Milot Inc., Compagnie de Téléphone Nantes Inc. and Sogetel Inc. (Sogetel).

 The following parties (interveners) participated in this proceeding: l'Association des câblodistributeurs du Québec Inc., Bell Canada (Bell), CF CABLE TV Inc., Cogeco Cable Canada Inc., fONOROLA Inc. (fONOROLA), Gouvernement du Québec -Ministère de la Culture et des Communications, London Telecom Network, Mr. Gilles A. Marion, Northern Cable Holdings Limited, Ontario Hydro, Ontario Northland Telecommunications (ONT), a division of ONTC, Public Interest Advocacy Centre (PIAC), Rogers Cantel Inc. (Cantel), Sprint Canada Inc. (Sprint) and Unitel Communications Company (Unitel) (formerly Unitel Communications Inc.).

 II METHOD OF REGULATION

 The method of regulation for (i) the Ontario independents, excluding the municipally-owned companies (i.e., the Public Utility Companies) and Abitibi-Price, and (ii) the Quebec independents, excluding Québec-Téléphone and Télébec, is set out in Section A.

 The method of regulation for five (of the six) Public Utilities Companies (PUCs) i.e., Bruce, Dryden, Keewatin, Kenora and Thunder Bay is set out in Section B. The method of regulation for Abitibi-Price and Cochrane (a PUC) is set out in Section C.

 A. Regulation of Ontario and Quebec
Independent Telephone Companies

 1. Rate Regulation

 The Ontario independents and the small Quebec independents are presently regulated on a rate of return basis. In Public Notice 95-15, the Commission suggested a form of price cap regulation for the independents. The Commission noted the workload that regulation could impose, particularly on the smaller independents and stated its desire to minimize this burden. Further, the Commission stated that, although it suggested a regulatory model in Public Notice 95-15, it was prepared to consider other models that might be more appropriate.

 ACTQ did not support a price cap method of regulation for the Quebec independents, submitting that there is no simple price cap model that can be applied to companies of such varied sizes as the small Quebec independents, and that the cost and effort required to implement price cap regulation could not be justified.

 OTA considered the implementation of a price cap regime inappropriate for regulating the independents because of the small size of the companies and the geographic territory they serve.

 The Commission notes that the rates for local service do not reflect the cost of providing that service in the territories of the independents. Recognizing that the benefits of price cap regulation are best achieved when rates are closer to costs and that some type of earnings regulation is required until that time, the Commission finds that earnings regulation continues to be appropriate for the Ontario independents and small Quebec independents and that this method of regulation will continue for the foreseeable future.

 As an alternative to price cap regulation, both ACTQ and OTA proposed forms of rate base/rate of return regulation.

 ACTQ proposed an incentive earnings method of regulation that would tie an independent's actual rate of return on average common equity (ROE) to the company's variation in expenses compared to the average variation of all the Société d'Administration des Tarifs d'Accès des Télécommunicateurs (SATAT) members, i.e., ACTQ Carrier Access Tariff (CAT) participants.

 OTA proposed an incentive-based revenue requirement methodology which included among other things:

 - the use of a rate of return that is 50 basis points below the midpoint of the allowed range in determining the contribution requirement within the context of the annual filing of the CAT;

 - control guidelines on operating expenses and Average Net Investment Base (ANIB); and

 - a deferral account to track certain specific variances in revenues and expenses which either cause the company to exceed the upper limit of the rate of return range or fall below the lower limit of the allowed range.

 Bell submitted that ACTQ had not established any link between the required ROE and, either the growth of Network Access Service (NAS) lines, or the growth of expenses compared to other members of ACTQ and that therefore ACTQ's proposal should be rejected. Bell also submitted that the ROEs of the independents should not be guaranteed through carrier contribution or any other mechanisms.

 With respect to OTA's proposed control guideline for operating expenses (inflation rate + NAS growth), Bell argued that the increase in NAS may bear no direct relationship to expense.

 Bell recommended that, as long as the independents were not subject to price cap regulation, parties be given the opportunity to take part in the review of the annual budgets, construction programs and Phase III procedures of these companies. This view was shared by ONT.

 With respect to OTA's proposal, PIAC submitted that the 50 basis point reduction in the initial rate of return could be offset in all years through a one-time productivity gain of 3%. PIAC submitted that it would be more appropriate to include a 3% productivity gain in the operating expense control guideline.

 The Commission agrees with OTA that it is not appropriate to compare the costs of Local Exchange Carriers (LECs) (i.e., those independents that provide only local exchange service) to one another without consideration of each company's size and state of technological advancement. In addition, the relationship between the expense increase of a company to that of a group of companies may not address its efficiency.

 The Commission notes the concerns of Bell and ONT with a regulatory regime that does not provide for an independent review of budgets and construction programs, particularly because it is primarily these companies that, through the contribution rate, would pick up any shortfall between local rates and the revenue requirement. However, recognizing the size of the Ontario and small Quebec independents, the Commission favours as light a form of regulation as possible, while providing an opportunity for complaint and review when warranted.

 With respect to OTA's proposed guidelines, the Commission agrees with ONT that OTA failed to show, in most cases, that the implementation of the proposed guidelines would provide the independents with adequate incentive to improve their productivity. Further, the Commission considers that these guidelines may be arbitrary in the sense that they highlight only operating expenses, revenues and ANIB for potential review, while leaving out other components of revenue requirement, such as depreciation and interest expense, that may from time to time require study.

 The Commission considers that a carrier would only be required to explain and justify its revenue requirement forecast and associated proposed contribution rate when the contribution requirement, net of the impact of any planned and/or approved local rate increases for the year in question, exceeds the previous year's approved contribution requirement (for details regarding the information to be filed and the timing of the company filings, see Part V, Section F of this Decision).

 The Commission intends generally, subject to interventions or complaints, to accept revenue requirement forecasts and proposed contribution rates that meet the contribution requirement criterion described above.

 As suggested by OTA, the Commission is of the view that the revenue requirement forecast should target a rate of return 50 basis points below the midpoint of the approved range. The Commission considers that the criterion identified above for the explanation and justification of the proposed contribution rate, used in conjunction with an appropriate return range and deferral account for earnings above the maximum allowed return, as described below, provides a regulatory regime which is adequate and not burdensome.

 Accordingly, commencing in 1997, the Ontario and Quebec independents are directed to:

 (a) use a rate of return 50 basis points less than the midpoint of the approved range when preparing their revenue requirement forecasts and CAT calculations; and

 (b) provide explanations and justification supporting their revenue requirement forecasts and CAT calculations if, after netting out the impact of local rate increases as discussed above, the contribution requirement exceeds the previous year's approved contribution requirement.

 2. Financial Issues

 In the suggested regulatory framework set out in Public Notice 95-15, the Commission noted that if a transition period is found appropriate (in the event the Commission were to move to reliance on a form of price cap regulation), the return ranges for both the Ontario and small Quebec independents would be based on their existing allowed rates of return. Further, the ranges would be widened to 200 basis points. For the Quebec independents, the Commission proposed a maximum ROE of 13% as the top of the new 200 basis point range, to be consistent with the maximum ROE of 13% ratified by the Commission for the small Quebec independents in Telecom Order CRTC 95-186, 17 February 1995 (Guèvremont's maximum ROE was set at 13% in Telecom Order CRTC 95-895, 11 August 1995).

 In conjunction with its incentive-based earnings method of regulation, ACTQ proposed a 400 basis point ROE range, whereby the low end of its proposed range would be the midpoint of Bell's approved ROE range. ACTQ considered this to be appropriate because its members and Bell operate in the same geographical territory and are subject to similar variations.

 OTA proposed that a methodology similar to that adopted by the Ontario Telephone Service Commission (OTSC) (in OTSC Order No. 5416) should be put in place to determine the Benchmark Cost of Equity and allowed rate of return ranges for each of the Ontario independents. OTA was of the view that the calculation of the Benchmark Cost of Equity could be done every three to five years or when circumstances dictated an earlier review.

 OTA supported a 200 basis point rate of return range for its member companies, because it would provide the independents with an opportunity to be compensated for the higher risks inherent in serving the rural, remote and high-cost areas which predominantly make up their operating territories.

 Bell submitted that both the ROEs and capital structures of the independents should be in line with prevailing industry norms. Bell further submitted that, for those companies which have capital structures that differ from the industry norm, differences in common equity ratios could be translated into rate of return differentials.

 In reply, ACTQ stated that it recognized that it may be reasonable to use common equity ratio differentials to adjust the ROE of the Quebec independents, provided the companies' business risks are reasonably comparable. However, ACTQ proposed further fine-tuning to take into account the distinctive nature of the independents compared to the Stentor-member companies.

 OTA disagreed with Bell's proposal to adjust the independents' ROE ranges according to the prevailing industry norm for telephone companies. OTA stated that the evidence being relied upon by Bell in reaching its conclusions appears to be based on industry data for only the Stentor companies, and that any comparison between the Stentor-member companies and the independents is not meaningful because of major differences in size, market demographics, cost factors and access to capital to finance telephone company operations.

 In the Commission's view, there is insufficient justification for widening the independents' ROE range to 400 basis points or for tying the ROE for independents to Bell's ROE as suggested by ACTQ. A 200 basis point range, with the regulatory method established herein by the Commission, should provide the carriers with a reasonable opportunity to be rewarded if they are efficient, while minimizing regulatory burden.

 The Commission agrees in principle with Bell's concern that the capital structures of the independents are not in line with prevailing industry norms and with its suggestion that these differences can be translated into ROE differentials. Similarly, the Commission considers that ACTQ's suggestion that the ROE for companies with equity ratios above 70% or below 50% be adjusted downward and upward, respectively, has merit. However, the Commission considers these adjustments to be unnecessarily complicated for the small Quebec independents to implement at this time, due to their size. In the case of the Ontario independents, the Commission notes that the allowed rate of return ranges for those companies, as established by the OTSC, already take into account, among other things, their individual capital structures. Accordingly, no adjustment for this factor is required for the Ontario independents at this time.

 With respect to OTA's request to establish a procedure to determine a Benchmark Cost of Equity on a regular basis, the Commission considers that such a procedure is not warranted and would needlessly add to the regulatory burden of the independents, given that an independent telephone company can file an application with the Commission to change its rate of return range at any time. In the Commission's view, the current ranges for the investor-owned companies (as modified above) serve as an appropriate starting point for the implementation of the regulatory framework approved for the independents.

 The Commission notes that the subscriber-owned companies (now incorporated as co-operatives) were not allowed a return on capital by the Ontario Telephone Act and considers that return ranges for these companies should now be determined. The Commission notes that, in the context of its 1995 CAT filing, OTA assumed for these companies a rate of return which corresponded to the average of the allowed rates of return on average capital for the PUCs. The Commission is of the view that, for the purposes of this proceeding, a return range for the co-operatives set at the average of the ranges established for the PUCs would be a reasonable proxy.

 In view of the foregoing, the ROE range for the small Quebec independents is set at 11% to 13%. The return ranges for the Ontario independents are widened to 200 basis points. The approved return ranges for the Ontario independents are listed in Appendix I to this Decision.

 3. Deferral Accounts

 The Commission notes that ACTQ and those Quebec independents that commented on this issue were not opposed to the use of a deferral account, particularly in view of the fact that deferral accounts for excess earnings were established for the Quebec independents while under the jurisdiction of La Régie des télécommunications du Québec (La Régie).

 OTA, on the other hand, proposed that a deferral account be set up to track certain specific variances in revenues and expenses which either cause a company to exceed the upper limit of the allowed rate of return range or fall below its lower limit. Under OTA's proposal, these amounts would be recorded on an annual basis and tracked over a five-year period.

 The Commission considers that a deferral account to record any excess earnings is a regulatory tool that can complement the earnings regulation method established above.

 The Commission rejects, however, OTA's proposed deferral account because it would be burdensome and the proposal to track certain specific variances in revenues and expenses does not serve the purpose of recording excess earnings for ultimate redistribution. Rather, the Commission directs the Ontario independents to record, as of 1997, and the Quebec independents to continue to record, in a deferral account, any earnings in excess of their respective maximum approved rates of return.

 As local rates are below cost and revenues from the contribution rate recover this shortfall, the Commission considers that any amounts recorded in these accounts commencing in 1997 should be refunded to the various long distance carriers on a pro-rata basis, i.e., based on their share of total minutes carried in the year. The refund would be required to be remitted within three months after year end. An independent which cannot meet the three-month deadline may, up to 60 days before year end, apply to the Commission for an extension of this time limit. This refund procedure shall commence with any excess earnings generated in 1997.

 With regard to balances in deferral accounts, accumulated to 31 December 1994, the Commission directs that, by 7 October 1996, each company with such a balance submit a plan for the disposition of the funds to the Commission. The Commission, on a preliminary basis, is prepared to approve plans that would apply the funds to the improvement of basic local service.

 For any excess earnings deferred in 1995 and 1996, the Commission directs that, by 7 October 1996 and 30 June 1997, respectively, each company with such a balance submit a proposal for the disposition of the funds. The Commission favours a pro-rata refund to long distance carriers for 1995 and 1996, due to the existence of a contribution component in the CAT for these years. Under such an arrangement, excess earnings likely reflect a contribution rate that was higher than required. Companies are required to justify why the deferred amounts should not be refunded in the manner suggested above by the Commission.

 4. Financial Filing Requirements

 Given the method of regulation approved above, the Commission finds acceptable ACTQ's proposal that audited financial statements should be filed by 31 March of each year. This is consistent with Telecommunications Fees Regulations, 1995, Telecom Public Notice CRTC 95-20, 25 April 1995, wherein the Commission stated that it expects carriers to file their most recent annual financial statements on or before 31 March of each year.

 Although the Commission does not consider pro-forma financial statements necessary, forecast financial information supporting the calculation of the proposed CAT will be required when the independents submit their CAT application each year (refer to Part V of this Decision). As noted in Part II, Section A under "Rate Regulation", explanations and justification of the proposed contribution rate will not normally be required if the independents meet the criterion outlined in this Decision.

 With respect to capital expenditures, in order to reduce the regulatory burden on the independents, there will be no formal filing requirements. Rather, the need for further information will be assessed on a case-by-case basis (e.g., to assess the reasonableness of any significant broadband initiatives, or in response to a complaint). With respect to depreciation, consistent with the Commission's Phase I directives, the maximum interval between depreciation studies for the independents should be five years. The Commission finds reasonable OTA's suggestion that its members file, annually, any change to its depreciation life characteristics.

 In addition, each of the independents is required to notify the Commission, as necessary, of any major changes to its accounting policies.

 B. Regulation of the Public Utility
Companies Excluding Cochrane Public
Utilities Commission

 Five (of the six) PUCs in Ontario, namely Bruce, Dryden, Keewatin, Kenora and Thunder Bay, jointly proposed a regulatory model based on a social contract form of regulation whereby the Commission would forbear from exercising powers or performing duties under various sections of the Telecommunications Act (the Act) and would essentially regulate by responding to complaints.

 The Commission is of the view that the proposed forbearance-based social contract form of regulation proposed by the PUCs cannot be adopted at this time. The proposed regime would increase the likelihood of cross-subsidization of competitive services and increase the potential of the PUCs to price their competitive services below cost with the effect of impeding the establishment and continuance of competitive markets and would therefore be contrary to subsection 34(3) of the Act.

 The Commission finds the band-pricing concept proposed by the PUCs to be inconsistent with the Commission's policy of moving rates towards costs. The Commission considers such a policy important in that it sends the proper economic signals and promotes the efficient entry of competitors into telecommunications markets, in keeping with the policy objectives of the Act.

 The Commission concurs with the concerns raised by fONOROLA, Sprint and Unitel that the PUCs' proposed formula for determining the contribution component of the CAT would potentially lead to a contribution rate that would not be just and reasonable for toll carriers and the customers of such toll carriers.

 The Commission is of the view that, with the evolving competitive environment in telecommunications and the multiplicity of players in that market, there are interests which extend well beyond the confines of local concerns and matters such as competitive safeguards should not be under the sole purview of the local service provider.

 The Commission also notes that the absence of tariff regulation for monopoly services would create a regulatory environment where it would be difficult to determine if unjust discrimination exists.

 Therefore, the Commission concludes that the regulatory framework to be applied to the PUCs (except Cochrane) should be identical to that specified for all Ontario independents, giving all subscribers equivalent safeguards under the Act and equivalent access to competitive telecommunications services. Applying the identical regulatory regime to the PUCs will create a single framework for all independents in Ontario and will make that regulatory framework consistent with the policy objectives of the Act.

 The Commission notes that issues particular to municipal ownership, such as the PUCs' income-tax-exempt status, do not represent an impediment to rate-of-return regulation. In the Commission's view, the policy of moving rates towards cost while not imputing income-tax expenses to the rate calculations will have the effect of passing the benefit of the income-tax-exempt status to all ratepayers and thus not deprive the PUCs' subscribers of the main benefits of municipal ownership.

 The Commission also notes that prior to coming under the Commission's jurisdiction, the PUCs were regulated by the OTSC, which applied an imputed capital structure and a return on average capital range for each of the PUCs to emulate investor-owned companies. The Commission considers that the PUCs' differing capital structures and lower cost of debt were appropriately reflected in the OTSC's rate of return on average capital mechanism. The Commission does not foresee any difficulty in continuing to apply such a regime.

 Further, the rate of return on average capital ranges employed by the OTSC will be widened to 200 basis points. In reaching this conclusion, the Commission does not agree with OTA's suggestion that the PUCs' allowed ranges should be narrower due to a relatively lower risk. The approved return ranges for the PUCs are set out in Appendix I to this Decision.

 As described above for the other independents, the PUCs will be required to record any excess earnings in a deferral account and file limited financial information. As well, the PUCs will be required to use a rate of return 50 basis points below the midpoint of their approved range when determining the CAT and would only be required to provide explanations and justification supporting the CAT filing under the conditions described in Part II, Section A for the Ontario and small Quebec independents.

 C. Regulation of Abitibi-Price Inc. and
Cochrane Public Utilities Commission

 As part of its initial submission of 23 May 1995, OTA noted that Cochrane and Abitibi-Price had provided additional comments relating to their individual circumstances, but that their comments were intended to supplement OTA's submission on the regulatory framework for the Ontario independents, which was filed on behalf of all its members.

 Cochrane noted that it is unique in that it is operated as a department within the operation of a public utilities commission. Cochrane, noting that it consists of four departments: electric, water, sanitary sewer and telephone, submitted that it requires time to ensure that its records allow for an accurate costing process. In addition, Cochrane stated that local rates should be approved by the locally-elected Commissioners, arguing that they represent the customers who elected them, and that therefore there is no incentive to abuse the subscribers as in a monopoly. Cochrane stated that the role of the Commission should be that of regulator of last resort. In Cochrane's view, the Commission should not duplicate the efforts of locally-elected officials representing the best interests of the ratepayers.

 Cochrane recommended, among other things, that the Commission (1) recognize the uniqueness of every telephone company in making its final decision in this proceeding; (2) forbear from regulating Cochrane's local and cellular services; and (3) ensure that local rates are not forced up by regulation, but change through the evolution of the industry.

 Abitibi-Price stated that it operates its Mill Business Unit as several businesses (newspaper, telephone, power, etc.); however, that there is only one asset ledger. Abitibi-Price stated that it would need time to separate all assets related to telephone operations. Until that process is completed, Abitibi-Price argued that it should be excluded from the CAT.

 No specific comment was received from Cochrane or Abitibi-Price on the issue of widening their respective ROE ranges.

 The Commission recognizes the unique circumstances facing Abitibi-Price and Cochrane, and accepts the continuation of the current method of regulation for Abitibi-Price and Cochrane, i.e., the traditional settlement agreement between these companies and ONTC until the Commission carries out a separate proceeding for ONTC as noted in Public Notice 95-15. In view of this, and the fact that these companies do not presently have separate telephone company records, but rather are operated as separate divisions, Abitibi-Price and Cochrane will not be required to file forecast CAT and associated supporting financial information as is the case for the other OTA members. However, the Commission requires these two companies to continue to file financial statements by 31 March following each fiscal year.

 Issues related to capital expenditure and depreciation filings, Commission notification of any major changes to these companies' accounting policies, and the appropriate width of their respective ROE ranges will be dealt with when the Commission carries out the separate proceeding for ONTC noted above.

 III INTEREXCHANGE COMPETITION AND
RELATED ISSUES

 A. Interexchange Competition

 1. General

 The Commission notes that parties were generally in favour of the competitive regime proposal set out in Public Notice 95-15.

 The Commission is of the view that resellers and interexchange carriers (IXCs) should be allowed to compete in the territories of the independent companies which are subject to this Decision. Accordingly, the Commission approves, effective 1 January 1997, a competitive interexchange regime in the territories of all the independents in Ontario and Quebec, except Abitibi-Price, Cochrane and Northern, based on the terms and conditions established 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 Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994 (Decision 94-19), subject to the modifications detailed below. These modifications are necessitated by the uniqueness of the independents with respect to serving areas, services offered, size and/or ownership arrangements.

 IXCs and resellers are required to register with the Commission and with the telephone companies in whose territories they intend to operate. IXCs and resellers are to be prepared, if requested to do so by the telephone company in question, to provide pertinent traffic statistics that may be required for billing purposes and for calculating the CAT rates.

 2. Application of the Carrier Access Tariff

 Traditionally, Bell has made the independents in Ontario and Quebec financially whole, previously through the use of a revenue sharing agreement and more recently through the establishment of a CAT which is applied to all switched voice and data traffic. In Quebec, the CAT is also applied to non-switched traffic. The Commission notes that the existing contribution charges for the independent telephone companies are significantly higher than the contribution charge for Bell. The Commission is of the view that there is merit, therefore, in recovering the local/access shortfall from as much traffic as possible in order to reduce the per-minute contribution rate. However, the Commission has concerns with the existing agreement between Bell and the independents in Quebec whereby contribution is paid on all traffic, including traffic that is not switched on the Public Switched Telephone Network (PSTN). The Commission considers that such an arrangement could have a negative impact on competitors when determining their optimal network configuration. To the extent that competitors make use of dedicated facilities to provide point-to-point services, this should be permitted without the competitors having to pay contribution. Accordingly, the Commission is of the view that contribution should be paid on all switched voice and data traffic that is interconnected to the PSTN.

 With respect to the collection of contribution from interexchange competitors, the Commission is concerned with contribution being paid twice on services which are being resold. Therefore, where an independent already collects contribution on the underlying resold services used by a reseller to carry traffic, that reseller need not pay contribution to originate and/or terminate traffic in that independent's operating territory.

 Accordingly, the Commission approves the payment of contribution on all interexchange public switched voice and data traffic that is interconnected to the PSTN. Canadian carriers providing wireless services are not required to pay contribution on such services. Where a reseller resells switched long distance services for which contribution is paid, those resold minutes will be exempt from contribution. Competitors are to make use of the existing Commission contribution exemption process for situations where they are not required to pay contribution on their traffic.

 3. Adjustments to the Carrier Access Tariff
- Contribution Discounts and Direct
Access Line Loading Factors

 The Commission is of the view that, at this stage in the development of the interexchange market, the existing IXCs are well established and that discounts are not necessary to promote competition in the territories of the independents. With respect to resellers, the Commission is of the view that a 15% discount is appropriate for line-side access in the territories of all the independents in light of the inferior quality of this service.

 In order to achieve the Commission's stated objective of reducing the contribution rate by recovering contribution from as much traffic as is reasonable, the Commission is of the view that all switched traffic, including stimulated traffic minutes, should be included in the contribution rate calculation.

 With respect to the treatment of Direct Access Lines (DALs), the Commission is of the view that since the appropriate means to apply the contribution mechanism is based on a per-minute charge, it is appropriate to impute a usage figure for DALs as is currently done by the OTA and ACTQ in their contribution rate calculations. The imputed figure for DALs is included in the total minute count of switched interconnected traffic. With respect to the proxy figure to use, the Commission is of the view that 8,000 minutes per month per DAL, as is currently used in the agreements between Bell and the independents, is a reasonable approximation at this time.

 B. Equal Access

 The competitive regime established by the OTSC in Ontario, and the interim competitive regime established by the Commission in Quebec, did not address the issue of equal access. While parties were in support of providing equal access, there were differing views with respect to the timing of its implementation and the responsibility for recovering the associated cost.

 The Commission is of the view that equal access is important to encourage the spread of competition and that it should be implemented where technologically feasible (as per Decision 92-12). As well, the Commission notes that equal access can be achieved in certain cases through the Bell toll switch serving the independent territory, with a probable reduction in the independent's cost of implementing equal access. Accordingly, by 1 January 1998, the independents are directed to implement equal access, defined as Feature Group D with CCS7 signalling, where technologically feasible. Each independent is to file an equal access roll-out plan with the Commission by 1 January 1997, indicating in which exchanges equal access will be implemented and by what date. For those exchanges that will not be converted by 1 January 1998, the independent is to provide a reason why equal access will not be implemented by that date and when it is expected to be.

 Further, the Commission is of the view that it is necessary to establish Primary Interexchange Carrier (PIC) and Customer Account Record Exchange (CARE) procedures similar to those established for Stentor-member companies, prior to the implementation of equal access. The Commission will not require the independents to establish a Carrier Services Group, as long as these companies do not offer long distance service themselves. The independents are directed to establish a PIC/CARE process prior to implementing equal access. All companies are directed to file by 1 August 1997, for approval, the appropriate tariffs and a PIC/CARE Access Customer Handbook associated with the PIC/CARE process.

 IV RATE ADJUSTMENTS

 The Commission notes that, with the introduction of competition in Bell's operating territory, subscribers of all the independent telephone companies have benefited from lower rates for long distance services as well as from the availability of alternative providers of long distance service in some independents' territories.

 The Commission notes that there has been no pressure to increase the local rates of the independents because the financial viability of these small companies (1) has in the past been ensured by the revenue settlement process with Bell and (2) is currently ensured through the independents' CAT.

 The Commission agrees with parties that local rates will need to be more reflective of underlying costs, particularly if there is to be effective local competition. Further, the Commission considers that rate increases are necessary to reduce the individual contribution requirements of the independents. The Commission notes, however, that those parties supporting local rate increases did not comment on the level and timeframe for implementing such increases.

 The Commission is of the preliminary view that the independents, including the PUCs, should be required, like the Stentor-member companies, to increase their local rates by a total of $4.00 per month in two stages. The $4.00 per month increase per subscriber being proposed would not be required in those cases where an independent's contribution requirement has been reduced to zero or where a particular local rate is already compensatory.

 Accordingly, the Commission is of the preliminary view that annual increases of $2.00 per month per local access line should be implemented by the independents effective 1 January in each of the years 1997 and 1998. In order to allow public input on this preliminary view, the companies are directed to notify subscribers, through a billing insert, of the proposed local rate increases and to outline the procedures to be followed by subscribers who wish to comment and for company replies. The companies are directed to file the proposed text of the billing insert by 23 August 1996. The Commission encourages the independents to file, where applicable, one billing insert through their respective associations. The companies are directed to file, by 1 September 1996, proposed tariff pages for local rate increases that are consistent with the above, to take effect 1 January of each of the years 1997 and 1998. The companies are also directed to distribute the billing inserts to their subscribers by 30 September 1996. Following an assessment of comments received, the Commission will make its final determination.

 V TOLL REVENUE SETTLEMENT
MECHANISM

 A. Contribution Charge

 In its 23 May 1995 submission, OTA proposed an OTA Blended CAT, whereby a single contribution rate would be established for the Ontario independents and Bell, effective 1 January 1996. OTA subsequently revised its proposal to include the Quebec independents. The revised Blended Cat would be collected on an industry-wide basis and distributed to the independents through funds administered by their respective associations. ACTQ proposed a single contribution rate for the Quebec independents based on the blending of their contribution rates.

 The Commission notes that industry-wide contribution rates, as suggested by OTA and ACTQ, would average the net local/access shortfalls across all independents, even though the revenues and cost structures of these companies vary widely. Consequently, any form of an industry-wide contribution rate would be an average which would not be representative of the operational performance of any of the independents. Hence, the link between an independent's cost of providing local service and its contribution rate would be broken, resulting in low-cost areas subsidizing high-cost areas. This would be contrary to the Commission's principles of making rates more reflective of costs and of fostering an environment in which local and long distance service providers can compete.

 Further, the Commission considers that any management decision made by an independent regarding revenues or costs would be directly reflected in a company-specific contribution rate (as opposed to being lost in a blended contribution rate). Consequently, the company-specific contribution rate would serve as a "barometer" of company performance vis-à-vis revenues and costs, as well as reflect the real economic conditions within which prospective alternative toll providers would compete.

 In light of the above, the Commission concludes that the most appropriate method of settling contribution payments between the independents and their toll providers is through company-specific contribution rates. This will ensure cost-based rates, eliminate the possibility of cross-subsidization, make the contribution rates "barometers" of the real operational performance of the independents and ensure that prospective toll competitors are given realistic economic signals regarding the competitive environment in the independents' territories. Accordingly, the Commission directs that company-specific contribution rates be implemented starting 1 January 1997.

 Further, the Commission is of the view that no true-up provisions should be included in the company-specific contribution rates. The Commission notes that this would be in line with its position in Contribution Charges Effective 1 April 1993, Telecom Decision CRTC 93-11, 29 July 1993, where it stated that it was not in favour of making adjustments to the contribution charges during the year, except under extraordinary circumstances, and in which it adopted the contribution mechanism with the intention of keeping ongoing regulatory intervention and involvement to a minimum.

 The Commission notes that the PUCs proposed a formula to use Bell-based contribution levels, combined with the proposal to implement rates within a band of 75% to 100% of the Bell-equivalent rates, for determining contribution rates specific to each PUC. However, the Commission shares a number of the concerns raised by OTA, Bell and Sprint regarding this proposal. Particularly, the Commission notes that the PUCs' formula would determine contribution rates that would not be based on the PUCs' costs. Also, the PUCs' proposal would depart from the purpose of contribution, which is to offset unavoidable revenue shortfalls resulting from the provision of access and local services. The proposal would break the relationship between the unsatisfied revenue requirement and the level of contribution.

 As part of the annual CAT filings required of the independents, the annual development of forecast originating and terminating toll minutes in the territories of each of the independents will be required. The Commission is of the view that these minutes should be estimated and agreed to by both the independents and their toll providers. Also, the Commission is of the view that the collection of contribution should be based on actual toll minutes, or in the case where actual minutes cannot be obtained, on the basis of an agreed-to estimate between the independents and their toll providers.

 The Commission notes that its decision does not preclude the independents' associations from doing the work associated with preparing/estimating the company-specific contribution rates and/or estimating the toll conversation minutes. However, should an independent retain the services of its association, the Commission is of the opinion that the company-specific contribution rates should reflect the costs to that independent for services rendered by its association, since these costs would have been incurred by that independent even if the task were carried out in-house.

 B. Calculation of the Contribution
Requirement

 The Commission is of the view that a consistent approach to calculating the contribution requirement will be easier to administer.

 The Commission notes that as a result of its decision to forbear from the regulation of terminal equipment (see Part VIII of this Decision), the surplus/shortfall in the Competitive Terminal Broad Service Category (BSC) should be excluded from the contribution requirement calculation.

 The Commission further notes that in order to be consistent with previous decisions it has made with respect to the Stentor-members' cellular operations, it directs the independents to also exclude revenues, investment and expenses from cellular operations, including an attributable portion of common costs, from the contribution requirement calculation. Companies which provide cellular service as part of their operations are directed to provide details on the methodologies used to exclude cellular operations from the contribution and revenue requirement calculations at the time of their respective 1997 contribution filings.

 Details as to the methodology to be used by the independents in Ontario and Quebec, excluding Abitibi-Price and Cochrane, in order to calculate their respective contribution requirement are set out in Appendix II.

 C. Recovery of the Start-up Costs for
Equal Access

 To provide interconnection to the toll carriers, the independents will have to modify their networks, systems and procedures which will cause additional costs to be incurred. Start-up costs, such as the cost of modifying switches, will occur once, generally near the outset of competitive entry.

 The Commission notes that the PUCs proposed to use the equal access component of the 1997 OTA CAT for the years beyond 1997. The Commission rejects the PUCs' proposal because it would result in rates which would not reflect the individual PUCs' costs but rather an average of the OTA members' costs in 1997.

 The Commission notes that the independents assign to the Toll BSC the ongoing costs they incur to connect IXCs to their networks. With the implementation of equal access for the use of IXCs and their customers, the Commission considers it reasonable for the independents to also assign the costs of implementing equal access to the Toll BSC and to provide for the recovery of those costs over a ten-year period. The Commission notes that assigning the start-up costs of equal access to the Toll BSC is different from the practices approved for Stentor-member companies which assign these costs to the Utility segment. However, the Commission finds that a single rate for the recovery of the start-up costs of equal access and switching and aggregation costs based on Phase III costs, as outlined in Section D below, will be easier for the small independents to implement because it will make use of a costing approach that is already in place.

 Accordingly, the Commission directs the small independents to assign the start-up costs of equal access to the Toll BSC and to provide for the recovery of those costs over a ten-year period.

 D. Recovery of Switching and Aggregation
Costs (Direct Toll Charge)

 Switching and aggregation costs are ongoing costs primarily associated with aggregating and terminating competitors' traffic for delivery to and from the toll carriers' networks. Other ongoing cost components are associated with customer and operator services and carrier billing functions.

 The Commission has concerns with the PUCs' proposal to use the Direct Toll component of the 1997 OTA CAT for the years beyond 1997. The PUCs' proposal would result in the Commission approving rates which do not reflect the PUCs' costs but which instead would reflect an average of the OTA CAT members' switching and aggregation costs in 1997.

 The Commission is of the view that while a Phase II costing approach was used to determine switching and aggregation costs in Decision 92-12, this same approach should not be imposed on the small independents. Rather, the Commission supports the small independents' current practice of equating switching and aggregation costs to the costs they currently assign to the Toll BSC.

 The Commission notes that as a result of its directive to assign equal access start-up costs to the Toll BSC (Part V, Section C of this Decision), the Toll BSC will now contain both switching and aggregation and equal access start-up costs.

 The Commission notes that switching and aggregation functionality and equal access are used only by toll providers with trunk-side access to the telephone company's switch. Accordingly, the Commission is of the view that the small independents' combined charge for switching and aggregation and equal access should be calculated using originating and terminating minutes associated with trunk-side access to the switch, and should be applied only to trunk-side traffic.

 The Commission directs each of the independents to file, as part of their annual CAT filing, from 1997 onwards, a single company-specific rate for the recovery of switching and aggregation and equal access start-up costs. The rate is to be calculated in accordance with the principles set out above.

 E. 1995 and 1996 Carrier Access Tariffs

 Details concerning the 1995 and 1996 OTA and Northern CATs are set out in Appendix III. Matters relating to the 1995 and 1996 CATs for the small Quebec independents are set out in Appendix IV.

 F. Contribution Rate Filing Requirements
for 1997 and Subsequent Years

 With respect to the CAT-related filing requirements of the independents for 1997 and subsequent years, the Commission has endeavoured to strike an appropriate balance between the need to minimize the regulatory burden on the independents and the need for sufficient information to permit the Commission to adequately monitor the companies and ensure that rates remain just and reasonable. In so doing, the Commission is cognizant of the views of the independents that filing requirements should be kept to a minimum, taking into account their available resources and size.

 For 1997 and subsequent years, the independents are directed to file for each calendar year company-specific CATs and supporting information by 31 January of the same calendar year. Until the Commission approves the company-specific CATs for each calendar year, and in order to reduce the regulatory burden on the small independents, the Commission directs that the previous year's CATs become the interim CATs for the calendar year in question. The 31 January filings are to include the supporting information for the proposed contribution rate and combined switching and aggregation and equal access charge as follows:

 (1) forecasts of total originating and terminating switched toll conversation minutes, and a breakdown of that total into trunk-side and line-side traffic;

 (2) budget views by BSC or equivalent; and

 (3) forecast contribution and revenue requirements.

 As noted earlier, the Commission will require an independent to provide explanations and justification supporting its revenue requirement forecasts and contribution calculations if, after accounting for local rate increases as discussed in Part II, Section A, its contribution requirement exceeds the previous year's approved contribution requirement. In order to do this for the first year under the new contribution regime, the Commission will need to establish a 1996 base for comparison with 1997. Accordingly, the Commission directs the independents to file, by 31 January 1997, the following information to be based on 10 months of actuals and two months of forecast data:

 (1) an estimate of 1996 total originating and terminating switched toll conversation minutes, and a breakdown of that total into trunk-side and line-side traffic;

 (2) 1996 budget views by BSC or equivalent; and

 (3) estimated 1996 contribution and revenue requirements.

 The forecast 1996 contribution requirement will serve as the base for comparing with the applied for contribution requirements for 1997. For 1998 and subsequent CAT filings, the comparison will be made between the contribution requirement specified in the independent's current CAT filing and the contribution requirement approved by the Commission following its examination of the independent's previous year CAT filing.

 VI PHASE III METHODOLOGY

 A. Status and Use of Phase III Manuals and
  Procedures

 Just after the independents were brought under the Commission's jurisdiction in April 1994, the Commission approved, in Telecom Order CRTC 94-883, 29 July 1994, all past Orders of the OTSC, thereby granting interim approval to the OTA Phase III costing methodology which had been granted interim approval by the OTSC.

 During the course of this proceeding, ACTQ, on behalf of its members which were ACTQ CAT participants at that time, filed its proposed Phase III Manual.

 The Commission notes that three OTA members, i.e., Cochrane, Abitibi-Price and Northern are not OTA CAT participants. Cochrane and Abitibi-Price did not want to use Phase III procedures, preferring instead to use their existing settlement arrangements with ONTC. Northern, on the other hand, uses the OTA Phase III procedures to derive a separate Northern CAT for its toll settlement with ONTC which was granted interim approval in Telecom Order CRTC 95-465, 13 April 1995.

 The PUCs, except Cochrane, stated in their 13 October 1995 comments that, in order to meet contractual obligations, they would continue to participate in the OTA CAT for settlement purposes, but would not rely on the OTA Phase III methodology after 1997.

 The Commission notes that three ACTQ members, Guèvremont, St-Éphrem and St-Victor are not ACTQ CAT participants. However, both St-Éphrem and St-Victor now use the ACTQ Phase III procedures.

 The Commission concurs with the view of most parties that a Phase III type costing methodology should be used by all independents as the basis for calculating a CAT for each company on a consistent basis. The Commission considers that the Phase III procedures currently used by the OTA and ACTQ CAT participants as well as Northern, for CAT development purposes, generally parallel those established by the Commission for the Stentor-member companies. Except for certain revisions, the Commission finds the procedures contained in the OTA and ACTQ Phase III Manuals acceptable for use in the production of the Phase III results used to develop the CAT. Accordingly, the Commission grants final approval to the OTA and ACTQ Phase III Manuals, subject to certain revisions set out below.

 The Commission is of the view that any approved change to the Stentor-members' basic Phase III costing concepts for investment and expenses should generally be adopted by the independents. In this regard, the Commission notes that with respect to the directives on switching procedures specified in Review of Phase III of the Cost Inquiry, Telecom Decision CRTC 94-24, 18 November 1994 (Decision 94-24), ACTQ indicated it was prepared to make the necessary changes. OTA, on the other hand, did not endorse the revised procedures and noted that different rules may be more appropriate for the Ontario independents' Phase III costing purposes.

 The Commission considers that switching investment, which is a major cost component, should be assigned consistently by all telephone companies, in accordance with the switching assignment procedures specified in Decision 94-24.

 The Commission also considers that a consistent format should be used by all independents in the presentation of their actual Phase III results in order to equate the results to each company's audited financial statements. Therefore, in order to achieve consistency in the format of Phase III results, the OTA and ACTQ members as well as the PUCs which are CAT participants are directed to present their actual Phase III results in a manner that ensures the results equate to each member's audited financial statements. In particular, revenues, investment and expenses related to cellular and terminal operations are to be included in the Network and Terminal BSCs, respectively.

 The Commission notes that the format requirements for the reporting of Phase III results are not intended to reflect each company's regulated rate base for the purpose of assessing revenue requirement.

The Commission also notes that the changes to the Phase III Manuals described above are to be reflected in the production of each independent's actual 1995 Phase III results. Therefore, on behalf of their members and/or CAT participants, the OTA and ACTQ are directed to file, within 60 days, updated pages to their Phase III Manuals which reflect the required changes noted above.

The Commission notes that Guèvremont has yet to file its Phase III procedures. Guèvremont is directed to advise the Commission, within 30 days of the date of this Decision, of the method it expects to use to derive a CAT and when it expects to file the supporting documentation.

With respect to the PUCs' proposal to discontinue using the OTA Phase III costing procedures to calculate a CAT after 1997, the Commission considers that any alternative proposal to replace the OTA Phase III costing methodology should be subject to a review process prior to implementation to ensure that Phase III cost causality principles are maintained.

As for the implementation of the Phase III methodology by Abitibi-Price and Cochrane, the Commission considers that their current settlement arrangements with ONTC are acceptable, pending the Commission's review of a regulatory framework for ONTC.

 B. Phase III Results

 As noted in Part V of this Decision, the independents will be filing forecast financial information supporting their CAT calculations at the time the CAT applications are filed. Therefore, in lieu of a detailed Phase III forecast, OTA members, the PUCs and ACTQ members, excluding Télébec and Guèvremont, are directed to file forecast financial data at a BSC level or equivalent to support the local/access shortfall on which the contribution requirement is based.

 All independents, except Guèvremont, are directed to file their respective actual Phase III results, for the calendar year 1995, by 31 October 1996 and on the same date for subsequent years.

 The Commission will make a determination on the applicability of the aforementioned Phase III filing requirements for Guèvremont, including the audit, update and accounting manual filing requirements set out below, once it has reviewed the company's proposed costing methodology used in deriving a CAT.

 C. Other Filing Requirements

 The Commission notes that the Stentor companies file updates to their respective Accounting and Phase III Manuals. The Phase III Manual updates are subject to a public process in accordance with Bell Canada and British Columbia Telephone Company - Phase III Manuals: Compliance with CRTC Telecom Public Notice 1986-54 and Telecom Order CRTC 86-516, Telecom Decision CRTC 88-7, 6 July 1988, as amended by Proposed Revisions to the Phase III Manual Update Procedure, Telecom Letter Decision CRTC 89-26, 1 December 1989 and by Decision 94-24.

 Similarly, the Commission considers that the independents will be required to update their respective Accounting Manuals (or equivalent) and their Phase III Manuals. In this regard, each OTA and ACTQ CAT participant is directed to file with the Commission, within 30 days, one copy of the most recent edition of its Accounting Manual or equivalent (which may be filed on their behalf by their respective associations, as applicable) and to file annual updates thereafter, as necessary, coincident with the filing of Phase III Manual updates as set out below.

 With respect to the filing of Phase III Manual updates by the independents, the Commission notes that, given their size, the volume of updates will be significantly lower than that required of Stentor-member companies. Furthermore, the Commission considers that a scheduled public process should only apply to toll carriers. Therefore, the Commission considers that one annual submission, filed on or before 31 March of the following calendar year, is appropriate. Interested parties may register with the Commission to receive amended pages as filed.

 The Commission notes that annual audits of Phase III results are required for Stentor companies. With respect to the independents, taking into account the size of these companies and parties' comments on this matter, the Commission considers that audits would be costly and burdensome for them. Therefore, the Commission directs that an initial review of each company's Phase III results is to be undertaken. This initial review is intended to confirm that the Phase III procedures, documented in the Phase III Manuals, are being appropriately employed to derive the Phase III results. In the Commission's view, the reviews applicable to members of OTA and ACTQ may be conducted by knowledgeable staff designated by their respective associations, as applicable, in consultation with those members which are CAT participants. The PUCs are also directed to conduct reviews on a corresponding basis. In light of the number of Phase III results to be reviewed, the Commission considers that this activity may be scheduled over the two-year period commencing 1 January 1997. Accordingly, each company is directed to notify the Commission that initial reviews have been completed when they file their actual Phase III results each year on 31 October 1997 or 1998 as applicable. Thereafter, the Commission considers that reviews may be conducted on an exception basis or as deemed necessary by the Commission.

 D. Other Costing Methods

 On the basis of its review of the positions taken by the PUCs, Abitibi-Price and Cochrane, the Commission maintains its support for a consistent Phase III-type costing procedure. However, the Commission considers that it may not be appropriate to expect LECs to support a full-fledged Phase III costing system, particularly if the companies are not affiliated with an association with the relevant expertise. Therefore, the Commission is of the view that in cases where it can be demonstrated that there is a need to consider alternatives, it will consider them on the basis of cost causality principles.

 VII LOCAL COMPETITION

 In Decision 94-19, the Commission endorsed the principle of local competition for the Stentor-member telephone companies, expressing the view that local competition will lead to benefits such as productivity improvements and the introduction of even more innovative services. Consistent with this view, the Commission, in Public Notice 95-15, proposed that local competition be permitted in the territories of all independents in Quebec and Ontario (except ONTC), noting that issues such as unbundling and co-location would have to be considered.

 Most parties agreed with the Commission's proposal in principle, subject to certain concerns being addressed. Accordingly, the Commission is of the preliminary view that local competition should be allowed in the territories of the independents.

 As part of a future proceeding to address local competition for the independents, the Commission will examine whether further rate adjustments would be appropriate. At that time, the Commission will have the benefit of input from the proceeding initiated by Local Service Pricing Options, Telecom Public Notice CRTC 95-49, 22 November 1995 (Public Notice 95-49). The Commission notes that the independents were encouraged to participate in the proceeding initiated by Public Notice 95-49.

 However, the Commission notes that there is currently a proceeding underway to determine the terms and conditions of local competition as it relates to the Stentor-member telephone companies (Implementation of Regulatory Framework - Local Interconnection and Network Component Unbundling, Telecom Public Notice CRTC 95-36, 11 July 1995). The Commission considers that it would not be appropriate to commence a proceeding to deal with the issues of local competition in the territories of the independents until a decision has been issued with respect to the terms and conditions of local competition in the territories of the Stentor-member telephone companies. Following the release of such a decision, the Commission intends to issue a public notice to determine the applicability of those terms and conditions for local competition in the territories of the independents.

 VIII TARIFF FILING REQUIREMENTS AND TERMINAL EQUIPMENT FORBEARANCE

 A. Tariff Filing Requirements

 The Commission notes that the Act provides that no Canadian carrier shall provide a telecommunications service except in accordance with a tariff filed and approved by the Commission. In this Decision, the Commission has set out the conditions for forbearance from the regulation of cellular services and terminal equipment provision for the independents. Therefore, for telecommunications services other than those which the Commission has determined meet the conditions for forbearance, the independents are required to continue to file tariffs, for approval, but will only be required to file economic studies (1) in support of filings for new services; (2) when proposing rates for a service that are not comparable to rates approved by the Commission for other telephone companies offering the same service; (3) for rate reductions, where there are concerns that rates may not make an appropriate contribution to the local/access shortfall; and (4) where there is a potential for anti-competitive pricing.

 With respect to market trials and promotions, the independents in general requested that the Commission take a flexible approach. The Commission notes that, while tariffs will continue to be required for these services, it is open to the consideration of market trial and promotion tariffs which provide a degree of flexibility for such offerings. Economic studies will not be required for market trials or promotions and the Commission will also endeavour to deal with such filings on an expedited basis.

 A summary of the filing requirements for the small independents, including those relating to tariffs, is provided in Appendix V of this Decision.

 B. Terminal Equipment Forbearance

 The Commission agrees with ACTQ, OTA and the PUCs that a competitive environment exists with respect to terminal equipment and that regulatory oversight of the activities of the independents in this market is neither warranted nor desirable.

 In Forbearance - Sale of Terminal Equipment by Canadian Carriers, Telecom Decision CRTC 94-14, 4 August 1994 and in Decision 94-19, the Commission made a determination to forbear, for the Stentor-member companies, with respect to the sale, lease and maintenance of the Competitive Terminal - Other (CT-O) category (single - line telephones and accessories) and the Competitive Terminal - Multiline & Data (CT-MD) equipment category (includes key systems, PBXs and data equipment). The Commission noted the concern about possible cross-subsidies from monopoly services to terminal equipment services and anti-competitive pricing. In Decision 94-19, however, the Commission noted that, once the rate base has been split, the ability of the Stentor companies to cross-subsidize or engage in anti-competitive pricing initiatives with revenues from monopoly services will be largely eliminated.

 With the establishment of an accounting separation for terminal equipment, the Commission finds, pursuant to subsection 34(1) of the Act, that to forbear from regulating, as specified below, with respect to the sale, lease and maintenance of CT-O and CT-MD equipment, is consistent with Canadian telecommunications policy objectives. Further, pursuant to subsection 34(2) of the Act, the Commission finds that these services are subject to sufficient competition to protect the interest of users, so that forbearance is appropriate. Finally, with respect to subsection 34(3) of the Act, the Commission finds that to forbear is unlikely to impair unduly the continuation of a competitive market for these services.

 Accordingly, pursuant to section 34 of the Act, the Commission hereby refrains, with respect to the sale, lease and maintenance of CT-O and CT-MD equipment, from the exercise of powers and the performance of duties with respect to sections 24, 25, 31, and subsections 27(1), (2), (4), (5), and (6) of the Act.

 The Commission's decision to forbear does not apply to (1) terminal equipment supplied on a monopoly basis, more specifically to equipment required by tariff to be supplied by the telephone companies in conjunction with the provision of two-party, four-party or multi-party primary exchange services and (2) single-line residence and business inside wiring.

 The independents are directed to file tariffs deleting reference to the sale, lease or maintenance of terminal equipment, as described above, upon approval by the Commission of a filing by each company or its association indicating that it has complied with the requirement to separate competitive terminal equipment assets, revenues and expenses from its rate base and shortfall determination.

 The Commission notes that some independent telephone companies currently offer services which bundle competitive terminal equipment with monopoly services; for example, terminal display sets combined with Call Management Services. The Commission requires those companies to file tariff revisions which unbundle terminal equipment from such service offerings at the same time that terminal equipment tariffs are deleted.

 IX EXTENDED AREA SERVICE

 A. Extended Area Service Criteria

 In Public Notice 95-15, the Commission noted that with respect to Extended Area Service (EAS), the current criteria for the establishment of EAS links in Bell's territory are:

 (1) at least 60% of subscribers in one exchange must call customers in the other exchange at least once a month, for two months in a twelve-month period, referred to as community of interest (COI) criterion;

 (2) the distance between the exchanges' switching centres must not exceed 40 miles or 64 kilometres; and

 (3) a simple majority of subscribers experiencing a rate increase as a result of a new EAS link must agree to the implementation of EAS.

 In Public Notice 95-15, the Commission proposed that the above approach also apply to the establishment of new EAS links within the territories of the other independents, or between their territories and that of a neighbouring telephone company.

 The Commission notes that, for the Ontario independents, the Commission currently uses the Bell criteria, and as well has applied the one dollar voting rule introduced in Quebec.

 The Commission notes that most of the Ontario independents supported the use of the Bell criteria and the one dollar voting rule. Therefore, the Commission approves, for the Ontario independents, the Bell criteria modified to require a vote in the exchanges where the associated individual-line residential rate increase would be greater than one dollar per month.

 With respect to the Quebec independents, the Commission notes that there are two EAS standards, depending on whether the independent telephone company is linked to a Bell exchange or to another independent's exchange. In the case of an EAS link to a Bell exchange, the Bell criteria apply, and in the case of an EAS link to Québec-Téléphone and Télébec, the criteria established in Québec-Téléphone - Development Plan for 1995-1999 and Revenue Requirement for 1995, Telecom Decision CRTC 95-1, 25 January 1995 and in Télébec ltée - Development Plan for 1995-1999 and Revenue Requirement for 1995, Telecom Decision CRTC 94-26, 29 November 1994 apply.

 The small Quebec independents supported the use of the Bell criteria and the one dollar rule. However, given that the Commission has upheld the EAS criteria for Québec-Téléphone and Télébec in Decision 96-5, the Commission approves the continued use of the two criteria incorporating the one dollar voting rule.

 In addition, the Commission directs all independents, to measure COI based on subscriber count as opposed to line count.

 B. Method for Recovering the Cost of New
Extended Area Service Links

 Traditionally, telephone companies with local and toll operations recover the costs of EAS links by increasing local rates for those receiving the new EAS link through the application of higher rate group-based local tariffs. However, such rate increases only partially recover the costs of providing EAS, with the shortfall being paid for by the general body of subscribers from other sources of company revenue i.e., toll revenue. In the case of single exchange independents, the use of rate groups and toll cross-subsidies are not possible.

 The Commission notes that, in his report, Mr. Grieve referred to one case in which the OTSC was not prepared to implement EAS from a Bell exchange to an independent exchange because of the associated cost to the independent telephone company in question. Similarly, in Bell Canada - Revised Criteria For Extended Area Service, Telecom Decision CRTC 88-15, 29 September 1988, the Commission stated that agreements between Bell and independent telephone companies in relation to EAS links should not burden Bell subscribers with costs that they have not caused.

 Since the Commission commenced regulating the Ontario independents, there have been two requests for EAS links. In both cases, the Bell EAS criteria were met and the independent companies proposed local rate increases that would recover all costs associated with the new links. Bell was responsible for the costs associated with its network. This approach was adopted in order that the CAT not be increased and the subscribers benefitting from the new EAS link paid for it.

 In Bell Canada - Neighbourhood Calling Plan, Telecom Decision CRTC 92-22, 9 December 1992, the Commission stated that while it would be prepared to consider departures from the EAS criteria for the creation of toll-free calling areas, it was of the view that the incremental costs of any such departures should be borne primarily by subscribers within the affected regions.

 In Quebec, there have been cases where the EAS criteria have not been met and where the Commission approved the total cost of the new link, both Bell's cost and the independent's cost being paid only by the subscribers benefitting from the new link.

 For the independents in Ontario and Quebec, the Commission will require that subscribers pay for the cost of EAS directly through higher local rates and that the CAT not be used for this purpose.

 C. Resale of Extended Area Service

 In Bell's territory, resale of EAS involving only "one-hop" is permitted without the payment of contribution.

 Most independent companies were of the view that the resale of EAS to points outside the EAS territory should be prohibited to prevent contribution erosion. Sprint supported a ban on this type of resale until the Commission was sure that there would be no adverse effect on the smaller independents.

 The Commission is of the view that to the extent possible, competition should be expanded. There is a concern, however, with the financial impact on the independent companies. EAS can be used to bypass contribution payable to the independents both by long distance competitors who take advantage of EAS where the EAS link involves a Bell exchange and by local "one-hoppers". In Decision 92-12, the Commission did not allow long distance competitors to use Bell switches to originate traffic in the territories of parties who were not in the proceeding that led to that Decision. Competing long distance carriers were required to negotiate with the independents if they made use of Bell's EAS arrangements.

 Accordingly, the Commission approves the resale of EAS and directs that resellers of such services not be differentiated from resellers of long distance services and, therefore, that they be required to pay contribution. The payment of contribution on resold EAS recognizes the financial vulnerability of the independents. Resellers must register with the Commission and the relevant telephone company and provide, if requested to do so by the telephone company in question, traffic statistics to the telephone company for billing purposes and for calculating the CAT.

 X QUALITY OF SERVICE

 In Public Notice 95-15, the Commission noted that, in the proceeding initiated by Review of the Quality of Service Indicators, Telecom Public Notice CRTC 94-50, 21 October 1994, it would consider, among other things, the appropriate quality of service regulation for the largest of the independents, specifically, ED TEL Communications Inc., Northern, Québec-Téléphone, Télébec and Thunder Bay. For those independents with less than 25,000 NAS, the Commission proposed that issues pertaining to quality of service would be addressed via complaints lodged concerning a particular independent.

 The Commission notes that no party opposed the Commission's proposal as set out in Public Notice 95-15. Therefore, the Commission approves the quality of service complaints procedure as outlined above for all the independents with less than 25,000 NAS. Specifically, the Commission endorses the independents' current practice of addressing quality of service concerns through complaints lodged with either the relevant telephone company or, in the case of the PUCs, with their respective municipal council. To ensure the protection of the subscribers' interest, the Commission further directs that, should a subscriber indicate dissatisfaction with the resolution of a complaint, the independent in question forward a copy of the written complaint and/or particulars of the verbal complaint to the Commission for resolution. The Commission notes that the complaint process is to be conducted with the relevant telephone company and not with the telephone company's association. However, this process would not preclude independents from contacting their association for advice.

 With respect to the PUCs, while the Commission does not object to their proposal that complaints continue to be dealt with by the relevant municipal council, the Commission considers that a subscriber should also have the option of lodging a complaint/concern directly with the telephone department of the PUC. In either case, should the subscriber indicate dissatisfaction with the resolution of a complaint, the independent in question must forward a copy of the written complaint and/or the particulars of the verbal complaint to the Commission for resolution.

 With respect to notifying subscribers of this procedure, the Commission maintains its view expressed in Review of the General Regulations of the Federally Regulated Terrestrial Telecommunications Common Carriers, Telecom Decision CRTC 86-7, 26 March 1986 (Decision 86-7), as amended by Telecom Order CRTC 86-593, 22 September 1986, that, in the interest of keeping customers fully informed, the introductory pages of directories should contain information regarding quality of service standards. The telephone companies are therefore directed to file within 60 days of the date of this Decision, for Commission approval, a text summarizing the requirements and procedures regarding the overall quality of service standards established pursuant to this Decision. The Commission further directs the independents to publish these procedures in the introductory section of the White Pages of the independents' next issue of directories and in the Bell directories in which customer listings for the independents are published. In the case of the PUCs, reference can be made to the municipal council complaint procedure as being an additional option available to customers.

 The Commission notes that it does not require any of the independents that are party to this proceeding to file Quality of Service indicators, whereas the Stentor members are required to file quality of service indicators in addition to publishing the particulars of such standards.

 XI TERMS OF SERVICE

 A. General

 In Public Notice 95-15, the Commission proposed that the independents be required to adopt the Terms of Service of either Bell or The Island Telephone Company Limited (Island Tel), allowing for some minor variations to respond to operating requirements and unique service characteristics. The Commission further stated that it is its policy that a telephone company's Terms of Service, or a summary thereof, be published in its telephone directory. The Commission noted, however, that certain independents do not publish their own telephone directories; rather, their subscribers are listed in the Bell directory for the area(s) nearest them. Therefore, the Commission proposed that should an independent that relies on Bell directories choose to adopt Island Tel's Terms of Service, subscribers be informed in Bell's directory that Terms of Service similar to those set out in the directory apply and that copies of applicable Terms can be obtained from the independent in question.

 The Commission notes that, with the exception of a limited number of specific provisions, parties were generally not opposed to adopting Bell's Terms of Service. Accordingly, the Commission directs the independents to adopt Bell's Terms of Service, with the exceptions noted below for the independent in question.

 With respect to ACTQ's request not to adopt Bell's Article 6 (Two-Party and Four-Party Service), while the Commission notes that ACTQ members have also undertaken upgrading programs, the Commission considers it appropriate to require ACTQ members to include a provision similar to Bell's Article 6 in their Terms of Service to address the possibility that some members may not have completed their upgrading program. Therefore, the Commission directs that ACTQ members adopt Bell's Articles 6.1 and 6.2.

 With respect to Bell's Article 7.5 (Deposits and Alternatives) dealing with the interest rate payable on deposits, ACTQ requested that it maintain its current Article (which provides for an interest rate of 8% on deposits) because it is fair to subscribers and it is already programmed in the computer billing systems of its members. The Commission concurs with ACTQ's proposal as it minimizes the independent telephone companies' burden and maximizes subscriber returns. Should an economic situation arise such that an 8% return is no longer reasonable, the Commission may review this Article at such time. Similarly, the Commission concurs with ACTQ's request to retain its current version of Bell's Article 7.6. The Commission is of the view that the subscriber will be better off under the current conditions than under Bell's Article 7.6 as, while Bell's Article 7.6 requires that the interest accrued on deposits be shown on each customer's monthly account, ACTQ members currently pay out the interest monthly.

 With respect to Bell's Article 7.6, the Commission agrees with OTA that requiring its members to adopt this Article may force them to make significant investment in their billing systems. In this regard, the Commission notes that in AGT, NBTel and Newfoundland Tel - Amendments to the General Regulations, Telecom Decision CRTC 95-6, 27 April 1995 (Decision 95-6), it approved for NewTel Communications Inc. (formerly Newfoundland Telephone Company Limited) and The New Brunswick Telephone Company, Limited, modifications to Article 7.6 based on similar arguments. As a result, the companies were directed to provide, on the monthly bills, the telephone number of a company representative to whom any inquiry regarding the deposit may be directed. The Commission directs that the same requirement apply to OTA member companies.

 The Commission also finds ACTQ's request to add a clause to Bell's Article 8.3 (Restrictions on Use of Service) to limit the abuse of regional links to be reasonable. However, the Commission finds that the version of Article 8.3 proposed by ACTQ leaves a company too much discretion. Consequently, the Commission directs that the following be added as the second last sentence of this Article: "Telephone company may, to this end, where reasonable, limit the use of its services and request that a subscriber use private circuits under certain circumstances".

 With respect to ACTQ's proposal to remove from their Terms of Service all references to the independents' responsibilities related to the provisioning of long distance services, the Commission notes that, currently, ACTQ members provide their customers with Bell toll service without informing Bell of the subscribers' credit records. Further, in cases of non-payment for toll services, Bell is neither able to identify the subscribers who do not pay their bills, nor is Bell able to terminate service as only ACTQ members can do so.

 The Commission considers that if all references to the independents' responsibilities related to the provisioning of long distance services were removed from their Terms of Service, Bell would have to be provided with full control over the credit verification and monitoring process and, in cases of non-payment, over the denial of toll service. The Commission notes that, while ACTQ acknowledged that, in certain cases, Bell must be able to either refuse toll access or request that the independent do so, it did not, however, address other related issues. With respect to termination of toll services, Guèvremont proposed that Bell give it access to a databank such that it can do a background credit check of toll subscribers for Bell. However, the Commission finds that this approach would violate the privacy provisions of Bell's Terms of Service relating to the confidential nature of the information provided by the subscribers to their telephone company.

 Given that ACTQ members currently perform credit checks and bill and collect toll charges, the Commission finds ACTQ's request to remove all references to responsibilities related to the provisioning of toll services from their Terms of Service to be unacceptable. The Commission notes that the references to toll in the proposed independents' Terms of Service (i.e., Bell's Terms of Service) are the most effective manner to impose the obligation to pay toll charges on subscribers. The Commission further notes that, if the ACTQ and Bell reach an agreement whereby ACTQ members no longer have responsibilities which substantially impact the conduct of Bell's toll business, they can file for tariff changes with the Commission.

 In light of the above, the Commission denies ACTQ's proposal to modify the Terms of Service to remove all references to the independents' responsibilities related to the provisioning of toll services.

 B. Additional Provisions Applicable to All
Independents

 1. Implementation and Filing Requirements

 The Commission remains of the view, expressed in Decision 86-7 and in Decision 95-6, that companies can be reasonably expected to implement new Terms of Service if provided with a six-month lead-time. However, given the limited resources available to some of the smaller independents, the Commission is of the view that the independents should have two months to file with the Commission their revised Terms of Service rather than the one-month timeframe envisaged in Decisions 86-7 and 95-6. The Commission notes that, although the companies are to implement their Terms of Service within six months, they are only required to update their directories at the next planned issue date.

 2. Notice of New Terms of Service

 The Commission directs the independents to advise their subscribers, through a billing insert, that new Terms of Service have been approved and that the Terms or a summary thereof will be published in the next telephone directory. The Commission further directs the companies to file the text of the billing insert, for Commission approval, within two months of the date of its Decision. Finally, the Commission directs the independents to notify their subscribers, in both official languages, that copies of the Terms of Service are available in either language upon request and that further information can be obtained from the company's business offices.

 3. Inclusion of Terms of Service in the
Directories of the Independents and Bell

 The Commission considers that it would be in the subscribers' interest that the publication of information concerning the Terms of Service be made both mandatory and consistent across the territories of the independents.

 The Commission agrees with OTA that, in cases where subscribers of the independents are listed in Bell directories, the inclusion of both sets of Terms of Service in the Bell directory would be needlessly duplicative and costly. The Commission further agrees with OTA's proposal that a notice should be included in the Bell directories advising customers that the Terms of Service of the independents are similar to those of Bell and that a copy of these Terms can be obtained at the independents' Business Offices. Therefore, the Commission directs Bell to publish such a notice to customers in the relevant directories.

 In Decision 86-7, the Commission made a determination concerning the requirements applicable to Stentor members pertaining to the inclusion of the Terms of Service in their directories. The Commission considers that those requirements could also reasonably be applied to the independents. Accordingly, the Commission directs the independents and Bell, when its telephone directories include listings of independents' customers, to publish, in the introductory pages of the directories, either a summary or the full text of the Terms of Service, in both official languages where significant numbers of both language groups warrant such inclusion. Where a directory contains a summary or text in only one language, the Commission directs that a statement in the other official language be inserted stating that the Terms of Service are also available in the other official language and that the Terms of Service have equal force in both official languages. The Commission considers that such requirements are appropriate as they strike a balance between the need of subscribers to be fully informed in the language of their choice and the Commission's objective of minimizing the independents' burden.

 XII CELLULAR ISSUES

 A. Forbearance

 The Commission notes that, currently, of the companies affected by this Decision, five independents are involved in the provisioning of cellular services: Sogetel which provides services through a separate affiliate, was recently granted forbearance, while Northern, Kenora, Thunder Bay and Cochrane provide regulated services through company divisions. All companies currently offering service through a company division requested forbearance.

 In Regulation of Wireless Services, Telecom Decision CRTC 94-15, 12 August 1994 (Decision 94-15), the Commission decided to forbear from regulating the provision of cellular service or public cordless telephone service by Canadian carriers other than the telephone companies. However, this determination did not affect the status of the costing and marketing safeguards that were established in Cellular Radio - Adequacy of Structural Safeguards, Telecom Decision CRTC 87-13, 23 September 1987 (Decision 87-13) and Rogers Cantel Inc. v. Bell Canada - Marketing of Cellular Service, Telecom Decision CRTC 92-13, 29 June 1992 (Decision 92-13). The Commission further determined that, conditional upon the development and implementation of the appropriate safeguards, it would be prepared to consider telephone company proposals to forbear with respect to the provisioning of wireless services.

 In this proceeding, the Commission notes that, in general, parties agreed with the findings of Decision 94-15 and with the requirement to apply the costing and marketing safeguards developed in Decisions 87-13 and 92-13. However, the PUCs and OTA (although only in respect of Cochrane) were opposed to the requirement to establish a separate cellular affiliate as a prerequisite to cellular forbearance. They argued that legal barriers prevent them from creating separate cellular affiliates and that, given that locally-elected officials represent the customers and that there is no possibility for financial gain for such officials, the PUCs should be given the latitude to regulate locally within Commission-established guidelines. Furthermore, although the PUCs proposed to implement marketing safeguards, they indicated that the nature of their ownership obviates the need for any additional safeguards, such as structural separation, cost separations or the filing of intercorporate transaction reports with the Commission.

 The Commission notes that the PUCs are monopoly providers of local service. Further, the Commission agrees with Cantel that even though the PUCs are controlled by elected officials, that fact alone does not ensure that the public interest will be upheld if the Commission forbears from regulating cellular services. Rather, the Commission is of the view that safeguards are still needed, in the case of the PUCs or any other independent, to ensure that there is no cross-subsidization from monopoly telephone revenues and that no undue preference or advantage is conferred with respect to cellular operations. Moreover, the Commission does not consider that forbearance is appropriate in this case, even though there are legal barriers to the PUCs establishing a separate affiliate.

 In light of the above, the Commission directs a PUC, or any other telephone company that wishes to offer cellular services through a division of a company which provides monopoly telephone services to either (1) as indicated in Decision 94-15, submit a proposal to the Commission, including appropriate costing and marketing safeguards, requesting forbearance from regulation; or (2) comply with the safeguards established in Decisions 87-13 and 92-13. The Commission further directs a telephone company offering cellular services through a structurally-separate affiliate and which seeks cellular forbearance under the terms and conditions established in Decision 94-15, to file such a request with the Commission.

 B. Costing and Marketing Safeguards

 In Decisions 87-13 and 92-13, the Commission established marketing and costing safeguards to be applied to the provisioning of cellular services by Stentor-member telephone companies. These safeguards included (1) mechanisms to ensure that no cross-subsidization from monopoly telephone to cellular revenues takes place; (2) a prohibition on joint marketing and advertising of telephone company and cellular services; (3) restrictions on customer referrals by the telephone company; and (4) a prohibition on access to telephone company monopoly and competitive customer information by a cellular affiliate or by a division.

 The Commission notes that, at present, the independents that are involved in the cellular industry are either (1) marketing agents and/or dealers for cellular providers; or (2) cellular providers through company divisions; or (3) cellular providers through structurally-separate affiliates.

 With respect to marketing agents or dealers for cellular providers, the Commission notes that, presently, no ACTQ member acts as either a marketing agent and/or dealer. In contrast, a number of OTA member companies and one PUC are currently acting as marketing agents and/or dealers for Bell Mobility Cellular (BMC) and are engaged in joint marketing and advertising of monopoly telephone company and cellular services, as well as in referring customers to only one cellular provider.

 The Commission agrees, in part, with parties that, as these arrangements are not exclusive in nature, the cellular advertising and marketing opportunities available to BMC are also available to Cantel. The Commission is of the view that independents could engage in joint marketing and advertising without conferring any undue preference or advantage, under certain conditions. The Commission does, however, agree with Cantel that there is concern for undue preference or advantage given the independents' access to a monopoly local customer base and the unregulated nature of customer referrals.

 In light of the above, the Commission is of the view that some of the safeguards established in Decisions 87-13 and 92-13 should be applied to independents who act as marketing agents and/or dealers for one or more cellular providers. Accordingly, the Commission directs such independents to apply the restriction on customer referrals such that independent agents and/or dealers refer potential customers to either all cellular providers (where applicable) or to none. The Commission further directs that the independent agents and/or dealers be prohibited from taking advantage of their access to monopoly and competitive customer information. However, the Commission is of the view that the prohibition on joint marketing and advertising of telephone company and cellular services developed in Decisions 87-13 and 92-13 need not be applied to independent agents and/or dealers, on the condition that the independent be involved in an arm's-length relationship with the cellular provider and that the arrangement(s) be non-exclusive, available to third parties on the same terms and conditions and filed for approval with the Commission according to section 29 of the Act. If these conditions are not met, then the prohibition on joint marketing and advertising will apply.

 With respect to independents providing cellular services through a division of the company, the Commission notes that, currently, Cochrane, Kenora, Northern and Thunder Bay offer in-house cellular services. The Commission further notes that, although the PUCs proposed to implement the three marketing safeguards established in Decisions 87-13 and 92-13, they indicated that the nature of their ownership obviates the need for any additional safeguards, such as structural separation, cost separation or the filing of intercorporate transaction reports with the Commission.

 The Commission, however, considers that the concerns expressed in Decisions 87-13 and 92-13 regarding the need for effective safeguards when telephone companies offer cellular services through a division of a company that provides monopoly services to ensure against cross-subsidization and undue preference remain valid. The Commission, therefore, agrees with Cantel that the independents which fall into this category should be subject to all of the safeguards established in Decisions 87-13 and 92-13 as they are monopoly providers of local services in their respective territories. Accordingly, the Commission directs that all safeguards established in Decisions 87-13 and 92-13 be applied to all independents, including the PUCs, who provide cellular services through a division of a company that also provides monopoly telephone services.

 With respect to independents which provide service through separate cellular affiliates, the Commission notes that most parties supported the implementation of the safeguards established in Decisions 87-13 and 92-13 and that Sogetel has already implemented them. The Commission also notes ACTQ's proposal that the intercorporate transactions reports be submitted yearly, rather than quarterly, given the limited possibilities for cellular activity.

 The Commission finds ACTQ's proposal to be reasonable. The Commission is of the view that this safeguard remains necessary to ensure that no cross-subsidization from monopoly telephone revenues takes place. The Commission also finds that marketing safeguards are necessary to ensure that no undue preference or advantage is conferred on a cellular provider.

 In light of the above, the Commission directs all independents who provide cellular services through a separate affiliate to file yearly reports of intercorporate transactions between the affiliate and the telephone company. The Commission further directs all telephone companies subject to this Decision that are either currently offering or considering offering cellular services through a separate cellular affiliate, to comply with all other safeguards contained in Decisions 87-13 and 92-13, i.e., the prohibition on access by a cellular affiliate to telephone company monopoly and competitive customer information, the prohibition on joint marketing and advertising and the restrictions on customer referrals by telephone companies.

 C. Access to Cellular Towers and
Antennas

 The Commission notes that, presently, some independents offer access to their cellular towers and antennas to interested parties on the same terms and conditions as those made available to the companies themselves or to an affiliate, while other independents do not make such terms available to the public. Further, none of these terms are currently filed with the Commission.

 Presently, Stentor-member companies that own cellular towers and antennas are subject to two principal requirements. First, in AGT Limited - Revenue Requirement for 1992, Telecom Decision CRTC 92-9, 26 May 1992, and in Access to Telephone Company Support Structures, Telecom Decision CRTC 95-13, 22 June 1995, the Commission determined that when a telephone company provides access to cellular towers and antennas to an affiliate company, it must provide the same access to third parties. Second, in Notification of Network Changes, Terminal-to-Network Interface Disclosure Requirements and Procedures for the Negotiation and Filing of Service Arrangements, Telecom Letter Decision CRTC 94-11, 4 November 1994, the Commission determined that when a telephone company provides tower space to itself, and a party requires access to that space, the access provider is required to either file a non-discriminatory tariff arrangement or to indicate why such a service request is impractical.

 The Commission notes the PUCs' request for regulatory forbearance and their proposal to develop compensatory rates, terms and conditions for the use of their facilities, should such requests occur. Further, the Commission agrees with Cantel's proposal that access to microwave towers owned by the independents should be governed by the same policy of non-discriminatory access which currently applies to Stentor members.

 However, as the owners of these structures are monopoly suppliers in their respective territories such that there exists potential for access providers to confer an undue advantage on some parties, the Commission will not forbear from regulating access to independent company support structures. The Commission is of the view that the requirements applicable to the Stentor members would ensure that access to independent cellular towers and antennas is not restricted and is available on a non-discriminatory basis.

 In light of the above, where an independent telephone company provides access to cellular towers and antennas to an affiliate company, the independent is directed to provide the same non-discriminatory tariffed access to third parties. Further, where a telephone company provides tower space to itself, and a party requires access to that space, the access provider is directed to file either a non-discriminatory tariff arrangement, or demonstrate why such a service request is impractical.

 Allan J. Darling
 Secretary General

B+>Fourchettes de rendement approuvées pour
les indépendantes de l'Ontario

TABLE+>Accounting &
Financial MattersAudited Financial
Statements
Capital Expenditures
(case by case)
Updates to Accounting
Manual or equivalentAccounting Policies
(major changes)Accounting Manual or
equivalent Depreciation Studies
(maximum five year
intervals) Establish Deferral
Accounts
(Ontario only) Depreciation Life
Characteristics (if changes)
Disposition Plans for
Accumulated Account
Balances in Deferral
Accounts (Quebec only)
IX Competition
Equal Access Roll-Out
Plan PIC/CARE
-Administration
Procedures
-Access Customer
HandbookRate
Adjustments
$2.00 Increases
-Billing Inserts-Tariff
pagesToll Revenue
Settlement
Mechanism
Carrier Access Tariff (CAT)
-Toll Minute Forecasts
-Budget Views by BSC or
equivalent
-Contribution and Revenue
Requirement Forecasts
-Company-specific rates Methodology for
excluding cellular from
Contribution and
Revenue Requirement
(if a Division)
Phase III
Actual Phase III Results
Phase III initial review
over 2 years (after
two year period, by
exception or on request) Phase III Manual Updates
Tariffs
Economic Studies in
support of Tariffs (in
certain circumstances)De-tariff Terminal
Equipment and Unbundle
from Monopoly servicesQuality of
Service
Summary of Service
Standards to be
Published in DirectoriesTerms of Service
Revised Terms
-Notice to Subscribers
-Publish in DirectoryCellular
Forbearance Proposals
Others
Intercorporate Transactions
Report (if any)Complaint Resolution
Filings
Exigences en matière de dépôt pour les petites indépendantes
Nouveau régime de réglementation