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ARCHIVED -  Telecom Order CRTC 96-1542

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Telecom Order

Ottawa, 23 December 1996
Telecom Order CRTC 96-1542
IN THE MATTER OF an application filed by Otonabee Telephones Ltd. (Otonabee) under Tariff Notice 13 dated 30 August 1996, for revisions to its General Tariff, providing for local rate increases of $2.00 per month for primary exchange services effective 1 January in each of the years 1997 and 1998.
WHEREAS in Regulatory Framework for the Independent Telephone Companies in Quebec and Ontario (except Ontario Northland Transportation Commission, Québec-Téléphone and Télébec ltée), Telecom Decision CRTC 96-6, 7 August 1996 (Decision 96-6), the Commission expressed 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;
WHEREAS in order to allow public input on this preliminary view, the independent telephone companies were directed to notify subscribers, through a billing insert, of the proposed local rate increases;
WHEREAS comments were received from many subscribers opposing the increases and questioning the appropriateness of the increases in view of current economic conditions including low inflation rates;
WHEREAS many opposed the increases on the basis that they would not receive any benefit such as improved services or extended local calling areas in exchange for the increased rates;
WHEREAS some subscribers were concerned that local access rates were to be increased in order to subsidize toll providers;
WHEREAS the Commission considers that local services are currently priced below costs;
WHEREAS the Commission notes that there has been no pressure to increase the local rates of the independents because the local service revenue shortfalls of these companies (1) has in the past been compensated by the negotiated revenue settlement process with Bell Canada (Bell) and (2) is currently compensated through the independents' Carrier Access Tariff (CAT) rate which is applied to all toll traffic carried by Bell and the new toll competitors;
WHEREAS the contribution rate, a component of the CAT, is a subsidy paid by the toll carriers in order to support below cost local access rates;
WHEREAS in Decision 96-6, the Commission established a mechanism whereby the contribution rate bears a direct relationship to the revenues derived from local service rates;
WHEREAS the local rate increases proposed for each of the years would lessen the subsidy that flows to local and access services from long distance services and are revenue neutral for the independent telephone companies;
WHEREAS the Commission notes that the existing contribution rate for the independent telephone companies is significantly higher than the contribution rate applied on traffic in Bell operating territory;
WHEREAS the Commission notes that, with the introduction of competition in Bell's operating territory, subscribers of 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;
WHEREAS the Commission is of the view that consumers will benefit from the increased toll competition stimulated by a lower contribution rate payable by toll providers;
WHEREAS Otonabee proposed to apply the revenues generated from the successive annual $2.00 rate increases to reduce local mileage charges applied to single and two-party line customers outside its base rate area;
WHEREAS Otonabee also proposed to exempt its Community Rate Area subscribers from the proposed local rate increases;
WHEREAS Otonabee's rationale for the proposed exemption and for the reduction in mileage charges was that, taking mileage charges into consideration, many of its customers pay substantially higher rates than subscribers in neighbouring Bell exchanges;
WHEREAS numerous subscribers supported Otonabee's application both to exempt the Community Rate Area from the proposed increases and reduce the mileage rate;
WHEREAS the Commission shares the subscribers' concerns relative to mileage charges;
WHEREAS Decision 96-6 provided that the successive annual $2.00 rate increases per subscriber being proposed would not be required in those cases where a particular local rate was already compensatory;
WHEREAS, as noted above, the Commission considers that Otonabee's local rates including the Community Rate Area rates, are priced below costs and conssequently are not compensatory;
WHEREAS the Commission reiterates that the purpose of the proposed successive annual $2.00 rate increase is to reduce the subsidy from toll carriers;
WHEREAS the company's proposal to reduce the mileage charges in conjunction with such increases would leave the subsidy required from toll unchanged;
WHEREAS the Commission is not prepared to allow the company to apply the successive annual rate increases against the reduction in mileage charges; and
WHEREAS the Commission encourages the company to investigate ways, to reduce or eliminate the mileage charges -
IT IS HEREBY ORDERED THAT:
1. Subject to the modifications set out in 2 and 3 below, the proposed tariff revisions submitted by Otonabee under Tariff Notice 13 are approved.
2. The company is directed to apply the $2.00 per month increases effective 1 January 1997 and 1 January 1998 to its Community Rate Area subscribers;
3. The company's particular proposal to reduce the mileage charges is denied.
4. Otonabee is directed to issue forthwith revised tariffed pages reflecting the above modifications.
Allan J. Darling
Secretary General

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