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ARCHIVED -  Telecom Order CRTC 96-1611

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Telecom Order

Ottawa, 31 December 1996
Telecom Order CRTC 96-1611
IN THE MATTER OF an application filed by Québec-Téléphone under Tariff Notice 125 dated 9 September 1996 (TN 125), as amended by a letter dated 9 September 1996, for approval of tariff revisions providing for rate increases of $2.50 per month per local access line effective 1 January 1997.
WHEREAS in Regulatory Framework for Québec-Téléphone and Télébec ltée, Telecom Decision CRTC 96-5, 7 August 1996 (Decision 96-5), the Commission expressed the preliminary view that annual increases of $2.00 per month per local access line should be implemented by Québec-Téléphone and Télébec ltée (Télébec) effective 1 January in each of the years 1997 and 1998;
WHEREAS in Decision 96-5 the Commission also directed Bell Canada (Bell), Québec-Téléphone and Télébec to reduce Other Line Charges to half their current level effective 1 January 1997 and to eliminate them effective 1 January 1998;
WHEREAS Québec-Téléphone and Télébec were further directed to file, within 45 days of the date of Decision 96-5, a proposal to recover from other sources the revenue they would forego as a result of the elimination of Other Line Charges;
WHEREAS Québec-Téléphone indicated that it would file proposed tariff pages reflecting its proposals for 1998 during the course of the month of September 1997;
WHEREAS, in an attachment to a letter dated 9 September 1996 (the 9 September 1996 submission), Québec-Téléphone outlined its proposals with respect to the recovery of revenue losses resulting from the reduction and elimination of Other Line Charges;
WHEREAS Québec-Téléphone's TN 125 provided proposed tariff pages to be effective 1 January 1997 only, while the 9 September 1996 submission indicated that the company proposed to implement rate increases of $2.00 per month per local access line effective 1 January of each 1997 and 1998;
WHEREAS, as detailed below, Québec-Téléphone made two separate proposals to recover the revenue losses resulting from the reduction and elimination of Other Line Charges;
WHEREAS Québec-Téléphone's first proposal in this regard was to offset a portion of the revenue losses resulting from the reduction and elimination of Other Line Charges from its General Tariff through local rate increases of $0.50 per month effective 1 January 1997 and 1 January 1998 and to offset the remaining portion of such losses, amounting to some $460,000 in each of 1997 and 1998, through productivity gains;
WHEREAS Québec-Téléphone's second proposal was to recover the revenue losses resulting from the reduction and elimination of Other Line Charges from Bell's General Tariff through a surcharge on the contribution rate of $0.0173 per minute to be effective 1 January 1997, to be increased by $0.0173 per minute effective 1 January 1998;
WHEREAS Québec-Téléphone proposed that the contribution surcharge be applied to interexchange competitors which terminate traffic in the company's territory and that it be integrated into its revenue settlement with Bell;
WHEREAS the company also provided an indication of the impact on basic local rates for both 1997 and 1998 of (1) the proposed rate increases of $2.00 per month, (2) the reduction and elimination of Other Line Charges together with the company's proposal to recover the resulting revenue losses, (3) the [translation] "termination of the revenue settlement agreement with Bell", and (4) the company's proposal to reduce toll rates by $7.5 million in 1997 and an as yet undetermined amount in 1998;
WHEREAS Québec-Téléphone notified subscribers, through a billing insert, of the Commission's preliminary view and of the company's above noted rate proposals for both 1997 and 1998;
WHEREAS comments were received from subscribers opposing the increases and questioning the appropriateness of the increases in view of current economic conditions;
WHEREAS, on 22 October and 29 November 1996, the Commission issued questions to Québec-Téléphone and received the company's responses on 12 November and 6 December 1996, respectively;
WHEREAS the Commission remains of the view expressed in Decision 96-5 that local rates should continue to increase towards costs;
WHEREAS the Commission is of the view that a lower contribution rate will encourage toll competition from which many of the company's subscribers will ultimately benefit;
WHEREAS, in Decision 96-5, the Commission specified that the companies would not be required to lower long distance rates unless the additional revenues from the proposed increases of $2.00 per month per access line caused their rates of return on common equity (ROEs) to go above the midpoint of their approved earnings ranges;
WHEREAS the Commission is of the view that the impact of productivity gains proposed by Québec-Téléphone should be taken into consideration in estimating the company's ROE at existing rates for 1997;
WHEREAS the Commission notes that a letter dated 5 December 1996 was sent to Québec-Téléphone asking the company to address the review and vary criteria set out in Telecom Decision CRTC 79-1 dated 2 February 1979, if it wishes to pursue its request for a different contribution rate mechanism from that set out in Decision 96-5;
WHEREAS the Commission notes that while the issue of a different contribution rate mechanism remains outstanding, some uncertainty exists as to the appropriate contribution rate scenario;
WHEREAS, for the purpose of making a determination on TN 125, as amended by the 9 September 1996 submission, the Commission has based its estimate of the company's 1997 ROE on a single contribution rate applicable to both originating and terminating minutes, as prescribed in Decision 96-5;
WHEREAS the Commission finds that the net cumulative impact on Québec-Téléphone's ROE of the revenue losses resulting from the reduction in Other Line Charges in Bell's General Tariff effective 1 January 1997 together with the proposed rate increase of $2.00 per month per local access line would result in Québec-Téléphone earning a return above the top of the approved ROE range;
WHEREAS, having examined and analysed the evidence submitted by Québec-Téléphone, and in order for the company to earn no more than the midpoint of the approved ROE range, the Commission finds that Québec-Téléphone should be required to lower its long distance rates by $5.5 million;
WHEREAS the Commission is of the view that the estimated revenue losses of $2.1 million resulting from the reduction in Other Line Charges in Québec-Téléphone's General Tariff, effective 1 January 1997, should be considered as part of the required toll rate reductions;
WHEREAS, accordingly, the Commission finds that toll rate reductions of some $3.4 million would be required to bring Québec-Téléphone's ROE for 1997 to the midpoint of its approved range;
WHEREAS the Commission is of the view that, in light of, firstly, the above noted uncertainty surrounding the company's contribution rate, and, secondly, the contribution rate's impact on the imputation test, Québec-Téléphone may not be able to immediately achieve the $3.4 million in toll rate reductions required for the company to achieve, in 1997, no more than the midpoint of its approved ROE range;
WHEREAS the Commission considers that Québec-Téléphone should put the amount of any unrealized portion of the required $3.4 million toll rate reductions for 1997 into a deferral account;
WHEREAS the Commission notes that although Québec-Téléphone proposed to reduce toll rates by $7.5 million, this proposal was predicated on the Commission approving an increase of $0.50 per month per local access line and a contribution surcharge of $0.0173 per minute;
WHEREAS the Commission is not aware of any initiatives regarding the termination in 1997 of the Bell/Québec-Téléphone revenue settlement agreement;
WHEREAS, in light of the above analysis, the Commission is of the view that Québec-Téléphone does not require the additional revenue that would be generated in 1997 by its proposals for an increase of $0.50 per month per local access line and for a contribution surcharge;
WHEREAS the Commission remains of the preliminary view that an increase of $2.00 per month per local access line should be implemented by Québec-Téléphone on 1 January 1998; and
WHEREAS the Commission considers that an updated financial forecast for 1998 would allow it to better assess whether the proposed increase of $2.00 per month per local access line for 1998 would result in Québec-Téléphone earning above the midpoint of its approved ROE range, thus requiring it to lower its long distance rates -
IT IS HEREBY ORDERED THAT:
1. Tariff Notice 125 is approved subject to the proposed increase of $2.50 per month per local access line being reduced to $2.00 per month per local access line.
2. Québec-Téléphone is to issue forthwith revised tariff pages reflecting the modification in 1 above.
3. The proposed 1997 contribution surcharge of $0.0173 per minute, to recover the revenue losses resulting from the reduction in Other Line Charges in Bell's General Tariff, is denied.
4. a) Québec-Téléphone is to reduce toll rates by $5.5 million in 1997, as opposed to the $7.5 million specified in its proposal; and
b) $2.1 million of the $5.5 million in toll rate reductions is to be realized from the reduction in Other Line Charges implemented by Québec-Téléphone.
5. Québec-Téléphone is to place into a deferral account the amount of any unrealized portion of the $3.4 million in toll rate reductions required for 1997 that are not linked to Other Line Charges as specified in 4 above.
6. Québec-Téléphone is to submit by 1 October 1997:
a) an updated financial forecast for 1998 so that the Commission can better assess whether the proposed $2.00 local rate increase to be effective 1 January 1998 would result in Québec-Téléphone earning over the midpoint of its approved ROE range, requiring the lowering of toll rates to eliminate the excess earnings as prescribed in Decision 96-5; and
b) proposed tariff pages reflecting the company's proposals with respect to the proposed $2.00 per month local rate increase per access line to be effective 1 January 1998 and for the recovery of revenue losses resulting from the elimination of Other Line Charges on 1 January 1998.
Allan J. Darling
Secretary General

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