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ARCHIVED -  Telecom Order CRTC 97-87

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Telecom Order

Ottawa, 23 January 1997
Telecom Order CRTC 97-87
IN THE MATTER OF an application filed by Télébec ltée (Télébec) dated 6 September 1996, for approval of revised 1995 and 1996 Carrier Access Tariffs (CATs).
Reference: 96-2420
WHEREAS in Regulatory Framework for Québec-Téléphone and Télébec ltée, Telecom Decision CRTC 96-5, 7 August 1996 (Decision 96-5), the Commission directed Télébec to file proposed contribution rates and supporting documentation, within 30 days, in order to finalize the company's CATs for 1995 and 1996;
WHEREAS on 6 September 1996, Télébec submitted, for approval on a final basis, revised per minute CAT rates of $0.1376 for 1995 and $0.1097 for 1996 based on its Phase III procedures approved in Decision 96-5;
WHEREAS on 7 October 1996, AT&T Canada Long Distance Services Company (AT&T Canada) addressed an interrogatory to Télébec;
WHEREAS on 7 October 1996, Distributel Communications Limited (Distributel) submitted comments;
WHEREAS on 16 October 1996, Télébec filed replies to AT&T Canada's interrogatory and Distributel's comments;
WHEREAS based on its review of Télébec's 1995 actual and 1996 Phase III forecast results, AT&T Canada requested Télébec to explain, with supporting documentation, why the company's toll service costs appear to be remarkably low compared to its toll revenues;
WHEREAS in response, Télébec provided a table to illustrate that its profit margins on toll revenues of 71.8% and 66.9% in 1995 and 1996 respectively are similar to those of Québec-Téléphone (73.2% in 1995) and Bell Canada (60.7% for 1994);
WHEREAS the Commission considers that Télébec has demonstrated that its toll service costs are not remarkably low compared to its toll revenues, as suggested by AT&T Canada, and that its profit margins on toll revenues are similar to those of larger telephone companies;
WHEREAS Distributel expressed concern with the Commission's determination in Decision 96-5 that resellers of Extended Area Service (EAS) will be required to (1) pay contribution on such resale and (2) provide traffic statistics for billing purposes at the request of the independents;
WHEREAS Distributel stated that it offers services in numerous locations throughout Ontario and Quebec which typically involve resale of Centrex services obtained from Bell that consist of "single-hop" and interexchange services, most of which are flat-rate or have significant flat-rate components;
WHEREAS Distributel noted that many of its Centrex systems are in exchanges that have EAS with one or more exchanges in the operating territories of Québec-Téléphone and Télébec;
WHEREAS in Distributel's view, since no contribution is payable on single-hop services in the territories of the major telephone companies in Canada, any amount of contribution will result in higher prices to end users in the independents' territories;
WHEREAS Distributel also questioned the viability of offering flat-rate services in the independents' territories because of the level of contribution payments required which, on the basis of some broad assumptions about the characteristics of EAS resale and based on Télébec's proposed 1996 CAT rate, the company estimated could be as high as $55.00 per customer;
WHEREAS Distributel stated that the requirement to provide traffic statistics may preclude participation in the market by many Centrex resellers that lack the ability to provide such data;
WHEREAS Distributel requested the Commission reconsider the requirement to pay contribution on single-hop services in any future proceeding that deals with contribution payable to the independents;
WHEREAS Télébec noted that the services described by Distributel typically involve resale of Centrex services obtained from Bell, not Télébec;
WHEREAS Télébec submitted that the potential impact of the resale of EAS services is a major concern to the company since it reduces toll revenues which help finance the local/access deficit through contribution payments;
WHEREAS Télébec acknowledged the possibility that a flat-rate service, such as that sold by Distributel, might not be profitable in its territory and noted that the Commission recognized the nature of its rural telephone service operations by requiring contribution on EAS resale in Decision 96-5;
WHEREAS in Télébec's view, the requirement to pay contribution on the single-hop reseller must remain in effect;
WHEREAS the Commission notes that the payment of contribution on resold EAS was approved in Decision 96-5 in recognition of the financial vulnerability of Québec-Téléphone and Télébec since EAS can be used to bypass contribution payable to the independents both by long distance competitors that take advantage of EAS where the EAS link involves a Bell exchange and by local one-hoppers;
WHEREAS in the Commission's view, the requirement to pay contribution on the resale of EAS must be maintained;
WHEREAS Distributel questioned the Commission's determination in Decision 96-5 that all switched traffic, including stimulated minutes, should be included in the contribution rate calculation and requested that the Commission reconsider the reasonableness of not including stimulated minutes in the case of providers of flat-rate services in any future proceeding that deals with contribution payable to the independents;
WHEREAS the Commission notes that Télébec serves a large, high cost rural area of geographically dispersed subscribers;
WHEREAS, in the Commission's view, this supports the need for a higher level of contribution in Télébec's territory and is consistent with the Commission's conclusion, in Decision 96-5, that stimulated minutes are to be included in the contribution calculation;
WHEREAS Distributel indicated that, on the basis of its analysis of EAS resale, flat-rate pricing results in dramatic levels of stimulation and, therefore, suggested that a contribution discount of 75% for flat-rate resellers would be reasonable and requested the Commission to take this into account in any future proceeding that deals with contribution payable to the independents;
WHEREAS Télébec submitted that reduced contribution rates, in the form of discounts, should not apply in its territory since its local tariffs are already among the highest in the industry and allowing contribution discounts would force the company to raise its local rates even further which could affect affordability;
WHEREAS the Commission considers that because of the nature of Télébec's territory, and the current level of its local tariffs, contribution discounts would put upward pressure on local rates;
WHEREAS the Commission notes that no intervener, including Distributel, objected to the level of Télébec's proposed CAT rates for 1995 and 1996;
WHEREAS the Commission notes that Télébec's proposed CAT rates have been developed using Phase III procedures that are consistent with the Phase III costing approach approved in Decision 96-5;
WHEREAS, on the basis of the foregoing, the Commission approves Télébec's proposed CAT rates of $0.1376 for 1995 and $0.1097 for 1996 on a final basis;
WHEREAS the Commission considers that Télébec's 1997 interim CAT should be based on its final 1996 CAT rate adjusted in order to take into account the local rate increases approved for the company in Telecom Order CRTC 96-1506;
WHEREAS in Decision 96-5, the Commission stated that for 1997 and subsequent years, in the absence of a revenue requirement proceeding for a given year for Québec-Téléphone and Télébec, the companies would be included in an annual contribution charges proceeding; and
WHEREAS, given that in 1996 Contribution Charges, Telecom Decision CRTC 96-11, 10 December 1996, the Commission stated that the annual 1997 contribution charges proceeding for the Stentor member telephone companies would be combined with the 1997 follow-up proceeding to finalize their going-in rates under price cap regulation, the Commission will initiate a separate proceeding to finalize Télébec's 1997 CAT rates -
IT IS HEREBY ORDERED THAT:
1. Télébec's proposed 1995 and 1996 per minute CAT rates of $0.1376 and $0.1097 respectively are approved on a final basis.
2. Télébec is directed to file forthwith revised tariff pages for its final 1995 and 1996 CAT rates and to make any necessary adjustments to amounts already billed to interexchange carriers, as expeditiously as possible.
3. Télébec is directed to file forthwith, interim 1997 contribution charges, effective 1 January 1997, using the 1996 CAT rate approved herein, adjusted in order to take into account the 1997 local rate increases approved in Telecom Order CRTC 96-1506, 20 December 1996.
Allan J. Darling
Secretary General

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