ARCHIVED -  Telecom Decision CRTC 98-5

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 in Canada were brought under the Commission's jurisdiction.

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 (PN 95-15), the Commission initiated a proceeding to deal with a regulatory framework for the independent telephone companies in Quebec and Ontario (the independents), except Ontario Northland Transportation Commission. In PN 95-15, the Commission determined that owing to the unique circumstances of Prince Rupert City Telephones (City Tel), an appropriate regulatory framework for City Tel could be better established in a separate proceeding at a later date.

On 19 February 1997, the Commission issued Regulatory Framework - Prince Rupert City Telephones, Telecom Public Notice CRTC 97-8 (PN 97-8), initiating a proceeding to deal with the regulatory framework for City Tel. In PN 97-8, the Commission expressed the preliminary view that the regulatory framework established 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), for the Ontario independents, could apply to City Tel as of 1 January 1998 (including a $2.00 increase in local rates effective 1 January 1998 and 1999).

On 21 April 1997, City Tel filed its comments on the applicability of Decision 96-6 to its telecommunications operations, as well as responses to Commission interrogatories. City Tel also filed further responses to Commission and Westel Telecommunications Ltd. (Westel) interrogatories on 26 June 1997. On 22 September 1997, BC TEL and Westel filed comments. On 6 October 1997, BC TEL and City Tel filed reply comments. The Commission also received comments from Kaien Computer Solutions on 18 April 1997 and 15 August 1997.

On 31 July 1997, City Tel filed Tariff Notice 15 requesting approval to increase rates for residence and business primary exchange services as well as Business Overline and PBX trunk-line rates by $2.00, effective 1 October 1997. In Telecom Order CRTC 97-1570, 29 October 1997 (Order 97-1570), the Commission approved a $2.00 increase in local rates effective 1 November 1997, the effective date being two months earlier than that which was proposed in PN 97-8.

The Commission also concluded that the regulatory framework to be applied to the Public Utilities Commissions (PUCs) (except Cochrane Public Utilities Commission (Cochrane)) should be identical to that specified for all Ontario independents, giving all subscribers equivalent safeguards under the Telecommunications Act (the Act) and equivalent access to competitive telecommunications services. The Commission stated that applying the identical regulatory regime to the PUCs would create a single framework for all independents in Ontario and would make that regulatory framework consistent with the policy objectives of the Act.

In PN 97-8, the Commission was of the preliminary view that the regulatory framework set out in Decision 96-6 for the Ontario independent telephone companies could apply to City Tel.

Consistent with Decision 96-6, the Commission concludes that rate of return regulation will apply to City Tel, and be effective 1 January 1998.

City Tel is a municipally-owned telecommunications service provider. Prior to coming under the Commission's jurisdiction in 1994, City Tel was regulated by the Prince Rupert City Council much like the PUCs in Ontario were regulated by their respective City Councils. As such, City Tel was not required to calculate a rate of return and its accounts did not enable it to properly calculate its capitalization or capital structure.

Prior to coming under the Commission's jurisdiction, the Ontario PUCs were regulated by the Ontario Telephone Service Commission (OTSC), which applied an imputed capital structure and a rate of return on average capital (ROR) range for each of the PUCs to emulate investor-owned companies. In Decision 96-6, the Commission noted that issues particular to municipal ownership faced by the Ontario PUCs did not represent an impediment to rate of return regulation. The Commission considered that the PUCs' differing capital structures and lower cost of debt were appropriately reflected in the OTSC's ROR mechanism. Further, the Commission approved a 200 basis point rate of return range, stating that, with the regulatory method established in Decision 96-6, this range should provide the carriers with a reasonable opportunity to be rewarded if they are efficient. At the same time, the Commission stated that a 200 basis point range could minimize regulatory burden.

City Tel stated that it had examined the general circumstances in which the Ontario independents operate and concluded that its risk factors are more in line with those independents that have high rates of return on average common equity (ROEs), specifically Hurontario Telephones Limited, Otonabee Telephones Ltd., The South Bruce Rural Telephone Company Limited and Wightman Telephone Limited (High ROE independents).

Due to its small size, isolated location and limited business base, City Tel submitted that the closure of a major employer in Prince Rupert would have an immediate and lasting effect on the city’s economic base. City Tel was of the view that, due to tax fatigue, it was unlikely that Prince Rupert would be able to raise tax revenue to offset any shortfalls faced by City Tel. City Tel argued that it is faced with a substantially greater degree of risk than the Ontario PUCs due to various location and economic factors (such as the seasonal nature of the forestry, fishing and tourism industries).

City Tel noted that the number of its installations and removals vary significantly from month-to-month and that this volatility makes it more difficult for it to accurately forecast service levels and the appropriate staffing. City Tel also noted that, as it does not have a Phase II costing system in place, it could not determine whether the separate charges for installations and removals were compensatory.

Westel argued that an appropriate ROR for City Tel should be 10.375% to 12.375% as approved in Decision 96-6 for the four smaller Ontario PUCs. Westel was of the view that the factors cited by City Tel such as location, transient population, dependency on a few industries and tax fatigue are no different than the factors faced by the Ontario PUCs.

Westel was also of the view that, to the extent that City Tel’s transient population results in unusually high installation and removal rates, it would be more appropriate for City Tel to ensure that charges for installations and removals are compensatory rather than to request a higher ROR.

The Commission accepts City Tel's proposal to benchmark itself against comparable independent telephone companies. The Commission agrees with Westel that the factors cited by City Tel such as location, transient population, dependency on a few industries and tax fatigue are no different than similar factors faced by the Ontario PUCs. The Commission notes that City Tel’s asset base is comparable to that of the Ontario PUCs, excluding The Corporation of the City of Thunder Bay - Telephone Division (smaller PUCs). Consequently, the Commission is of the view that in terms of ROR, City Tel is more comparable to the four smaller Ontario PUCs than the High ROE independents.

Given that no detailed risk analysis was provided by City Tel, and that in the Commission’s view, City Tel is comparable to the smaller Ontario PUCs, the Commission considers it reasonable to set City Tel’s midpoint ROR at 11.375% consistent with the approved midpoint for the four smaller Ontario PUCs. Consistent with Decision 96-6, the Commission is also of the view that a rate of return range of 200 basis points is appropriate for City Tel. Accordingly, the rate of return range for City Tel is set at 10.375% to 12.375%.

In Decision 96-6, the Commission directed the Ontario and Quebec independents to record any earnings in excess of their respective maximum approved RORs/ROEs in a deferral account. The Commission further directed that, because local rates were below cost and revenues from the contribution rate recover this shortfall, any amounts recorded in these accounts 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) within three months after year end.

City Tel agreed to establish a deferral account associated with any future excess earnings in accordance with the requirements of Decision 96-6.

D. Carrier Access Tariff Calculations

In Decision 96-6, the Ontario and Quebec independents were directed to use a rate of return that is 50 basis points less than the midpoint of the approved range when preparing their revenue requirement forecasts and CAT calculations. The Ontario and Quebec independents were also directed to provide explanations and justification supporting their revenue requirement forecasts and CAT calculations if, after netting out the impact of local rate increases, the contribution exceeds the previous year’s approved contribution requirement.

City Tel accepted the use of a rate of return that is 50 basis points below the midpoint of the approved range for the purpose of preparing its revenue requirement forecasts and CAT calculations.

Accordingly, City Tel is directed to use a rate of return 50 basis points less than the midpoint of the approved range for calculating its CAT, consistent with the method set out in Decision 96-6.

In Decision 96-6, the Commission approved the proposal to file audited financial statements by 31 March of each year, noting it was consistent with Telecommunications Fees Regulations, 1995, Telecom Public Notice CRTC 95-20, 25 April 1995.

City Tel proposed a filing date of 31 May stating that its financial results are rolled into those of Prince Rupert and then audited in accordance with British Columbia municipal law. City Tel stated that this process and the lack of resources available make it virtually impossible for City Tel to meet the 31 March deadline.

The Commission recognizes City Tel’s concern at the difficulty of meeting the 31 March deadline and so directs City Tel to make every effort to file its financial statement as soon as reasonably possible in order to enable the Commission to finalize the telecommunications fees in a timely fashion.

III INTEREXCHANGE COMPETITION AND RELATED ISSUES

In Decision 96-6, the Commission was of the view that resellers and interexchange carriers should be allowed to compete in the territories of the independents that were subject to the Decision. The Commission approved, effective 1 January 1997, a competitive interexchange regime in the territories of all the independents in Ontario and Quebec, except Northern Telephone Limited, Cochrane and Abitibi-Price Inc. (now Abitibi-Consolidated). The regime was 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, subject to the modifications detailed in Decision 96-6 which were necessitated by the uniqueness of the independents with respect to serving areas, services offered, size and/or ownership arrangements.

In Decision 96-6, the Commission was 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). Accordingly, the independents were directed to implement, by 1 January 1998, equal access, defined as Feature Group D with CCS7 signalling, where technologically feasible. Further, the Commission was 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 Resource Centre Inc. (Stentor) member telephone companies, prior to the implementation of equal access. The Commission did not require the independents to establish a Carrier Services Group, as long as these companies did not offer long distance service themselves. The independents were directed to establish a PIC/CARE process prior to implementing equal access. All companies were directed to file for approval, by 1 August 1997, the appropriate tariffs and a PIC/CARE Access Customer Handbook associated with the PIC/CARE process.

City Tel submitted that it does not have the resources available to continue the day-to-day operations of telephone service and to produce a PIC/CARE Access Customer Handbook and related tariffs within 30 days of the Commission’s decision. City Tel stated that it may be able to produce a PIC/CARE Handbook within 60 days of the Commission’s decision as a result of current initiatives among the independent telephone companies, but would require 180 days from the Commission’s decision to file the related tariffs. City Tel proposed, however, to undertake to use its best efforts to complete and file the related tariffs at the earliest possible time following the decision.

City Tel stated that it is currently able to implement equal access except for CCS7 signalling. City Tel stated that it is presently negotiating for the provision of CCS7 signalling in City Tel’s territory and that, if a cost effective agreement can be reached with BC TEL, CCS7 would be implemented within 60 days of the agreement.

Westel stated that equal access cannot be implemented until appropriate PIC/CARE procedures are in place and, therefore, considered that City Tel should not be given 180 days to complete and file its PIC/CARE Access Customer Handbook and related tariffs. Westel noted that the formats of the PIC/CARE Access Customer Handbook and related tariffs are well established. For those reasons, Westel recommended that City Tel dedicate the resources required to complete and file its PIC/CARE Access Customer Handbook and related tariffs within 30 days of the Commission’s decision.

The Commission notes that Westel submitted that City Tel should file its PIC/CARE Handbook and related tariffs within 30 days of a decision in this proceeding. In Decision 96-6, however, the Commission allowed the Ontario and Quebec independent telephone companies to file the same information one year from the date of that Decision. Due to the complexity of the information required and City Tel’s limited resources, the Commission finds reasonable City Tel’s request to complete and file its PIC/CARE Handbook and related tariffs within 180 days of the date of this Decision.

With respect to CCS7 signalling, the Commission considers that City Tel and BC TEL should be given the opportunity to negotiate a mutually-acceptable agreement for the provision of CCS7 signalling in City Tel’s serving territory. The Commission notes, however, that CCS7 signalling is a necessary prerequisite to equal access. The Commission considers it necessary for City Tel and BC TEL to have an agreement in place by the time City Tel has filed its PIC/CARE Handbook and related tariffs in order for City Tel to be in a position to implement equal access as soon as possible. City Tel indicated that it will need 60 days to implement the agreement. Consequently, the Commission intends to intervene if City Tel and BC TEL have not resolved the matter within 90 days of the date of this Decision. City Tel and BC TEL are directed to provide the Commission with a timetable as to when they consider they will have an agreement for the provision of CCS7 signalling in City Tel’s territory.

As set out in Order 97-1570, City Tel raised its local rates by $2.00 effective 1 November 1997. The Commission remains of the view that local rates will need to be more reflective of underlying costs. Therefore, the Commission directs City Tel to file tariff revisions, by 30 October 1998, providing for local rate increases of $2.00 per local access line, to be effective 1 January 1999, except in those cases where a particular local rate is already compensatory. City Tel is also directed to reduce the contribution component of its CAT by an amount equivalent to the revenues derived from the local rate increase, effective 1 January 1999.

In Decision 96-6, the Commission required the independents to develop an annual forecast of originating and terminating toll minutes in their respective territories, as part of the annual CAT filings.

In Decision 96-6, the Commission was of the view that these minutes should be estimated and agreed to by the independents and their toll providers. The Commission stated that the CAT forecasts were to include the supporting information for the proposed contribution rate and combined switching and aggregation and equal access charge to include (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 Broad Service Category (BSC), and (3) forecast contribution and revenue requirements.

In Decision 96-6, the Commission, as a result of its decision to forbear from the regulation of terminal equipment, determined that the surplus/shortfall in the Competitive Terminal BSC should be excluded from the contribution requirement calculation. The Commission directed the independents to also exclude revenues, investments and expenses from cellular operations, including an attributable portion of common costs, from the contribution requirement calculation.

City Tel agreed with the Commission’s determinations in Decision 96-6 with regard to terminal equipment forbearance. City Tel submitted that the methodology set out in its draft Phase III Costing and CAT Procedures Manual whereby all revenues, investments and expenses associated with the Terminal and Competitive Network Cellular BSC (including allocated common costs) are removed from the Phase III results before the contribution calculation is made addresses the Commission’s concerns with regard to possible cross-subsidies.

The Commission notes that, in general, City Tel’s costing methodology applicable to cellular and terminal operations complies with the investment and revenue assignment procedures in use by the other independent telephone companies. However, the Commission notes that certain expenses, such as billing, customer records, postage, bill printing, and centralized mail remittance related to cellular and terminal activities, have not been addressed in City Tel’s proposed Phase III procedures.

In Regulation of Mobile Wireless Services Provided by Municipally Owned Telephone Companies, Telecom Public Notice CRTC 97-15, 29 April 1997 (PN 97-15), the Commission has initiated a process to consider issues relating to the forbearance from regulation of cellular and other mobile wireless telecommunications voice services provided by municipally-owned telephone companies.

The Commission considers that, until a decision has been issued in the PN 97-15 proceeding and assignment expense procedures relating to cellular and terminal activities are addressed, the surplus from terminal operations and cellular operations will be used in the interim contribution requirement calculation for City Tel. The Commission expects City Tel to address these Phase III costing issues in the proceeding to finalize its 1998 CAT (discussed in paragraph 69 of this Decision).

C. Recovery of Start-up Costs for Equal Access

In Decision 96-6, the Commission noted that, in order to provide interconnection to the toll carriers, the independents would have to modify their networks, systems and procedures which would cause additional costs to be incurred and that start-up costs, such as the cost of modifying switches, would occur once, generally near the outset of competitive entry. The Commission directed the independents to assign the start-up costs for equal access to the Toll BSC and to provide for the recovery of those costs over a ten-year period.

City Tel agreed with the methodology and rating approved in Decision 96-6 for the Ontario and Quebec independents.

Consistent with Decision 96-6, City Tel is directed to assign the start-up costs for equal access to the Toll BSC and to provide for the recovery of those costs over a ten-year period.

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 costs are usually associated with customer and operator services and carrier billing functions.

In Decision 96-6, the Commission supported the independents’ practice of equating switching and aggregation costs to the costs they currently assign to the Toll BSC (direct toll costs) and ordered that a single company-specific rate for the recovery of switching and aggregation be developed to recover such costs.

City Tel agreed with the methodology established by the Commission in Decision 96-6 with a slight modification to take into account separate toll billing and collection costs.

BC TEL disagreed with the proposal that City Tel derive its switching and aggregation costs from the Phase III Toll BSC. BC TEL argued that, under a split rate base regime, investment and expenses for carrying the toll traffic of Alternate Providers of Long Distance Service are assigned to the Utility segment. BC TEL argued that City Tel should similarly be assigning such investment and expenses to carry BC TEL’s toll traffic to City Tel’s Phase III Local BSC. BC TEL stated that, should the Commission determine that City Tel is to derive its switching and aggregation costs using its Phase III Toll BSC, then only causal costs should be recognized for that purpose.

BC TEL expressed concerns with regard to the inclusion of billing and marketing costs associated with toll service in the Toll BSC and hence its recovery from all toll carriers.

In response to BC TEL’s concerns, City Tel noted that as a result of its current agreement with BC TEL, whereby it bills and collects toll charges for BC TEL, it incurs billing and marketing costs associated with toll service. City Tel noted that should this arrangement not persist in the future, then such costs would no longer exist. City Tel nevertheless proposed that the direct toll costs component be separated into a switching and aggregation and equal access component and a new billing and collection component applicable as required to a toll provider.

In response to interrogatory Prince Rupert(CRTC)20May97-117, City Tel indicated that, in accordance with its draft Phase III Costing and CAT Procedures Manual, it would capture toll billing and collection costs under its Traffic and Commercial Study and could accordingly separate such costs from the Toll BSC. City Tel did not state how these costs would be translated into a rate or charged to toll carriers using its billing and collection services.

In Decision 96-6, the Commission recognized that a Phase II incremental costing approach was used to determine switching and aggregation costs for the Stentor-member companies but supported the small independents’ current practice of equating switching and aggregation costs to the costs they assigned to the Phase III Toll BSC. The Commission remains of the view that the costs assigned under the Phase III Toll BSC for the independent companies are a reasonable estimate of switching and aggregation costs and serve to reduce the regulatory burden for small independents as compared to the methodology for the Stentor-member companies.

The Commission notes that the toll billing and collection issue was not raised in the proceeding leading to Decision 96-6. The Commission is of the view that City Tel should adopt the proposal to segregate the toll billing and collection charges from the direct toll costs and charge such separate costs only to the toll carriers who utilize the said services as this would be equitable for all toll carriers interconnecting with City Tel.

Accordingly, the Commission directs City Tel to file, as part of its annual CAT filing, a rate designed to recover the switching and aggregation and equal access start-up costs assigned to its Toll BSC, excluding the billing and collection costs identified under its Traffic and Commercial Study, calculated in accordance with the principles set out in Decision 96-6 but that City Tel exclude the billing and collection costs. Further, in conjunction with its 1998 CAT filing (discussed in paragraph 68 of this Decision), City Tel is directed to file a proposed rate and methodology for the recovery of the toll billing and collection costs identified under its Traffic and Commercial Study.

E. Interim 1998 Carrier Access Tariff

As noted earlier, in Orders 97-1923 and 97-1923-1, the Commission approved, on an interim basis as of 1 January 1998, the revenue settlement agreement between BC TEL and City Tel. In that Order, the Commission stated its intention that a CAT, when put in place in 1998, would replace the revenue settlement agreement, effective 1 January 1998.

In this proceeding, in order to determine a CAT for 1998, the Commission requested City Tel to provide Phase III forecast information for each of the years 1996 and 1997. In response to interrogatory Prince Rupert(CRTC)20May97-101a), City Tel calculated, based on 1996 and 1997 settlement revenues, hypothetical CAT rates of $0.0803 and $0.0802 for 1996 and 1997, respectively.

Given that a 1998 forecast was not filed in this proceeding, the Commission considers it appropriate to set for City Tel an interim 1998 CAT based on the company’s 1997 forecast, adjusted for the 1998 impact of the $2.00 rate increase approved in Order 97-1570 and other determinations for terminal and cellular operations as set out in Section B above. Accordingly, the Commission approves for City Tel, on an interim basis, a CAT of $0.0503 effective 1 January 1998. City Tel is directed to issue forthwith revised tariff pages, effective 1 January 1998, reflecting the interim 1998 CAT rate approved in this Decision.

The Commission intends to issue a public notice initiating a proceeding to finalize the 1998 CAT once City Tel files its 1998 Phase III/CAT revenue requirement forecast. Interested parties will have an opportunity to comment on City Tel’s proposed costing methodology to derive a 1998 CAT in that proceeding.

F. Carrier Access Tariff Filing Requirements for 1999 and Subsequent Years

In Decision 96-6, the independents were directed to file for each calendar year company-specific CATs and supporting information by 31 January of the same calendar year. Until the Commission approved the company-specific CATs for each calendar year, and in order to reduce the regulatory burden on the small independents, the Commission directed that the previous year's CATs become the interim CATs for the calendar year in question.

Consistent with Decision 96-6, City Tel is directed to file for 1999 and subsequent years a specific CAT and supporting information by 31 January of the same year. Until the Commission approves the specific CAT for each calendar year, the Commission directs that the previous year’s CAT become the interim CAT for the calendar year in question. The 31 January filings are to include the supporting information as detailed on page 35 of Decision 96-6.

A. Use of Phase III Manuals and Procedures

In Decision 96-6, the Commission determined 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.

As part of the proceeding, City Tel filed on 1 May 1997, for approval, a draft Phase III Costing and CAT Procedures Manual.

The Commission approves the Phase III Manual filed by City Tel subject to changes related to the treatment of collection and billing costs addressed above in Part V, Section D, and to the costing issues associated with terminal and cellular operations addressed above in Part V, Section B.

With respect to the filing of Phase III Manual updates by the independents, in Decision 96-6, the Commission considered that one annual submission, filed on or before 31 March of the following calendar year, was appropriate.

Consistent with Decision 96-6, the Commission considers it appropriate that City Tel file its Phase III Manual updates, on or before 31 March of the following calendar year.

City Tel proposed to establish its depreciation reserve accounts for regulatory purposes on the basis of an analysis of vintage additions and retirements from 1969 to 1995 and the application of Iowa survivor curve expectancy factors similar to those approved by the Commission for BC TEL or, in default of a BC TEL asset class match, for other independent telephone companies. City Tel proposed to calculate the annual depreciation expense using the straight-line method and the Commission-approved Average Service Lives used by BC TEL and by other independent telephone companies.

Westel was of the view that City Tel should conduct detailed depreciation studies for its various asset classes.

In response, City Tel noted that, unlike the other independent telephone companies, City Tel has no history with depreciation accounting since it is not a requirement under the accounting principles generally accepted for municipalities in British Columbia. City Tel argued that, in order to comply with the Westel proposal, it would have to undertake a comprehensive program which would entail a very significant expenditure with a resulting material impact on City Tel's contribution and CAT requirements.

The Commission notes that a number of the independents have, in their depreciation filings, identified difficulties in complying fully with the methodology of the Commission's Phase I depreciation directives. The Commission also notes that, in recognition of the heavy burden and potential costs which may be borne by the independents to fully comply with Phase I depreciation directives, the Commission intends, at a later date, to examine the possibility of establishing a less burdensome alternative methodology to calculate depreciation. Accordingly, on an interim basis, City Tel’s proposal to utilize BC TEL's approved depreciation parameters where appropriate and other independents’ rates in default of a BC TEL asset class match as a proxy is hereby accepted for the purpose of calculating Phase III results, financial reporting and calculation of excessearnings.

In Decision 96-6, the Commission was of the preliminary view that local competition should be allowed in the territories of the independents.

City Tel considered it premature to decide on the issue of local competition in its serving territory. Given its unique circumstances arising from its isolated location and economic situation, City Tel was of the view that such a decision could not be made until the terms and conditions of local competition in the territories of the Ontario independents have been determined and implemented and the effects of local competition in those territories have been ascertained.

Westel submitted that it would be more appropriate to roll out local competition in City Tel’s territory at the same time as it is rolled out in the territories of the other independents. In Westel’s view, there was no reason to wait until the effects of local competition have been ascertained in the operating territories of other independents.

The Commission agrees with Westel that local competition should be introduced in City Tel’s territory at the same time as it is introduced in the territories of other independents. In Decision 96-6, the Commission noted the proceeding that was underway to determine the terms and conditions of local competition as it relates to the Stentor-member telephone companies and considered 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. Further, the Commission stated that following the release of such a decision, the Commission intended to issue a public notice to determine, if appropriate, the applicability of those terms and conditions for local competition in the territories of the independents.

The Commission notes that the terms and conditions of local competition in the territories of the Stentor-member telephone companies have been set in Local Competition, Telecom Decision CRTC 97-8, 1 May 1997. In view of this, the Commission considers that City Tel will be in a position to fully participate in a proceeding to determine the applicability of the terms and conditions for local competition and to ascertain the effects of local competition in its territory. With the regulatory framework as determined in this Decision, City Tel will also be better able to show whether its isolated location and its volatile economic conditions call for different terms and conditions for competitive local entry in its territory. Further, as noted in Review of the Contribution Regime of Independent Telephone Companies in Ontario and Quebec, Telecom Public Notice CRTC 97-41, 18 December 1997, the Commission intends to issue a public notice in the winter of 1998-1999 to consider the preliminary view expressed in Decision 96-6, and determine, if appropriate, the terms and conditions for local competition in the territories of the independents.

VIII TARIFF FILING REQUIREMENTS AND TERMINAL EQUIPMENT FORBEARANCE

A. Tariff Filing Requirements

In Decision 96-6, the Commission determined that for telecommunications services other than those which the Commission has determined meet the conditions for forbearance, the independents were 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. The Commission also determined that, while it would continue to require tariffs for promotions and market trials, it would not require economic studies and endeavour to provide flexibility and deal with such applications on an expedited basis.

No party to the proceeding opposed applying these determinations to City Tel.

The Commission has set out in Section B below the terms and conditions for forbearance from the regulation of terminal equipment. Therefore, the Commission considers it appropriate that, for telecommunications services other than those which the Commission has determined meet the conditions for forbearance, the determinations made in Decision 96-6 with regard to tariff filing requirements will apply to City Tel.

B. Terminal Equipment Forbearance

In Decision 96-6, the Commission recognized 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. With the establishment of an accounting separation, the Commission decided pursuant to section 34 of the Act to refrain, with respect to the sale, lease and maintenance of Competitive Toll - Other (CT-O) and Competitive Toll - Multi-line & Data (CT-MD) equipment, from the exercise of powers and the performance of duties with respect to sections 24, 25 and 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.

Expressing concerns about possible cross-subsidies from monopoly services to terminal equipment services and anti-competitive pricing, the Commission directed the independents to file tariffs deleting reference to the sale, lease and 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 determinations.

Consistent with Decision 96-6, the Commission will refrain, pursuant to section 34 of the Act, 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 with respect to the sale, lease and maintenance of CT-O and CT-MD equipment by City Tel. 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. Pursuant to subsection 34(4), effective the date of this Decision, the above-noted sections of the Act do not apply to the sale, lease and maintenance of terminal equipment by City Tel.

City Tel is directed to issue revised tariff pages removing all references to the sale, lease and maintenance of its terminal equipment. The company is to confirm the unbundling of its terminal equipment from its monopoly services with confirmation of the specific changes to the company’s Phase III Costing procedures proposed to reflect the revised treatment of terminal equipment. Consistent with Decision 96-6, City Tel is directed to continue to identify and report competitive terminal equipment such that the Phase III results equal the audited financial statements of the company.

Also, concurrent with its 1998 CAT filing, City Tel is directed to file proposed tariff pages revising its Terminal Attachment Plan tariffs to comply with BC TEL’s Terminal Attachment Program tariffs as applicable to City Tel services.

In Decision 96-6, the Commission approved, for the Ontario independents, Bell Canada’s (Bell) Extended Area Service (EAS) 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. The Commission approved the continued use of the Bell criteria and the Québec-Téléphone and Télébec ltée criteria for the Quebec independents.

In response to Commission interrogatories, City Tel stated that it has relied upon the EAS criteria utilized by BC TEL, and, subject to one exception, was in favour of the continued use of these criteria. With respect to the exception, City Tel noted that, given that most of the communities in the northwest portion of British Columbia are isolated and, in most cases, only accessible by boat or float plane, the 40 mile or 64 kilometre limit between EAS exchanges provided for in the BC TEL criteria would not be appropriate for City Tel. City Tel noted, for example, it has an EAS link with the community of Kincolith which is located 70 kilometres from Prince Rupert. Under BC TEL’s current criteria this EAS link, or links with other communities similarly situated, would not be possible. City Tel noted that, due to the rugged coastal mountain terrain surrounding Prince Rupert, no growth of additional communities is expected in the near future. However, should an opportunity for EAS arise in the future, City Tel proposed, insofar as the distance limit between exchanges was concerned, to deal with each new situation on a case-by-case basis.

The Commission approves City Tel’s use of BC TEL’s criteria for establishing new EAS links, with the exception of the 64 kilometre criterion which will be dealt with on a case-by-case basis.

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

In Decision 96-6, the Commission required that, for the independents in Ontario and Quebec, subscribers pay for the cost of EAS directly through higher local rates and that the CAT not be used for this purpose.

City Tel agreed with the policy established in Decision 96-6 that subscribers pay for the cost of EAS directly through higher local rates and the CAT not be used for this purpose.

Consistent with Decision 96-6, City Tel is to recover the costs of new EAS links from subscribers.

In Decision 96-6, the Commission determined 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.

The Commission considers it appropriate that the method to deal with quality of service issues outlined in Decision 96-6 apply to City Tel.