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Ottawa, 12 May 1998
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Telecom Order CRTC 98-468
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On 31 March 1998, The New Brunswick Telephone Company, Limited (NBTel) filed an application proposing tariff changes further to Price Cap Regulation and Related Issues, Telecom Decision CRTC 97-9, 1 May 1997 (Decision 97-9).
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File No.: Tariff Notice 710
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1. NBTel submitted that it is unable to reduce its prices on capped services to meet the Price Cap Index (PCI) due to having insufficient margin on its services to absorb the $3.8 million in required price reductions. NBTel proposed to meet the price cap requirements through a reduction to its contribution rate.
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2. NBTel noted that, in response to a Commission interrogatory filed in the proceeding leading to Decision 97-9, it had submitted that it believes that if the Stentor Resource Centre Inc. (Stentor) proposed price cap plan, including the productivity offset, basket design and pricing flexibility, was not approved by the Commission as filed, then the productivity offset for NBTel should be set equal to the rate of inflation. NBTel submitted that it has achieved a high level of productivity historically and this could decline in the future as opportunities to increase productivity in basic service are difficult to achieve. NBTel stated that it was willing to accept the national productivity offset proposed by Stentor, as long as the entire Stentor plan was accepted, including the pricing flexibility for residential services and a basket structure that included contribution.
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3. NBTel stated that, for the most part, it is the low margins on its services which are responsible for causing the company's inability to meet the price cap formula. NBTel indicated that, in assessing margins for these services, it employed Phase II costs with a mark-up of 25%. NBTel indicated that its analysis demonstrates that it has less than $1.4 million of margins in the whole capped services basket.
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4. NBTel submitted that, if the company were to take all of the services in the capped baskets and reduce them to cost plus 25%, it would result in the company offering a quarter of its services at cost or below.
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5. Under letter dated 21 April 1998, NBTel provided responses to Commission interrogatories that requested the company to provide Phase II costs for its Single Line Business Service, Business Multi-line Access Service (BMAS), Digital Switched Service and Digital Network Access Service. As well, the Commission sought the company's views regarding the appropriateness of a number of rate scenarios and the company's preferred order of implementation of those rate scenarios.
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6. NBTel argued that it would be inappropriate to reduce the rates for BMAS given the company's business strategy involving Business Communications Service (BCS) which does not come under the price cap. The company submitted that altering the rate relationship between BMAS and BCS would entice the market place to switch from BCS causing significant cost impacts and revenue consequences other than the reprice effect. NBTel submitted that to maintain rate relationships between BMAS and BCS under such a scenario, the revenue impact would not be sustainable.
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7. NBTel also submitted that it should not be forced to reduce prices on uncapped services to meet the revenue requirement for capped services.
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8. The Commission notes that comments were received from interested parties both supporting and opposing NBTel's application.
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9. The Commission notes that the price cap regime approved in Decision 97-9 differs from that proposed by the Stentor-member companies and by most of the other parties to that proceeding. The Commission notes that it has not received applications to review and vary Decision 97-9 related to the productivity offset or the basket structure.
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10. The Commission notes that, consistent with the Stentor-member companies' position in that proceeding, Decision 97-9 determined that the imputation test established in Local Competition, Telecom Decision CRTC 97-8, 1 May 1997 (Decision 97-8) would be employed as the price floor for capped services. Decision 97-8 determined that for the purposes of costing the resources employed to provide local exchange services, the imputation test is to only include essential facilities at tariff rates (cost plus 25%). In addition, the imputation test is to be applied on a service specific basis and at the rate band level.
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11. Based on the price floor adopted in Decisions 97-8 and 97-9, the Commission disagrees with NBTel's analysis that there is only $1.4 million of margins in its capped services.
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12. The Commission estimates that NBTel would approximately meet its 1998 PCI if rates for Single Line Business Service, BMAS, Non-published Telephone Number Service, Digital Switched Service and Digital Network Access Service are reduced.
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13. The Commission is satisfied that, on the basis of the imputation test required by Decision 97-8, the approved rates specified below will not be anti-competitive.
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14. In light of the foregoing, the Commission orders that:
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(a) Single Line Business Service rates of $22.00 and $31.00 are approved for Bands A and B respectively, effective 19 May 1998.
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(b) BMAS rates of $30.00 and $34.00 are approved for Bands A and B respectively, effective 19 May 1998.
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(c) A rate of $1.00 is approved for Non-Published Telephone Number Service, effective 19 May 1998.
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(d) NBTel is to file, by 19 May 1998, proposed rates for Digital Switched Service and Digital Network Access Service reflecting rate reductions equal to the dollar amounts considered feasible by the company for those respective services as specified on pages 7 and 8 of Attachment 1 to Tariff Notice 710.
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(e) The company is to file, by 19 May 1998, the calculation of its Actual Price Index and Service Band Indices reflecting the foregoing determinations.
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(f) NBTel is to issue tariff pages by 19 May 1998 reflecting the foregoing approved rates.
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Laura M. Talbot-Allan
Secretary General
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This document is available in alternative format upon request.
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