ARCHIVED -  Telecom Decision CRTC 98-1

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Ottawa, 11 February 1998

Telecom Decision CRTC 98-1


File No.: 8622-N1-01/97

Table of Contents

Paragraph Numbers
Numéros de paragraphes




I Introduction and Background   1


I Introduction et historique

II Advantages and Disadvantages of Toll Competition   5


II Avantages et inconvénients de la concurrence dans l’interurbain

III Impact of Toll Competition on High-Cost Serving Areas and Underserved and Unserved Areas   11


III Incidences de la concurrence dans l’interurbain sur les zones de desserte à coût élevé ainsi que sur les zones mal desservies et non desservies

IV Form of Competition and the Appropriateness of an Interim Regime   21


IV Forme de concurrence et opportunité d’un régime provisoire

V Equal Access and Recovery of Start-up Costs   29


V Égalité d’accès et recouvrement des coûts de démarrage

VI Rate Rebalancing and Rationalizing Toll Rates for the Eastern and Western Regions of Northwestel’s Operating Territory   45


VI Rééquilibrage des tarifs et rationalisation des tarifs interurbains pour les régions de l’est et de l’ouest du territoire d’exploitation de la Norouestel

VII Contribution and Recovery of Switching and Aggregation Costs   67


VII Contribution et recouvrement des coûts de commutation et de groupement

VIII Method of Regulation  81


VIII Méthode de réglementation

IX Quality of Service   89


IX Qualité du service


(Note: This overview is provided for the convenience of the reader and does not constitute part of the Decision. For details and reasons for the conclusions, the reader is referred to the various parts of the Decision.)

In this Decision, the Commission, among other things:

(1) finds that while toll competition in the operating territory of Northwestel Inc. (Northwestel), subject to appropriate terms and conditions, is in the public interest, it is not appropriate at this time because it would, among other things, adversely impact on Northwestel’s ability to continue to be a full service provider of last resort throughout its operating territory;

(2) orders that toll competition be introduced, effective 1 July 2000, following the disposition of the Commission’s proceedings on (a) High-Cost Serving Areas and (b) the determination of the specific terms and conditions of toll competition in Northwestel’s territory;

(3) finds that the terms and conditions of toll competition in Northwestel’s territory should be consistent with those in the rest of Canada with appropriate modifications, if necessary, to take into account the special circumstances of Northwestel;

(4) orders Northwestel to implement, by 1 July 2000, Feature Group D (FG-D) equal access in each of the four switches –Yellowknife, Whitehorse, Iqaluit and Fort Nelson;

(5) orders Northwestel to increase its local rates in two stages as follows: by $4 effective 1 August 1998 and by $6 effective 1 August 1999, for both residence and business customers;

(6) orders offsetting toll rate reductions and directs that these reductions equalize the toll rates in the Eastern and Western regions of Northwestel’s operating territory and directs Northwestel to move long distance rates so that they are similar to those in the south;

(7) notes that this rate rebalancing initiative, on average, is expected to reduce the monthly bills for the majority of Northwestel’s residential subscribers; and

(8) finds that the current incentive earnings regime remains the most appropriate method of regulation for Northwestel at this time.

I Introduction and Background

In an application dated 15 October 1996, Call-Net Enterprises Inc. (Call-Net), requested that the Commission order Northwestel Inc. (Northwestel) (i) to show cause why the general framework regarding the terms and conditions of interconnection to the public switched telephone network (PSTN) and resale and sharing of interexchange voice services 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) should not be made applicable to Northwestel; and (ii) to implement immediately the terms and conditions of interexchange interconnection and resale and sharing based on Decision 92-12, on an interim basis, in the operating territory of Northwestel.

By letter dated 28 February 1997, the Commission denied Call-Net's application for interim relief. On the same date, the Commission issued Northwestel Inc. - Interconnection of Interexchange Carriers and Related Resale and Sharing Issues, Telecom Public Notice CRTC 97-10, 18 February 1997 (PN 97-10), initiating a proceeding to consider the issues of interconnection of interexchange carriers (IXCs) to Northwestel’s network and the resale and sharing of Northwestel’s telecommunications services to provide interexchange voice services that allow for access to the PSTN.

In PN 97-10, the Commission sought comments associated with long distance service competition in Northwestel’s territory, including (i) the advantages and disadvantages of competition, (ii) the impact on service to high-cost areas, (iii) the impact on service to underserved areas, (iv) the form of competition, (v) the terms and conditions of interconnection, (vi) the appropriate contribution mechanism, (vii) equal access and recovery of start-up costs, (viii) the implementation schedule for competition and equal access, (ix) the recovery of switching and aggregation costs, (x) the method of regulation (e.g., split rate base), (xi) the need to restructure rates, (xii) the rationalizing of toll rates for the Eastern and Western regions of Northwestel’s operating territory, and (xiii) any other issues that the Commission should consider.

The Commission received submissions from individual subscribers, organizations, and from the following registered parties: Call-Net, Government of the Northwest Territories (GNWT); Government of Yukon (Yukon); Westel Communications Ltd. (Westel); Consumers’ Association of Canada [NWT] (CAC [NWT]); TMI Communications Company, Limited Partnership (TMI); and Telesat Canada (Telesat). The Commission held regional consultations at Yellowknife and Whitehorse, with video links to Iqaluit and Fort Nelson, respectively.

II Advantages and Disadvantages of Toll Competition

Northwestel, CAC [NWT], Yukon and Telesat submitted that competition would provide the benefits of customer choice of long distance service suppliers and the potential for lower long distance rates.

Northwestel submitted that it is financially dependent on toll revenues from a few high-volume business customers and with the introduction of toll competition it would lose this revenue and incur a revenue shortfall. Northwestel further submitted that its larger toll users would be highly susceptible to switching to a new carrier, which would result in a faster rate of market share erosion than that experienced by the Stentor owner companies (SOCs).

GNWT submitted, among other things, that competition would bring new services and pricing packages that would be more responsive to customers’ needs, but noted that competition may affect employment and investment levels.

GNWT and CAC [NWT] submitted that competition may impact the accessibility to affordable, high quality service and that it may result in loss of traffic for Northwestel on which the company relies to generate subsidies to support unprofitable service.

The Commission notes that there was general support for the introduction of competition, both in the written comments received and at the regional consultations. The Commission considers that the advantages of competition outweigh the disadvantages and that the disadvantages can be addressed through the establishment of appropriate terms and conditions for toll competition. Among the advantages, competition would reduce toll rates to the benefit of the majority of Northwestel subscribers given the importance of toll calling in the North. Competition would also increase the competitiveness of business in the North, as well as bring about increased customer choice and responsiveness to the requirements of users.

Based on the record of this proceeding, the Commission finds that toll competition, subject to appropriate terms and conditions, is in the public interest.

III Impact of Toll Competition on High-Cost Serving Areas and Underserved and Unserved Areas

Northwestel submitted that, if toll competition were to be introduced, it would have to be on different terms and conditions than those established for other telephone companies in order to address the unique circumstances of its operating environment.

Northwestel submitted that, in comparison to other telephone companies, its operating environment is unique in a number of ways: the varied topography; the extreme climate; long distances between inhabited communities making travel and shipping difficult and costly; a widely dispersed population in small centres; a mix of languages, cultures and lifestyles; a small, fragile and very cyclical economy with a gross domestic product highly dependent on the public sector; high cost of living; a vast operating area; a high-cost serving area; its financial viability highly dependent on toll service revenues from its high-volume customers; and toll rates significantly higher than in southern Canada.

Northwestel submitted that, absent modifications to take into account the uniqueness of the North, the competition model established by the Commission in the operating territories of other telephone companies would have significant adverse effects, including the viability of Northwestel as a full service provider.

Northwestel submitted that, in order to recover the revenue shortfall arising from toll competition, there would be a need for an external subsidy, through a high-cost area fund.

Westel, GNWT and Yukon agreed with Northwestel that there is a need to establish a mechanism to fund the cost of service to high-cost areas and submitted that this matter should be examined by the Commission in a separate proceeding dealing with high-cost and underserved areas.

Some parties expressed general concern about the continuation of basic service throughout the North.

The Commission notes that it has initiated a proceeding to examine the issue of service to high-cost serving areas in Service to High-Cost Serving Areas, Telecom Public Notice CRTC 97-42, 18 December 1997 (the High-Cost Areas Proceeding), in which the Commission stated its intention to implement by 1 January 2000 any safeguards or mechanisms required to address the issue of service to high-cost serving areas.

The Commission agrees with Northwestel that the company’s provision of service to certain areas is uneconomic and requires financial cross-subsidies from highly profitable toll routes. In the Commission’s view, this source of subsidy would likely be eroded significantly with the introduction of competition, absent further rate rebalancing discussed below and the establishment of appropriate terms and conditions. This would adversely impact on the company’s capability to continue to be a full service provider of last resort throughout its operating territory, thereby further exacerbating the problem of service to underserved and unserved areas in Northwestel’s territory.

Given the above, the Commission finds that the introduction of toll competition in Northwestel's territory, is not appropriate at this time.

In light of (a) the timing of the rate rebalancing directives ordered in this Decision, and (b) the proposed timetable to address the issues in the High-Cost Areas Proceeding, the Commission considers that competition should not be implemented before 1 July 2000 in Northwestel’s territory. This timing takes into consideration the expected implementation date of 1 January 2000 for any mechanisms to address the question of high-cost serving areas. Given the unique circumstances of Northwestel’s operating area, including the matter of uneconomic toll routes, the Commission will initiate a proceeding to examine the specific terms and conditions of competition in Northwestel’s territory (the Implementation Proceeding) which will take into account the findings of the High-Cost Areas Proceeding. The Commission expects to initiate the Implementation Proceeding in late 1999 with a decision expected to be rendered by early 2000.

IV Form of Competition and the Appropriateness of an Interim Regime

Call-Net and Westel submitted that the form of competition established for the SOCs (the Southern-Canada model) should be applied without change in Northwestel’s territory.

Northwestel submitted that the Southern-Canada model fails to respond to the unique needs of the North, including its cost structure and the fact that long distance service is provided at a loss to the vast majority of communities. In Northwestel’s view, competition should not undermine the continued financial viability of the company as a service provider, employer and investor. Northwestel also submitted that competition should not prevent the company from recovering its high operating costs and should permit it to price its services at a competitive margin above the prices of alternate service providers.

A number of parties made submissions concerning the appropriateness of an interim regime and the gradual implementation of competition.

GNWT submitted that, provided a new support mechanism is implemented for high-cost areas, including underserved and unserved, there should be as few restrictions as possible on competitive entry.

Northwestel opposed the early introduction of a competitive resale regime in its territory as this would cause significant and immediate erosion of the company’s toll revenues.

Yukon submitted that competition and equal access should be implemented as soon as possible.

The Commission considers that, as far as possible, the terms and conditions of competition should be the same throughout Canada. In the case of Northwestel, the Commission is of the view that modifications may be required to reflect the uniqueness of Northwestel’s operating environment. The Commission considers that the need, if any, for such modifications will likely be affected by the findings in the High-Cost Areas Proceeding. The Commission intends to examine the appropriateness of modifications in the Implementation Proceeding.

With respect to the matter of an interim limited competitive regime prior to the introduction of equal access, the Commission considers that any such regime, including simple resale and sharing of its interexchange services, would not be appropriate. In the Commission’s view, while an interim regime may provide certain benefits to some subscribers in the largest communities, it would likely have negative consequences for the general body of subscribers as a whole. These consequences include the potential adverse impact on quality of service and undue upward pressure on local service rates.

V Equal Access and Recovery of Start-up Costs

Northwestel proposed that Feature Group D (FG-D) equal access be provided in the four switches located in Yellowknife, Whitehorse, Iqaluit and Fort Nelson.

Northwestel stated that it had no firm plans to introduce FG-D equal access in other communities but assumed that equal access would be rolled out to other locations as competition developed.

Northwestel submitted that toll competitors should be required to fully compensate Northwestel for all start-up costs incurred for the provision of equal access. Northwestel proposed to estimate start-up costs using a Phase II study and develop a per-minute rate and recover the costs over a ten-year period.

Northwestel also submitted that start-up expenditures and the roll-out of equal access should not be incurred and implemented until competitors had committed to enter its market. Northwestel submitted that its finite resources do not permit it to undertake expenditures which require speculation on the outcome of this proceeding and on the plans of potential competitors as to whether, and if so, when and how, they might enter the market.

Northwestel submitted that it could not afford to subsidize the entry of large competitors because of its vulnerability, competitive disadvantages and its inability to generate revenue from lower-cost areas to cross-subsidize its higher-cost areas.

GNWT, Yukon, Call-Net and Westel disagreed with Northwestel’s position that expenditures related to the start-up of equal access should only be undertaken once competitors had contractually agreed to enter its territory.

GNWT was of the view that Northwestel should be required to immediately undertake these start-up activities necessary to accommodate competitive entry, including the roll-out of equal access to the four switches identified in the company’s submission. GNWT was also of the view that the company should be required to file a detailed plan outlining the further roll-out of equal access to other communities.

GNWT, Yukon, Call-Net and Westel also disagreed with Northwestel’s proposal to recover all start-up costs from new entrants and submitted that the recovery of those costs should be consistent with the formula established for the SOCs.

GNWT and Westel submitted that because all customers will benefit from competition, start-up costs should be shared between the company and new entrants based on long-run market share.

Both Call-Net and Westel expressed concern that Northwestel had overestimated start-up costs and submitted that only costs causal to equal access should be recovered by Northwestel.

The Commission notes that no party opposed Northwestel’s proposal to begin the roll-out of equal access by initially implementing FG-D equal access in Yellowknife, Whitehorse, Iqaluit and Fort Nelson. The Commission also notes that most parties called for the continued roll-out of equal access to all communities.

Consistent with its view in Decision 92-12, the Commission considers that equal ease of access through 1+ dialling is essential in a competitive environment. Accordingly, the Commission disagrees with Northwestel’s proposal that start-up expenditures be incurred only once competitors have contractually agreed to enter the company’s market. Moreover, the Commission is of the view that equal access should be rolled out to as many communities as feasible.

The Commission directs Northwestel to implement FG-D equal access in its switches located in Yellowknife, Whitehorse, Iqaluit and Fort Nelson by 1 July 2000 to coincide with the expected introduction of competition in Northwestel’s territory. In conjunction with the provision of FG-D interconnection, Northwestel shall also make arrangements necessary to make available a pair of Common Channel Signalling #7 (CCS7) Signal Transfer Points with which competitors can interconnect for the exchange of CCS7 signalling. The Commission also intends to require Northwestel to file a roll-out plan outlining the type and continued implementation of equal access for its remaining end offices in the course of the Implementation Proceeding.

With respect to the recovery of start-up costs, the Commission is concerned that imposing all start-up costs on new entrants would serve as a deterrent to workable competition.

Consistent with Decision 92-12, the Commission considers that start-up costs should be shared between Northwestel and new entrants. However, the Commission is of the view that a determination of the exact proportion of costs to be recovered as between the company and new entrants should be made in the Implementation Proceeding.

The Commission is also of the view that start-up costs should be based on Phase II incremental costing and recovered through a per-minute mechanism over a ten-year period.

VI Rate Rebalancing and Rationalizing Toll Rates for the Eastern and Western Regions of Northwestel’s Operating Territory

Northwestel submitted that regardless of whether toll competition is introduced, the company should be permitted to engage in further rebalancing of its local and long-distance rates and, accordingly, proposed two different rate rebalancing scenarios.

Under its non-competitive scenario, Northwestel proposed to increase its local rates for both residence and business customers by $4 in 1998, $4 in 1999 and $3 in 2000, with offsetting long distance rate reductions causing its basic toll rates to move towards levels similar to the existing basic schedules of the SOCs.

Under its competitive scenario, Northwestel proposed to accelerate rebalancing with a $4 increase in 1998 and a $6 increase in 1999. Under this scenario, Northwestel proposed to first move its rates towards those of the SOCs, then seek to price its toll services at levels similar to those offered to consumers in the South. Northwestel also submitted that an additional revenue requirement increase would likely be required within this timeframe.

GNWT, noting the increased bypass activity, the pending introduction of competition and the benefits of rate rebalancing identified by the Commission in Review of Regulatory Framework, Telecom Decision CRTC 94-19, 16 September 1994 (Decision 94-19), agreed with Northwestel that its rates needed to be rebalanced prior to the projected introduction of competition on an equal access basis.

A number of parties to the proceeding acknowledged that the high level of toll prices in Northwestel’s serving area constitutes a strong incentive to bypass the company’s toll services.

GNWT submitted that, in order to avoid undue negative impacts on certain customers, any rate rebalancing should be limited in magnitude and should not involve more than one local rate increase over any twelve-month period.

GNWT further submitted that Northwestel’s competitive rate rebalancing proposal would generally allow for a reduction in the average residential subscriber bill and would yield substantial reductions to the average bills of heavy toll users.

GNWT agreed with Northwestel’s proposal to continue to seek to equalize the rates for the Eastern and Western areas.

Yukon submitted that rate rebalancing would produce a welcomed reduction in long distance rates. However, rate rebalancing must not jeopardize quality of service or the affordability of local access. Yukon’s submissions also addressed the Eastern and Western area toll schedule disparities, and included a call for the re-examination of the Commission’s determinations in Bell Canada and Northwestel Inc. - Sale of Facilities in the Northwest Territories, Telecom Decision CRTC 92-6, 1 May 1992 (Decision 92-6).

Call-Net and Westel noted that Northwestel’s rates for local services are far below costs and supported the company’s proposals to rebalance rates.

Northwestel acknowledged Yukon’s dissatisfaction with the present rate structure but submitted that a re-investigation of Decision 92-6 was not warranted. Northwestel submitted that the record of this proceeding showed that substantial cross-subsidies flow throughout Northwestel’s operating territory and that these benefit many Yukon communities.

The Commission notes that while Northwestel has already begun a process of rate rebalancing, its local access rates remain among the lowest in the country. At the same time, its toll rates, particularly those in the Western operating area, are very high.

The Commission agrees with parties that current bypass activities are causing a significant erosion of Northwestel’s revenue. In the Commission’s view, this revenue erosion could ultimately undermine the company’s ability to maintain existing subsidy flows to local service. The Commission notes that rate rebalancing would also reduce the incentive for bypass.

The Commission also agrees with parties that rate rebalancing is a necessary precondition for workable toll competition and considers that Northwestel’s specific proposal to rebalance rates in two steps by $4 and $6 local rate increases with offsetting toll rate reductions over a two-year period, as supported by GNWT, is appropriate.

The Commission shares the concerns of both CAC [NWT] and GNWT with regard to the accuracy of elasticity assumptions concerning rate rebalancing. However, the Commission is of the view that the elasticity factor approved in Telecom Order CRTC 97-1034, 25 July 1997 (Order 97-1034), continues to be the best estimate of elasticity at this time.

The Commission is of the view that the local rate increases directed in this Decision, using the elasticity factor approved by the Commission in Order 97-1034, will permit Northwestel to price its basic toll services at levels similar to the SOCs’ existing basic toll schedules.

Given the uncertainty associated with elasticity, and given that the impacts of the High-Cost Areas Proceeding, and a possible Northwestel initiated revenue requirement proceeding are not known at this stage, the Commission considers that it would be inappropriate to make any determination at this time regarding the need, if any, for additional rebalancing beyond that directed in this Decision.

The Commission notes Northwestel’s proposal to rationalize Eastern and Western toll schedules and the agreement of GNWT and Yukon with this principle.

Since the Eastern area toll rates are significantly lower than those of the Western area schedules and are already similar to the SOCs’ basic toll schedules, the Commission is of the view that the rebalancing should be applied to eliminate the rate disparity between the Western and Eastern area toll schedules, and should also address the bypass issue.

The Commission considers that as a result of the rebalancing initiatives approved herein, including the required toll rate reductions, the average bill for the majority of Northwestel residential customers will likely decrease, as will the average bill for the majority of its business customers.

The Commission hereby orders Northwestel to increase its local access rates by $4 effective 1 August 1998 and by $6 on 1 August 1999, and to offset such increases with toll rate reductions on a revenue neutral basis. Northwestel is directed to file, by 15 June 1997 and 15 June 1998, proposed tariffs reflecting the above.

Given that, among other things, the toll restructuring ordered in this Decision addresses the issue of the rationalization of the Eastern and Western area toll schedules, the Commission is not persuaded by Yukon’s arguments that a review of Decision 92-6 is warranted.

VII Contribution and Recovery of Switching and Aggregation Costs

Northwestel submitted that it was essential that it fully recover the Carrier Access Tariff (CAT) charge. The company estimated its current level of the CAT to be 17 cents per minute which includes switching and aggregation costs, contribution requirement and recovery of start-up costs. At such a level, and if the company were required to satisfy an imputation test for purposes of competitive safeguards, Northwestel submitted that it would be prevented from setting its toll rates at levels reasonably competitive with those of its toll competitors.

Northwestel noted that the costs of providing long distance service are much higher than those in Southern Canada, whether calculated based on Phase III costs or on Phase II incremental costs. Northwestel proposed that switching and aggregation rates be based on Phase III costs.

Northwestel submitted that the contribution mechanism best suited to its territory includes differing peak and off-peak rates, a doubling of minutes for Canada-U.S. and Canada-Overseas calls, no discounts for toll competitors and Direct Access Line (DAL) compensation which fully reflects conversation minutes.

Northwestel proposed that its contribution requirement be calculated to include the shortfall in its "Competitive Terminal - Other" Phase III Broad Service Category because the company remains the only immediate, local provider of single-line telephone sets and inside wire in most of the communities that it provides service to.

GNWT supported a per-minute contribution mechanism but proposed further de-averaging of contribution rates by rate groups. GNWT further submitted that new competitors should not be entitled to any discounts and proposed that contribution on DALs be based on an estimated number of minutes of traffic carried on such lines. GNWT was of the view that a proxy of 8,000 minutes per DAL per month would be reasonable, subject to periodic audits.

GNWT proposed that, consistent with the treatment afforded to the Ontario and Quebec independent telephone companies, any new traffic arising solely as a result of market entry should not be exempt from contribution charges.

GNWT proposed that Northwestel be required to use Phase II costing principles to establish switching and aggregation charges but that it be permitted to make any necessary adjustments to ensure that the study results more accurately reflect the long-run incremental costs of providing switching and aggregation service to competitors.

Westel submitted that the issue of service to high-cost areas should be treated separately from the regulatory framework applicable to Northwestel and that the contribution regime currently applicable to the SOCs should also apply to Northwestel.

Call-Net submitted that, if an explicit fund or other such mechanism is established as a result of the High-Cost Areas Proceeding, sustainable CAT rates could be achieved. In this regard, Call-Net proposed that the contribution mechanism presently in place for the SOCs should also apply to Northwestel, including the use of Phase II costing to determine switching and aggregation charges, and that any CAT established should be applied to all carriers.

Yukon submitted that large toll competitors should be required to pay slightly higher contribution because of the higher costs to serve the North.

With respect to the contribution mechanism, a number of parties recognized the need for some form of competitive safeguards to apply to Northwestel.

Telesat and TMI raised a number of concerns relating to the treatment of contribution on private lines.

Consistent with the view that the terms and conditions of competition in Northwestel’s territory should be as similar as possible with those in the rest of the country, the Commission considers that the contribution mechanism will contain the following elements: (1) contribution will be applied on a per-minute basis; (2) there will be no discounts for toll competitors; (3) the contribution requirement will be calculated using Phase III costs and will be based on the Local/Access shortfall; (4) rates will be de-averaged by peak and off-peak traffic; (5) traffic on DALs will be subject to contribution; and (6) switching and aggregation charges will be based on Phase II incremental costing principles.

In the Commission’s view, a sustainable CAT is necessary to ensure workable toll competition. However, given, among other things, the uncertainty concerning the impact of the High-Cost Areas Proceeding on the CAT, the Commission is not in a position at this time to determine the specific terms and conditions of a contribution mechanism. Such terms and conditions will be established in the Implementation Proceeding, together with other matters, including the need for, and form of, both competitive safeguards and the explicit treatment for contribution on private lines.

VIII Method of Regulation

In Decision 94-19, the Commission determined that a different form of regulation from that applicable to the SOCs should apply to Northwestel as there would be little benefit gained from splitting Northwestel’s rate base due to (1) no major competitor existing in the company’s long-distance service markets and (2) the limited competition that currently exists in private line services and terminal equipment markets.

In Decision 94-19, the Commission adopted an incentive earnings regime for Northwestel by widening the company's return on average common equity to a range of 11.25% to 13.25%, with any returns between 13.25% and 14.25% to be shared between shareholders and subscribers. Earnings in excess of 14.25% are to be returned to the subscribers.

Northwestel submitted that given the presence of shortfalls in its local market and substantial parts of its toll market, the split rate base and the price cap method of regulation applicable to the SOCs would not be appropriate for Northwestel at this time. The company submitted that a premature change to its method of regulation would place its financial viability at risk.

In Northwestel’s view, the earnings method of regulation, supplemented by the incentive scheme established in Decision 94-19, continues to provide the best balance between the interests of customers, competitors and investors for the time being.

Northwestel proposed that after having had the opportunity to observe the introduction and progress of toll competition in the North, and once a number of market/regulatory conditions have been met, the Commission could then consider the appropriateness of other regulatory models developed for the South.

A number of parties submitted that a split rate base regime is the appropriate method of regulation for Northwestel but that price cap regulation would be inappropriate in the short term as it is dependent on Northwestel’s rates for local service being closer to costs.

Westel submitted, among other things, that it would be highly inappropriate for Northwestel to be regulated by way of earnings regulation after toll competition is introduced in its operating territory as this would provide Northwestel with anti-competitive incentives and opportunities.

Given that toll competition is not being introduced immediately, and recognizing the need for a more rational pricing structure prior to considering a move to a different method of regulation, the Commission is of the view that the existing incentive earnings regime established in Decision 94-19 remains appropriate at this time. The Commission will examine this issue further in the Implementation Proceeding.

IX Quality of Service

Northwestel submitted that its role must continue to be that of the primary provider of end-to-end telecommunications services to all communities in the North. With the appropriate funding mechanism in place to maintain its viability as a full service provider in a competitive market, Northwestel stated that it remains committed to fulfilling this vision.

GNWT submitted that the Commission will need to be increasingly vigilant in guarding against any deterioration in quality of service standards and that it will be particularly important for the Commission to consider the rapid introduction of the sanctions described in paragraph 73 of Quality of Service Indicators for Use in Telephone Company Regulation, Telecom Decision CRTC 97-16, 24 July 1997 (Decision 97-16).

Yukon submitted that, among other things, Northwestel’s proposal does not adequately address quality of service issues.

The Commission notes that, depending on the severity of service quality deterioration, Decision 97-16 provides for progressively severe regulatory responses. This, together with the reporting format for service indicators established in Decision 97-16, should, in the Commission’s view, provide for adequate monitoring and enforcement of Northwestel’s service quality after the introduction of toll competition.

Laura M. Talbot-Allan
Secretary General

This document is available in alternative format upon request.

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