ARCHIVED -  Telecom Order CRTC 98-596

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Telecom Order

Ottawa, 19 June 1998
Telecom Order CRTC 98-596
In the matter of Télébec - 1997 Contribution Charges, Telecom Public Notice CRTC 97-29, 31 July 1997 (PN 97-29).
File No.: 8695-T5-01/97
1. In PN 97-29, the Commission directed Télébec ltée (Télébec) to submit for approval, a final per-minute contribution rate for 1997 based on the company's forecast contribution requirement, reflecting its 1997 Phase III forecast results and its forecast of 1997 minutes for contribution-eligible services as defined in Regulatory Framework for Québec-Téléphone and Télébec ltée, Telecom Decision CRTC 96-5, 7 August 1996 (Decision 96-5). The Commission also directed Télébec to show cause as to why de-averaged per-minute contribution rates (peak and off-peak) applicable to (a) trunk-side connections and (b) line-side connections should not apply in its territory pursuant to Revisions to the Mechanism to Recover Contribution Charges, Telecom Decision CRTC 95-23, 4 December 1995 and Per-Minute Contribution Mechanism for Line-Side Connections, Telecom Decision CRTC 96-12, 12 December 1996, respectively.
2. The Commission made ACC TelEnterprises Ltd. (ACC), AT&T Canada Long Distance Services Company, Canadian Satellite Communications Inc. (Cancom), fONOROLA Inc., SNS Systems Inc. (SNS), Sprint Canada Inc. (Sprint), Telesat Canada (Telesat) and Vidéotron Télécom ltée (the entrants) parties to the proceeding and directed them to file 1997 forecast originating and terminating contribution-eligible minutes, as defined in Decision 96-5.
3. Télébec filed a final 1997 per-minute contribution rate of $0.0868 based on an estimated contribution requirement of $44.1 million which was calculated using its Phase III procedures approved in Decision 96-5.
4. The Commission notes that the proposed final contribution rate is lower than its existing interim rate of $0.0944 per minute.
5. Based on the record of this proceeding, the Commission has made certain adjustments as discussed below resulting in a final approved per-minute contribution rate of $0.0865.
a) Switching and Aggregation
6. During the course of the proceeding, Télébec confirmed that an estimated $55,000 of revenue arising from the implementation of its per-minute switching and aggregation rate of $0.011, which was approved, effective 1 January 1997, in Telecom Order CRTC 97-1334, 16 September 1997, was not included in its forecast 1997 contribution requirement. Since these revenues were generated in 1997, the Commission has included them in Télébec's forecast contribution requirement.
b) Tariff Filings
7. Télébec also indicated that it had included $15,000 of revenue in its forecast 1997 contribution requirement associated with the implementation of charges for new and out-of-book directory listings. The Commission notes that these charges only became effective on 1 January 1998 pursuant to Telecom Order CRTC 97-1575, 30 October 1997. The Commission has excluded these revenues from Télébec's 1997 forecast contribution requirement.
c) Pole Rental Expense
8. In addition, the Commission notes that pursuant to Telecom Order CRTC 96-1506, 20 December 1996, the Commission approved a $2.00 local rate increase per access line to be effective 1 January 1997 for all of Télébec's exchanges. Further, the Commission had noted in Decision 96-5 that Télébec (and Québec-Téléphone) would not be required to lower long distance rates unless the additional revenues cause the company's rate of return on average equity (ROE) to go above the midpoint of their allowable earnings ranges. The Commission did not order Télébec to lower its long distance rates as the company's projections demonstrated that the additional revenues would not cause its ROE to go above the midpoint of its allowable earnings range.
9. In arriving at this decision, the Commission noted that Télébec projected, among other things, $2.5 million for pole rental expenses which was included in its projected 1997 contribution requirement. During the course of the proceeding associated with Tariff Notice 156, dated 12 September 1997, the company indicated that it had reached a settlement with Hydro-Québec on the amount payable for pole rentals for 1997 which is now estimated at $2.3 million. It is the uncertain nature of this expense, caused by a long standing dispute with Hydro-Québec, that resulted in the establishment of an accounting reserve to accumulate the differential between the projected and actual expense for the rental of poles. The Commission considers that due to the minimal impact of the $200,000 differential on Télébec's 1997 contribution requirement, it would be more appropriate, in this case, to reduce Télébec's rental of poles expense to reflect the more recent estimate of $2.3 million rather than accumulating any differences in the accounting reserve.
10. Accordingly, the Commission has removed $200,000 of expense from Télébec's contribution requirement calculation for 1997 to reflect the lower estimate for pole rental expenses and hereby informs the company not to add any amounts to its existing accounting reserve balance as of 31 December 1997 related to the 1997 pole rental expenses.
11. Subject to the adjustments to Télébec's estimated contribution requirement specified in paragraphs 6, 7 and 10 above, the Commission finds Télébec's contribution requirement calculation reasonable and acceptable for purposes of determining the company's final 1997 contribution rate.
12. Télébec provided an estimate of its originating and terminating minutes for 1997 associated with switched voice and data, and Direct Access Lines (DALs) used to calculate its final contribution rate. Télébec also provided an estimate of its own and entrants' Internet minutes which were excluded from the contribution rate calculation. In addition, Télébec provided an estimate of entrants' total originating and terminating minutes for 1997 but was unable to provide a breakdown by individual company. The entrants identified in PN 97-29 (except for Telesat and SNS) also provided estimates of their originating and terminating minutes in Télébec's territory.
13. The Commission notes that in the entrants' submissions (1) most excluded DAL and Internet minutes, (2) some included non-contribution eligible minute traffic originating via 800 service, (3) a substantial portion of the entrants' traffic terminating in Télébec's territory was terminated indirectly via other carriers, (4) Sprint indicated that 85% of its estimated 1997 terminating minutes were resold minutes, and (5) ACC could only provide actual switched voice terminating minutes for the first half of 1997, based on Télébec invoices, noting that it did not track or forecast these minutes.
14. In Decision 96-5, the Commission stated that contribution should be paid on all switched voice and data traffic that is interconnected to the Public Switched Telephone Network (PSTN) in both Québec-Téléphone and Télébec territories.
15. Cancom noted that in Telecom Order CRTC 97-590, 1 May 1997, which broadened the scope of contribution-paying services in the territories of the Stentor-member companies, the Commission did not extend the application of the existing contribution scheme to Internet Access Services offered in those companies' territories.
16. On 29 May 1997, Cancom requested that the Commission settle a billing dispute between itself and Télébec by determining whether or not contribution is payable on Internet Access services in Télébec's territory.
17. The Commission notes that in accordance with Telecom Order CRTC 98-548, 4 June 1998, Internet Access Services in the Independents' territories are not subject to contribution as of 1 January 1997. As noted above, Internet minutes are not included in the calculation of Télébec's final 1997 contribution rate.
18. In light of the wide variations in reporting practices and the inclusion of a large portion of entrants' reported minutes which do not attract contribution because of indirect termination, the Commission has relied on Télébec's estimate of 1997 contribution-eligible minutes, adjusted to account for the Commission's directive with respect to the Télébec/Telesat dispute discussed below.
19. During the course of the proceeding, Télébec and Telesat expressed concerns with respect to the contribution eligibility of a particular Telesat customer service characterised by Télébec as traffic provided by three DALs.
20. A DAL is a network arrangement used to exchange traffic between the network of a long distance service provider and a subscriber's premises.
21. Télébec was of the view that the payment of contribution should apply to all switched voice and data traffic that is interconnected to the PSTN, including DAL traffic and took the position that since the three DALs in question are able to carry traffic between Télébec's network and the Telesat customer's Private Branch Exchange (PBX) and from this PBX to Bell Canada's (Bell's) territory, i.e., interexchange traffic, that traffic should be subject to contribution.
22. In its comments, Telesat indicated that the service in question is configured to provide point-to-point voice communications between the customer's remote mine site and the gateways located in both Bell's and Télébec's territory. Telesat stated that satellite programming prevents gateway-to-gateway connections and the gateway sites which interface with foreign exchange office (FXO) telephone company lines do not support FXO- to-FXO connectivity. In addition, Telesat pointed out that the connectivity between Bell and Télébec gateways is not possible since the customer-owned PBX has been partitioned to prevent it.
23. Telesat also noted that the customer's mine site is located in an unserved region of Télébec's operating territory and that without the Telesat facility, the mine site would have no access to telephone service.
24. Telesat further stated that the mine site is only connected to the PSTN through Telesat's services and thus there are no points where potential leakage to the PSTN could occur and given that the PBX is customer-owned but maintained and programmed by Télébec personnel, it is highly unlikely that a leaky PBX could go undetected.
25. In its reply comments, Télébec submitted that it was not its responsibility to prove that the service in question was contribution exempt and once Telesat provides the appropriate proof, the Commission can issue an order exempting these circuits from contribution.
26. The Commission considers that the service configuration described above constitutes a foreign exchange (FX) service wherein traffic moves between the customer's PBX at the remote mine site and a gateway connected to the network of either Bell or Télébec but not between the gateways. As such, the service cannot be characterized as a DAL and should not attract contribution.
27. In light of the foregoing, the Commission has adjusted Télébec's 1997 contribution eligible minutes to remove the minutes associated with the three DALs.
a) De-averaged Contribution Mechanism
28. In its initial submission, Télébec indicated that it could not implement a de-averaged per-minute contribution mechanism for trunk-side connections until it makes the necessary changes to its information systems for the introduction of equal access on 1 January 1998 to permit a breakdown of traffic into peak and off-peak periods.
29. Télébec also stated that a de-averaged per-minute contribution mechanism for line-side connections would be equally applicable starting 1 January 1998 and that it would be preferable to simultaneously introduce a uniform contribution mechanism for both trunk-side and line-side connections on a peak/off-peak basis.
30. The Commission accepts Télébec's proposal and expects the company to adopt a de-averaged contribution mechanism for both trunk-side and line-side connections on a peak/off-peak basis applicable to its 1998 final contribution rates to be filed pursuant to Québec-Téléphone and Télébec ltée - 1998 Contribution Rate, Telecom Public Notice CRTC 98-9, 11 May 1998.
b) Interest on Accounting Reserve
31. Télébec has accumulated an amount in an accounting reserve resulting from a long standing dispute with Hydro-Québec over amounts due for the shared use of poles between the two companies.
32. In a letter dated 22 July 1997, the Commission expressed the view that the interest expense calculated and accumulated on the company's accounting reserve balance for the rental of poles should not be an allowable expense for regulatory purposes since it would negate any benefit to subscribers.
33. The Commission notes that in the interim, the company transferred the total balance of the accounting reserve into a special fund, which is to be administered by a trust company, and that the interest earned on the investments is accumulated with the balance of the accounting reserve.
34. The Commission also notes that in previous years, Télébec calculated an imputed interest earning on the balance of the accounting reserve based on the previous year's cost of capital.
35. The Commission accepts for regulatory purposes Télébec's creation of a special fund to accumulate the accounting reserve balance with related interest as long as the fund earns reasonable returns consistent with prevailing market rates.
c) Market Share Criterion
36. The Commission requested that all parties to the proceeding provide their views on whether or not companies that have at least 0.5% share of total contribution-eligible minutes in Télébec's territory should, in future years, be made parties to subsequent proceedings held to set Télébec's contribution rate.
37. Of the interested parties, ACC, Cancom and Telesat considered this threshold too low and that a range of 2% to 5% would be more appropriate given Télébec's base of minutes and that a 0.5% threshold would impose a significant cost burden on low-minute volume companies without a commensurate benefit.
38. The Commission notes that on the basis of Télébec's current estimate of 1997 contribution-eligible minutes, any interexchange carrier (IXC) and/or reseller with a 0.5% share of total contribution-eligible minutes in Télébec's territory would have to generate approximately 2.5 million minutes per annum of interexchange traffic to be made a party in any future contribution charge proceeding.
39. In the circumstances, the Commission considers that a 0.5% contribution-eligible minute threshold is appropriate as a market share measure for interexchange traffic in Télébec's territory and is consistent with that approved for Stentor-member companies.
40. In light of the above, the Commission approves a 1997 per-minute contribution charge for Télébec of $0.0865 on a final basis.
41. Télébec is directed to issue forthwith revised tariff pages for its final 1997 contribution rate and to make any necessary adjustments to amounts already billed to IXCs as
expeditiously as possible.
Laura M. Talbot-Allan
Secretary General
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