ARCHIVED -  Telecom Order CRTC 99-357

Telecom Order

Ottawa, 19 April 1999

Telecom Order CRTC 99-357

On 1 May 1998, TELUS Communications Inc. (TCI) filed an application requesting that the Commission review and vary parts of Implementation of Price Cap Regulation - Decision Regarding Interim Local Rate Increases and Other Matters, Telecom Decision CRTC 97-18, 18 December 1997 (Decision 97-18) and Implementation of Price Cap Regulation and Related Issues, Telecom Decision CRTC 98-2, 5 March 1998 (Decision 98-2). TCI submitted that there is substantial doubt as to the correctness of the Commission's decisions and requested that the Commission grant approval of its approach to band classification.

File No.: 8662-T10-03/98

BACKGROUND

1.In Local Competition, Telecom Decision CRTC 97-8, 1 May 1997 (Decision 97-8), the Commission implemented a portable contribution system for local competition, in order to provide all local exchange carriers access to sources of subsidy. The Commission recognized that the amount of contribution and subsidy to local telephone service should vary with the cost of providing service, and decided that the local subsidy should be aggregated by "bands". The Commission granted interim approval to band structures proposed by each of the telephone companies. TCI's approved band structure comprised four bands.

2.In the proceeding initiated by Implementation of Price Cap Regulation, 1997 Contribution Charges and Related Issues, Telecom Public Notice CRTC 97-11, 25 March 1997 (PN 97-11), the Commission entertained proposals for changes to the band structures which were granted interim approval in Decision 97-8.

3.TCI proposed to assign rural local loops from exchanges associated with Bands B, C and D that are defined as beyond the Base Rate Area (BRA) to a fifth rate band, Band E. TCI submitted that rural loops in its proposed Band E would typically be long and in low-density areas, and therefore, exhibit significantly higher costs than loops within a BRA boundary.

4.In Decision 97-18, the Commission denied TCI's proposal to adopt Band E.

5.Comments in respect of TCI's review and vary application were received from Microcell Telecommunications Inc. (Microcell), the Canadian Cable Television Association (the CCTA), MetroNet Communications Group Inc. (MetroNet) and AT&T Canada Long Distance Services Company (AT&T Canada LDS).

PROCEDURAL ISSUE

6.MetroNet and AT&T Canada LDS submitted that the proceeding initiated by Service to High-Cost Serving Areas, Telecom Public Notice CRTC 97-42, 18 December 1997 (PN 97-42) would be a more appropriate forum to determine the merits of TCI's application.

7.MetroNet submitted that TCI's application should be incorporated into the record of PN 97-42, while AT&T argued that TCI's application should be denied.

8.The Commission notes that its final decision regarding band structures in Decision 98-2 represented a determination on issues which were originally raised in the proceeding initiated by Implementation of Regulatory Framework - Local Interconnection and Network Component Unbundling, Telecom Public Notice CRTC 95-36, 11 July 1995, and the proceeding initiated by PN 97-11.

9.The Commission notes that the issue of rate band structures has been raised in previous proceedings, and that parties have had an opportunity to address the issue on the record of TCI's application. The Commission considers that it has all the information necessary to render a decision on the merits of the present application and therefore concludes that the proceeding initiated by PN 97-42 is not a more appropriate forum to determine the merits of TCI's application.

TCI'S APPLICATION

10.TCI submitted that there is substantial doubt as to the correctness of the Commission's decision to deny TCI's Band E proposal, on three grounds.

11.First, TCI submitted that the Commission erred in law in two respects:

a) by failing to disclose all of the information it relied upon in making its decision; and

b) by failing to provide adequate notice to TCI of the administrative concerns upon which its decision was based, and thereby failing to provide TCI an opportunity to present its case.

12.TCI also submitted that the Commission erred in fact in denying TCI's proposal based on the administrative concerns expressed in paragraph 49 of Decision 97-18.

13.Finally, TCI submitted that the test used by the Commission to establish rate bands contradicts the Commission's stated fundamental objectives.

ALLEGATIONS OF ERROR OF LAW

14.In Decision 97-18, the Commission denied TCI's Band E proposal on the basis of a number of administrative concerns.

15.TCI submitted that the Commission erred in law by committing the following procedural breaches:

(1) the Commission based its decision on information that was never disclosed to TCI; and

(2) TCI was not notified of the Commission's administrative concerns, and therefore was not given the opportunity to address the case to be met.

16.TCI argued that according to administrative law principles, a party which will be affected by a tribunal's decision is entitled to: (1) adequate notice of the case to be met, and (2) the opportunity to present its case.

17.CCTA submitted that administrative concerns were an issue in the proceeding initiated by PN 97-11, and that TCI was given an opportunity to address this issue. Microcell noted that TCI was provided the opportunity to address the appropriateness of applying a different band structure, and that it was reasonable to assume that the onus was on TCI to address potential concerns regarding its proposal.

18.The Commission notes that a tribunal does not have a general duty to disclose all of the material that forms the basis of its decision.

19.The Commission does not agree that it failed to provide adequate notice to TCI of the administrative concerns upon which its decision was based or that TCI was denied an opportunity to present its case. The Commission notes that in the course of the proceeding initiated by PN 97-11, two other parties raised the issue of administrative concerns in their responses to interrogatories. TCI, as a party to the proceeding, received copies of these responses and was thus made aware that administrative concerns were an issue.

20.The Commission also notes that the importance of administrative simplicity for any contribution regime was set out in the proceeding initiated by Price Cap Regulation and Related Issues, Telecom Public Notice CRTC 96-8, 12 March 1996. In particular, the Commission stated that, under price cap regulation, any contribution mechanism should be:

(1) streamlined, to the extent possible;

(2) sustainable during the evolution to a more competitive marketplace; and

(3) simple to administer and update on a going-forward basis without the requirement for an annual contribution proceeding.

21.The Commission further notes that TCI was provided with a clear signal that the Commission was assessing the appropriateness of four bands rather than five bands, in an interrogatory dated 12 September 1997. In that interrogatory, the company was asked to comment on the appropriateness of using four, rather than the five bands proposed by TCI, for estimating the local subsidy requirement. The Commission considers that TCI was provided the opportunity to address issues, including the issue of administrative simplicity, in its response to that interrogatory.

22.The Commission notes that in each of the above cases, the issues were raised well in advance of the argument. Accordingly, TCI could have addressed them in its argument.

23.For these reasons and the fact that the company has had considerable experience with the Commission's regulatory processes, the Commission considers that TCI was provided adequate notice of the administrative concerns, which formed the basis of the Commission's decision, and was provided an opportunity to present its case.

ALLEGATION OF ERROR OF FACT

24.In denying TCI's Band E proposal, the Commission expressed the following administrative concerns, at paragraph 50 of Decision 97-18:

(1) Network Access Lines (NALs) outside a BRA may not be readily identifiable;

(2) new NALs outside a BRA served by competitors may be difficult to identify and administer;

(3) as BRA boundaries are not static, these difficulties could be exacerbated; and

(4) BRAs are becoming an outdated rating concept.

25.TCI submitted that the reasons provided by the Commission at paragraph 50 are unfounded.

26.TCI submitted that its BRA boundaries are readily identifiable and are easy to administer, because they are specific and are maintained by TCI using digital mapping. TCI stated that maps could be made available to competitive local exchange carriers under a fee arrangement.

27.TCI acknowledged that BRA boundaries do change as a result of urbanization, but submitted that such changes could be dealt with through a public process. TCI stated that it would not have too much control over boundaries because changes would be subject to a public process. Specifically, the company submitted that it could file a notice and provide for a comment period.

28.Finally, TCI submitted that BRAs are not an outdated rating concept as the company actively uses BRAs to distinguish between denser serving areas and rural areas.

29.CCTA submitted that TCI's proposal would be administratively difficult for new entrants to deal with, because BRA boundaries would change over time, and because complete NXX's (the three digit telephone number prefix) could not be assigned to Band E.

30.Microcell expressed the concern that TCI would control which residential NALs would be eligible for subsidy. Microcell submitted that TCI wants to be able to change boundaries when it deems it necessary, subject to public comment, and that this degree of control by TCI and ongoing requirements to review BRA boundaries would likely generate disputes and regulatory proceedings.

31.The Commission has concerns that new NALs outside a BRA would be difficult to identify and administer, and that these difficulties would be exacerbated by the fact that BRA boundaries are not static. The Commission considers that the degree of control by TCI and the ongoing requirements to review BRA boundaries would pose difficulties for new entrants.

32.The Commission also considers that the fact that a public proceeding would be required each time BRA boundaries change could act to impede the entry of new competitive local exchange carriers. The Commission has concerns that the implementation of TCI's proposed band structure could generate disputes and regulatory proceedings.

33.The Commission notes that while the BRA concept was formerly used by the telephone companies to determine mileage charges, many of the companies no longer apply mileage charges. Moreover, none of the other telephone companies' band structures use BRAs in assigning local loops to bands. In the Commission's view, TCI's proposal would run counter to the need for uniformity in the application of band structures across different territories.

34.In light of the foregoing, the Commission concludes that it did not err in fact in denying TCI's proposal based on the administrative reasons provided in paragraph 50 of Decision 97-18.

ALLEGATION THAT THE COMMISSION'S TEST TO ESTABLISH RATE BANDS CONTRADICTS ITS STATED FUNDAMENTAL OBJECTIVES

35.The Commission stated in paragraph 49 of Decision 97-18 that an appropriate rate band structure must balance (1) the level of aggregation in terms of cost characteristics, and (2) the ease of administration for the purposes of the local subsidy allocation and for the development of local competition.

36.TCI asserted that a fundamental objective of Decision 97-8 was to avoid implicit subsidies to competitive local exchange carriers that would artificially fuel entry. The company submitted that the rejection of its Band E proposal leads to artificial subsidies and works against the principle of competitive neutrality, and that the test used by the Commission is therefore flawed.

37.TCI submitted that the balancing of objectives in paragraph 49 is flawed in that: the objective of avoiding subsidized entry is not observed, the objective of developing local competition is dealt with on the wrong side of the ledger, and undue primacy is given to the objective of ease of administration.

38.Microcell submitted that TCI's proposal is a threat to competitive neutrality. Microcell noted that TCI defined "mischief" as the situation where an entrant is eligible for an explicit subsidy greater than that required for a given individual subsidy. In Microcell's view, this ignores the fact that the incumbent enjoys implicit subsidies from business services, local optional features, and directory features.

39.TCI denied that its proposal is a threat to competitive neutrality, and stated that gaming opportunities are created and competitive neutrality is threatened when urban and rural customers are in the same band, because uneconomic entry will occur in urban areas. TCI stated that local competition development would be most evident for business customers and multi-unit dwellings (MUDs). Given that competitors are not obligated to provide universal service, they can serve customers that generate an implicit subsidy and avoid customers that require an implicit subsidy.

40.The CCTA submitted that cost characteristics should not be the sole test for band classification and that it is not in the public interest for the Commission to pursue pure economics at the expense of a workable regime.

41.The Commission agrees with CCTA and notes that in the same paragraph in which it set out its test for establishing rate bands, it also stated that the costs of providing local loops within a particular band or exchange are not homogeneous.

42.The Commission notes that in the proceeding leading to Decision 97-18, Bell proposed to exclude MUDs from subsidy allocation. Bell's proposal was similar to TCI's Band E proposal in that certain NAL within a wire centre or exchange would be excluded from the rate band within which the wire centre or exchange is classified. In Decision 97-18, the Commission rejected Bell's proposal, stating that it is not appropriate to exclude subsets of NAL within a band.

43.The Commission notes that under TCI's proposal, Band E would be comprised of individual loops from different wire centres or exchanges. The appropriate band for a given loop could no longer be determined by simply referring to a wire centre or an exchange, but would require local exchange carriers to apply extremely specific customer location information for a large number of NALs.

44.The Commission considers that an extremely detailed and costly mechanism would be required in order to avoid any potential gaming and that it would be unworkable to completely exclude the possibility of subsidies where they are not warranted.

45.The Commission is of the view that the balancing of objectives in paragraph 49 was not flawed because an appropriate rate band structure, incorporating competitive neutrality in a workable regime, requires a trade-off between cost factors and administrative simplicity.

46.The Commission therefore concludes that the test it used to establish rate bands does not contradict its stated fundamental objectives.

47.In light of the above conclusions, the Commission finds that TCI has failed to satisfy the three grounds for review and variance put forward in its application. The Commission concludes that there is no substantial doubt as to the correctness of its decision, and the company's application is therefore denied.

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Secretary General