ARCHIVED -  Telecom Order CRTC 99-495

Telecom Order

Ottawa, 1 June 1999

Telecom Order CRTC 99-495

On 31 March 1999, NewTel Communications Inc. (NewTel) 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).

File No.: Tariff Notice 610

1.NewTel filed its Price Cap Index (PCI) and Service Band Limits (SBLs) for 1999, incorporating an exogenous adjustment related to the recovery of local competition start-up costs.

2.The Commission considers that this exogenous adjustment is in compliance with Local Competition Start-up Costs Proceeding, Telecom Public Notice CRTC 98-10, Telecom Order CRTC 99-239, 12 March 1999.

3.NewTel updated its PCI and respective SBLs to incorporate the Gross Domestic Product - Price Index and the productivity offset of 4.5% stipulated in Decision 97-9.

4.In Tariff Notice (TN) 610, NewTel proposed rate reductions to business individual and business multi-line services, Digital Exchange Access (DEA) - Public Switched Telephone Network (PSTN) connections, and Direct-In-Dial service.

5.NewTel proposed to disaggregate its Band B primary exchange service business rates and to reduce the monthly rates for single line and multi-line business services in Band A and Sub-Bands B1 and B2.

6.NewTel submitted that given that it is not proposing to increase the rate for any exchanges in the disaggregated Band B, its proposal to de-average Band B rates is consistent with paragraphs 162 and 163 of Decision 97-9. NewTel noted that it is not proposing any changes to the unbundled loop rates or the portable subsidy calculation.

7.NewTel filed the calculation of its Actual Price Index and Service Band Indices demonstrating that, under its proposed rates, it will not exceed the PCI and SBLs for 1999.

8.On 28 April 1999, Call-Net Enterprises Inc. (Call-Net) filed comments on behalf of itself, Sprint Canada Inc. and Call-Net Communications Inc.

9.Call-Net stated that it was opposed to NewTel's proposal to disaggregate its Band B for purposes of retail pricing. Call-Net requested that the Commission deny the application and direct NewTel to propose revised business rates which are uniform throughout Band B.

10.Call-Net submitted that the Commission's concerns in paragraphs 162 and 163 of Decision 97-9 would apply in any situation in which the incumbent local exchange carrier propose to de-average rates within a band, not just in those situations in which rate increases were proposed for the less competitive areas.

11.Call-Net submitted that, unless additional pricing constraints were to be imposed on the higher rates in the less competitive areas of the band, it would be impossible to enforce NewTel's interpretation of Decision 97-9 that de-averaging that did not involve rate increases would be permitted. Call-Net stated that, in its view, the imposition of such additional pricing constraints would amount to a review and vary of Decision 97-9.

12.Call-Net noted that retail price variation within a band already exists to some extent in the case of BC TEL and Bell Canada, but that these disparities existed prior to the implementation of price caps and rate bands. Call-Net was of the view that, in those cases, the maintenance of price variations within a band was motivated by a desire to mitigate customer rate impacts. The same is not true for NewTel given that the rates are currently uniform for each of business individual and business multi-line services across Band B.

13.Call-Net submitted that if the basis for the proposed disaggregation of band B is the presence of significant cost variation within Band B, then NewTel's proposal in TN 610 amounts to an attempt to implement a portion of its proposal in the proceeding pursuant to Service to High-Cost Serving Areas, Telecom Public Notice CRTC 97-42, 18 December 1997 (PN 97-42). Call-Net noted that in its final argument with respect to that proceeding, it supported the companies' proposal to further disaggregate bands so long as loop rates and the subsidy allocation were also disaggregated on the same basis.

14.Call-Net submitted that if NewTel considers that the variation in costs or economic conditions across Band B is sufficient to warrant the de-averaging of its retail rates, then the variation in costs or economic conditions across Band B is sufficient to warrant the de-averaging of loop rates and subsidy allocations. Call-Net argued that if, on the other hand, NewTel considers that the variation in costs or economic conditions across Band B is not sufficient to warrant the de-averaging of loop rates and subsidy allocations, then it is not sufficient to warrant the de-averaging of its retail rates.

15.NewTel submitted that its proposal to de-average rates within Band B was solely for the purpose of implementing rate decreases, and the proposal therefore is not in conflict with the Commission's views outlined in paragraphs 162 and 163 of Decision 97-9.

16.NewTel submitted that Call-Net was in error when it stated that rates charged in less competitive areas within the band would finance lower rates in more competitive areas. NewTel noted that each of the de-averaged Band B business rates passes the imputation test and, as a result, is self-financing.

17.NewTel submitted that the existence of de-averaged bands in other incumbent local exchange carriers' territories supports its proposal to de-average its own Band B rates. The company noted that the Commission approved disproportionate basic business exchange rate increases and decreases at a rate group level while maintaining de-averaged rates within bands in BC TEL's 1998 price cap proposal.

18.NewTel noted that its proposal in the PN 97-42 proceeding is to disaggregate its current band structure to better isolate high cost serving areas. NewTel noted that the proceeding is still ongoing and submitted that while its proposal in TN 610 is consistent with its proposal in that proceeding, it is not dependent on the Commission's approval of its proposal in PN 97-42.

19.In paragraph 162 of Decision 97-9, the Commission considered that, with respect to basic residential local service and single-line business service, it is appropriate to maintain rural rates at levels which are not greater than the rates paid by urban customers, unless it can be demonstrated that circumstances warrant higher rates in rural areas. The Commission concluded that any application proposing to increase rates for rural basic service to levels higher than urban rates will not be disposed of without waiting for comments from interested parties.

20.In paragraph 163 of Decision 97-9, the Commission stated that for multi-line business and the other capped services, applications to de-average rates, on the basis of a smaller geographic areas than those defined by rate bands, will not be disposed of without waiting for comments from interested parties. The Commission stated that, among other things, it was concerned that a policy of pricing these services at de-averaged rates would permit the companies to impose excessive increases in exchanges that are not likely to experience, in the near term, the benefits of local competition.

21.The Commission notes that NewTel is not proposing any rate increase as part of its rate de-averaging proposal. The Commission considers that contrary to Call-Net's assertions, NewTel's proposal is consistent with the determinations of Decision 97-9 with respect to de-averaging of rates within a band.

22.In its decisions with respect to last year's price cap filings, the Commission allowed some of the companies to lower rates in the urban bands more than those in rural bands in order to meet their price cap parameters. In this manner, the Commission ensured that the rates in the rural bands did not fall below cost in relation to the imputation test requirements.

23.The Commission considers that NewTel's proposed approach to meeting its price cap obligations is appropriate in terms of the rates that are proposed.

24.The Commission is satisfied that, on the basis of the imputation test information required by Local Competition, Telecom Decision CRTC 97-8, 1 May 1997, the proposed rates for single line business and multi-line business service, DEA - PSTN connections, and Direct-In-Dial service are not anti-competitive.

25.In light of the foregoing, the Commission approves the proposed tariff revisions effective 1 June 1999.

Secretary General

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