ARCHIVED -  Telecom Order CRTC 99-1186

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Telecom Order CRTC 99-1186

  Ottawa, 21 December 1999
  On 18 October 1999, Nexicom Telecommunications Inc. (Nexicom Telecom) filed an application for approval of tariff revisions proposing a $2.00 residential local rate increase effective 1 January 2000.
  File No.: Tariff Notice 20
  1. The company noted that the proposed local rate increase was a first step in its plan to reduce contribution in accordance with the requirement of Review of contribution regime of independent telephone companies in Ontario and Quebec, Telecom Decision CRTC 99-5, 21 April 1999 (Decision 99-5).
  2. In Decision 99-5, the Commission ordered independent telephone companies like Nexicom Telecom to reduce their contribution requirement to no more than 25% of their total revenue requirement by the year 2002.
  3. The Commission notes that contribution derived from toll services provides an explicit subsidy to maintain affordable basic local rates. In Decision 99-5, the Commission found that the explicit level of subsidy flowing to many independent telephone companies was no longer appropriate in an increasingly competitive market.
  4. The Commission noted that the high level of toll contribution was generally due to local access rates that do not recover a reasonable share of their costs. The Commission therefore directed the independent telephone companies to bring their local rates closer to cost.
  5. Decision 99-5 directed the independent telephone companies who did not already meet the 25% requirement to file a contribution reduction plan showing how they would achieve the requirement.
  6. In order to meet the 25% objective, Decision 99-5 indicated that independents had the option of further increasing residential, business, and/or optional services' rates, improving productivity, reducing costs or otherwise restructuring their rates to achieve that contribution objective.
  7. In its decision, the Commission expressed the view that independents who opt to increase their residential rates should not increase these by more than $5.00 per month, annually, in each of the years 2000 and 2001.
  8. As part of its plan to meet the 25% target, the company proposes to increase local residential rates by the full $10.00 permitted by Decision 99-5. The company also intends to introduce new marketing initiatives to increase revenues from other sources and implement a business reorganization and restructuring plan that will minimize expenses and further maximize revenues.
  9. In its plan, the company proposed to increase local residential rates by $2.00 on 1 January 2000, by another $3.00 on 31 December 2000 and again by $5.00 on 31 December 2001. The company submitted that the rate increases will serve in most part to reduce the company's contribution requirement.
  10. The Commission notes that the company provided few details with respect to its proposed marketing initiatives or restructuring plans. The company's contribution reduction plan provides few financial details as to the impact of these initiatives. The Commission is of the view that further process is required to fully assess the company's plan.
  11. The Commission however recognizes, in light of the company's current contribution to total revenue requirement ratio, that prompt action will be necessary for the company to achieve the contribution reduction goals set out in Decision 99-5. The Commission therefore encourages the company to proceed with both its marketing and business restructuring initiatives.
  12. The Commission is also of the view that it would be appropriate to go ahead with the first $2.00 rate increase now, while continuing to investigate the appropriateness of the remaining aspects of the plan including the second $3.00 and third $5.00 rate increases proposed by the company. The Commission notes that it will issue directions on procedure in this regard in the first quarter of 2000.
  13. In light of the foregoing, the Commission orders that:
  a) The tariff revisions proposed in Tariff Notice 20, to become effective on 1 January 2000, are approved.
  b) The company is to apply the revenues resulting from the rate increase to reducing its contribution requirement.
  c) The company is to provide a billing insert explaining to its customers the rationale behind the rate increase and noting that a subsequent insert will invite customers to comment prior to any further rate increases.
  Secretary General
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