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Order CRTC 2000-1089
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Ottawa, 4 December 2000
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Nexicom Telecommunications Inc. - Local rate increases to reduce the reliance on subsidies
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Reference: Tariff Notice 22
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The Commission approves rate increases to local residential and business services effective 1 January 2001 in order to bring local rates closer to costs and reduce the independents' reliance on subsidies from long distance service providers.
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1.
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In Review of contribution regime of independent telephone companies in Ontario and Quebec, Telecom Decision CRTC 99-5, dated 21 April 1999, the Commission directed the independent companies whose contribution requirement exceeded 25% of their total revenue requirement to file proposals detailing how they intended to reduce their subsidy requirement to no more than 25% by the year 2002.
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2.
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In Order 99-1186, dated 21 December 1999, the Commission directed Nexicom Telecom to increase its monthly residential service rates by $2, effective 1 January 2000, to reduce its subsidy requirement towards the 25% contribution objective.
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3.
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On 1 March 2000, Nexicom Telecom filed its proposal as well as Tariff Notice 22 on 26 May 2000. In TN 22, Nexicom Telecom requested an additional increase of $3 to monthly residential service rates effective 31 December 2000.
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4.
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Nexicom Telecom also planned to request an additional $5 increase to monthly residential service rates effective 31 December 2001 to achieve the 25% contribution objective by the year 2002.
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5.
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In addition, Nexicom Telecom proposed seven new extended area service (EAS) links between its exchanges and adjacent Bell Canada exchanges.
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Comments
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6.
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Nexicom Telecom issued billing inserts informing customers of the proposed rate increases to residential services and the potential for rates increases to business services. The billing insert notified customers of their right to provide comments on the company's proposal.
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7.
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All comments received from customers opposed rate increases. Customers noted that local rates had been increased on many occasions in the past few years. Customers also noted that they did not benefit from the same choice of toll providers and toll rate options available to customers in more urban areas.
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Commission determinations
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Extended area service
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8.
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Decision 99-5 stated that the independents should be allowed, to the extent that their customers can have access to the Internet without toll charges and to the extent the relevant criteria are met, to expand local calling areas based on natural calling centres (NCCs).
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9.
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Regulatory framework for independent telephone companies in Quebec and Ontario (except Ontario Northland Transportation Commission, Québec-Téléphone and Télébec ltée), Telecom Decision CRTC 96-6, dated 7 August 1996, determined the criteria for the establishment of EAS in the independent company territories. The Commission considered that, in order to protect local subscribers from unjustified rate increases, the community of interest between exchanges was a key indicator of whether any additional costs were justified.
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10.
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The Commission notes that, based on the evidence provided by Nexicom Telecom, none of the proposed EAS exchanges meet the community of interest criterion.
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11.
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The Commission notes that all Nexicom Telecom customers have access to toll-free Internet services and have expanded local free calling to a major social and economic centre. The Commission considers that the company's proposed EAS links do not meet the criteria for NCCs.
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12.
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The Commission is of the view that Nexicom Telecom has not made a case that increasing local rates to provide the proposed additional EAS links are, at this time, in the public interest. Therefore, the proposed EAS links are denied.
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Local rate increases
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13.
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Decision 99-5 noted that reliance on high levels of toll contribution by the independents is generally due to residential and, in some cases, business local access rates that do not recover their costs.
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14.
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Decision 99-5 stated, among other things, that the independents should consider increasing local rates to bring rates closer to costs and reduce their reliance on contribution subsidies.
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15.
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To encourage the independents to increase their revenues from sources other than residential local rates, Decision 99-5 capped proposed increases to monthly local residential service rates at $5 in 2000 and an additional $5 in 2001.
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16.
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The Commission is of the view that services that are below costs should share the burden of attaining the contribution objective set out in Decision 99-5.
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17.
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Nexicom Telecom did not propose to increase its business rates. Nexicom Telecom submitted that its business service was compensatory when taking revenues from options, features, and service charges in to consideration.
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18.
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In order to determine whether a specific service is compensatory or not, the Commission considers that revenues from other services (such as options, features and service charges) should not be included.
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19.
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Since Nexicom Telecom does not currently have Phase II costing to compare to service-specific revenues, the Commission considers that average total local and access broad service category Phase III costs, compared to service-specific revenues, are an appropriate means to measure whether or not business service rates are compensatory.
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20.
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Based on Phase III cost information provided by Nexicom Telecom, the Commission determines that business service rates are not compensatory. The Commission considers that it would be in the public interest to increase Nexicom Telecom's business rates by the same amount as residential rates, or up to the level where business rates are compensatory, to recover the cost of providing that service.
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21.
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As noted above, Nexicom Telecom already increased monthly residential service rates by $2 on 1 January 2000.
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22.
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The Commission considers that an additional $2.55 rate increase to monthly residential services along with an increase to monthly business service rates of $4.40 is sufficient for Nexicom Telecom to achieve the 25% contribution objective set out in Decision 99-5.
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23.
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The Commission directs Nexicom Telecom to increase monthly local residential service rates by $2.55 effective 1 January 2001. In addition, the Commission directs Nexicom Telecom to increase monthly local business service rates by $4.40 effective 1 January 2001.
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24.
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The Commission directs Nexicom Telecom to file forthwith revised tariff pages that reflect the determinations made above.
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Changes to the contribution regime
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25.
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The Commission notes that Changes to the contribution regime, Decision CRTC 2000-745, dated 30 November 2000, changes the subsidy requirement calculation for the small independent telephone companies. Starting in 2002, the subsidy requirement will no longer be calculated on a Phase III basis. Decision 2000-745 will target subsidies to the high-cost serving areas based on Phase II costing principles.
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26.
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The Commission nevertheless considers that the independents should continue to bring rates closer to cost and reduce their reliance on subsidies.
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27.
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The Commission will consider what further local rate increases, if any, are needed to reduce subsidy requirements for the independents in the context of the proceeding to implement the new contribution collection regime for such companies.
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Secretary General
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This document is available in alternative format upon request and may also be examined at the following Internet site: http://www.crtc.gc.ca
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