|
Order CRTC 2000-355
|
|
Ottawa, 28 April 2000
|
|
Line-side wireless access service rates for independent carriers
|
|
Reference: 8638-O4-01/97; 8661-C7-02/97; 8661-C7-03/97; 8661-C7-04/97; 8661-C7-05/97; 8661-C7-06/97; 8661-C7-07/97; 8661-C7-08/97
|
|
The Commission approves reductions to the line-side wireless access service rates in independent company territories. These rates are generally based on Télébec ltée's proposed cost-based rates. This order is the result of proposals filed by several independent companies regarding proposed changes to rates for the network and number elements of the cellular access service and the paging number service (referred to as line-side wireless access service).
|
1.
|
In Telecom Order CRTC 97-1960, the Commission initiated a proceeding to consider possible changes to rates for line-side wireless access services of independent companies in whose territories wireless service is provided.
|
2.
|
In this order, the Commission directed that:
|
|
(a) rates for the line-side wireless access service be made interim effective 1 January 1998 for the following independent companies: Northern Telephone Limited, Bruce Municipal Telephone System, The Corporation of the City of Thunder Bay – Telephone Division (Thunder Bay Telephone), Ontario Northland Transportation Commission (O.N. Tel), Kenora Municipal Telephone System and Télébec ltée (collectively, the companies);
|
|
(b) the companies file, to the extent applicable, proposed rates for their line-side wireless access services with supporting justification, along with a proposal to determine how any associated revenue impacts should be recovered; and
|
|
(c) interested parties file comments regarding the companies' rate proposals, including the line-side wireless access rates approved on an interim basis for Québec-Téléphone pursuant to Telecom Order CRTC 97-1815 dated 10 December 1997 and for Sogetel inc. pursuant to Order 97-1960.
|
3.
|
As a result of Order 97-1960, the companies filed their rate proposals for line-side wireless access services. By contrast with the other companies, Télébec filed revised rates under Tariff Notice 183 dated 30 April 1998. These rates were granted interim approval in Telecom Order CRTC 99-301, dated 31 March 1999. Parties that commented on these rate proposals included Rogers Cantel Inc., Clearnet Communications Inc. and the Canadian Wireless Telecommunications Association (CWTA).
|
4.
|
Order 97-1960 resulted from applications filed by Cantel to review rates of line-side wireless access services charged by independent companies. The Cantel applications were based on the grounds that the costs of provisioning the cellular and paging access services have declined dramatically in recent years and that, by comparison with Bell Canada rates, the rates for these companies no longer reflect the underlying costs of providing service and are no longer reasonable. Cantel requested that the companies be directed to file studies that identify the costs incurred to provide these access services. Cantel also indicated that if the companies in question chose not to file cost studies, it would have no objection to the companies establishing the same rates as Bell Canada's 1997 interim rates (as approved for the network and number rates of cellular access service in Telecom Order CRTC 97-83 dated 21 January 1997 and for the paging number rates in the Commission's letter of 16 May 1997).
|
5.
|
This order addresses the companies' proposals regarding their respective line-side wireless access service rates including proposals as to how any associated revenue impacts should be recovered.
|
|
Final line-side wireless access service rates
|
6.
|
The Commission notes that the companies' general concerns were not over rate reductions for line-side wireless access services but rather on how the associated revenue impacts are to be recovered. For the reasons explained below, the Commission considers it appropriate for the companies to use Télébec's proposed cost-based rates, as revised to include a mark-up of 25%. The approved mark-ups for the cellular and paging number services reflect reductions from what Télébec proposed to levels of approximately 25%.
|
7.
|
This rate determination is one which: (a) moves rates closer to costs while including a reasonable mark-up towards fixed and common costs, (b) minimizes the associated revenue impacts on the companies, (c) maintains implicit levels of contribution for interexchange traffic that is carried on the wireless access connections, and (d) sets a consistent rating approach among the companies.
|
8.
|
The approved rates for the line-side wireless access services for the companies are presented in Attachment 1.
|
9.
|
Most companies proposed to peg their rates to another carrier's rates. For instance, Kenora, Northern and Bruce proposed to adopt the Bell Canada 1997 interim rates. Under this particular proposal, for example, the cellular number rate would be reduced to $0.14 per month. By contrast, Télébec filed a tariff notice proposing to revise its line-side wireless access rates based on its estimates of prospective incremental costs plus a mark-up of approximately 25%. Under this proposal, Télébec's cellular number rate would be reduced from $1.25 to $0.40 per month. Thunder Bay proposed to maintain its current network charges but to revise its cellular and paging number rate to Télébec's per number rate of $0.40. By contrast with the other companies, O.N. Tel did not file a proposal on line-side wireless access rates.
|
10.
|
Interveners indicated that the rates for the cellular and paging access services should be lowered to those of Bell Canada's 1997 interim rates retroactive to 1 January 1998. Cantel indicated that a cellular network rate element is missing and should be included for Kenora.
|
11.
|
Consistent with its rate proposal discussed in paragraph 9 above, Thunder Bay Telephone filed revised line-side wireless access service rates under Tariff Notice 78, dated 1 March 1999. The rates for Télébec and Thunder Bay, filed under Tariff Notices 183 and 78, respectively, have since received interim approval.
|
12.
|
Although it is desirable to have wireless access rates that are based on Phase II costs plus a specified mark-up, the Commission recognizes the numerous difficulties that face the independent companies, especially the smaller ones, in determining the appropriate cost-based rates within their respective operating territories. This is due to the lack of Phase II costing information and/or the high costs of developing the cost study relative to the size of the service.
|
13.
|
The Commission notes that in this proceeding, only Télébec proposed revised rates on the basis of Phase II cost estimates. Most other companies submitted that while they were unable to or did not have the resources available to develop a Phase II resource cost study, the costing information that they were able to furnish (Phase III-like) provided evidence that the costs of provisioning wireless access services by independent companies were higher than those of Bell Canada.
|
14.
|
In light of the above, the Commission is of the view that the use of Télébec's proposed cost-based rates, revised to include a mark-up of strictly 25%, will be appropriate for the companies. The Commission considers that the mark-up embedded in the approved rates will provide adequate levels of contribution in lieu of an explicit per-circuit contribution surcharge.
|
15.
|
The Commission notes that Kenora's proposal does not include a cellular network rate element, and considers it appropriate to include this rate element for Kenora, consistent with the other companies. Accordingly, Kenora is directed to make any corresponding adjustments to the rate component that currently includes the cellular network element.
|
|
Recovery of revenue impacts
|
16.
|
The companies generally submitted that the revenue impacts resulting from the rate reductions could be recovered, in part or in whole, through adjustments to the contribution requirement. The companies noted that, although not opposed to rate reductions for the wireless access services, Cantel's proposed rate reductions would significantly impact the companies' financial results and increase the contribution charges which are already considered too high in comparison with contribution charges of the major incumbent telephone companies. Interveners submitted that an appropriate mechanism to recover any resulting revenue shortfall as a result of rate reductions for cellular and paging access components would be to move other company rates in line with the Phase II costs plus 25%.
|
17.
|
The Commission considers it inappropriate to recover the mitigated revenue shortfalls from the approved rate reductions through an increase to the contribution requirement. Instead, any revenue shortfall stemming from the rate reductions should be made up through other sources such as: (a) productivity improvements; (b) additional revenues from other sources; and/or (c) absorbing such revenue reductions through lower earnings.
|
18.
|
Since this decision only impacts line-side wireless access arrangements and the approved rate reductions are considerably less than what most companies proposed, the Commission considers that the corresponding impacts on the companies' financial results will be minimal. The Commission notes that the recovery of any revenue shortfall from the wireless access rate reductions through increases to the contribution requirement would be contrary to recent initiatives to reduce the independent companies' contribution requirements.
|
|
Phased-in rates
|
19.
|
Northern and Kenora proposed to implement the lower Bell Canada 1997 interim rates in two phases in order to minimize any upward pressure on its carrier access tariff rate. Interveners submitted that this proposal would be contrary to Order 97-1960 which directs the companies to file new rates, and therefore, it should be denied.
|
20.
|
The Commission considers it unnecessary to adopt such an approach. Both companies proposing the phased-in process indicated that the second phase of rate reductions under this proposal would take place prior to year 2000. Also, the approved rate reductions are considerably less than what the companies proposed.
|
|
Per-circuit contribution surcharge
|
21.
|
Bruce and Thunder Bay proposed an additional interexchange contribution surcharge per activated access channel and accordingly proposed to adopt Bell Canada's 1997 interim rates. O.N. Tel also supported the proposals made by Bruce and Thunder Bay, whereby decreases in revenues from wireless access service are recovered from contribution payments made by wireless service providers (WSPs). Interveners submitted that the issue of expanding the requirement for WSPs to pay contribution in independent territory is outside the scope of the proceeding.
|
22.
|
A contribution surcharge element was recently added to the line-side wireless access tariffs of certain major incumbent telephone companies, in accordance with Telecom Decisions CRTC 97-18 and 98-2, and Telecom Order CRTC 97-590. This rate element was adopted to ensure that, similar to wireline carriers, WSPs pay similar contribution to the companies to the extent that they use their line-side wireless access connections to carry interexchange traffic. The process which led to the establishment of these surcharges required the development of detailed and costly traffic studies by all the carriers involved.
|
23.
|
In order to determine whether the use of a per-circuit contribution surcharge is appropriate and what the appropriate per-circuit surcharge amounts would be, the Commission would need to determine the average amount of interexchange traffic carried on the WSP connections within each independent company's territory. Since this would involve the development of detailed traffic studies for each company, the Commission considers it inappropriate to approve an interexchange contribution surcharge mechanism for these companies. Instead, the Commission considers that the mark-ups embedded in the approved rates will provide adequate levels of contribution in lieu of an explicit per-circuit contribution surcharge.
|
|
Trunk termination rate
|
24.
|
Bruce submitted that part of the revenue impact resulting from the adoption of Bell Canada's 1997 interim rates could be compensated by a trunk termination charge (i.e., $137 per month). Cantel submitted that Bruce has misunderstood the application of the $137 charge within Bell Canada's tariffs and should be denied.
|
25.
|
The monthly trunk termination rate of $137 per DS-1 (equivalent to 24 voice-grade channels), was initially established under Bell Canada's interim trunk-side WSP interconnection regime. This rate was used to replace the per voice-grade channel link rate used in the pre-existing line-side WSP interconnection regime. Unlike other companies, Bruce does not currently have an explicit rate element for the link functionality. The Commission thus considers it appropriate for Bruce to use an explicit monthly rate for this functionality of either $137 per DS-1 or the current per voice-grade channel link rate of $12.70 in use by most other companies. In the event that it adopts an explicit rate element for this functionality, Bruce is directed to make any corresponding adjustments to the rate component that currently includes the cellular link element.
|
|
Review of Québec-Téléphone's rates
|
26.
|
In the proceeding leading to Order 97-1960, Québec-Téléphone filed tariff revisions to its cellular and paging access services in accordance with Bell Canada's 1997 interim rates. These rates received interim approval in Order 97-1815.
|
27.
|
In Telecom Order CRTC 97-1765, dated 27 November 1997, the Commission approved Bell Canada's cellular access rates on a final basis. In this order, while interim rates for cellular numbers were approved, the cellular network rates were significantly reduced by comparison with the interim rates.
|
28.
|
By letter dated 30 January 1998, Cantel submitted that Québec-Téléphone's interim rates for the network component of the cellular access service were higher than Bell Canada's final rates and that Québec-Téléphone's rates should be adjusted to reflect the lower final rates.
|
29.
|
By contrast with Bell Canada's tariffs, Québec-Téléphone's wireless access tariffs do not include an explicit per-circuit contribution surcharge. The Commission considers it appropriate to use Bell Canada's higher 1997 interim rates for Québec-Téléphone's network access rates, since the higher mark-ups embedded in these rates should provide adequate levels of contribution in lieu of an explicit per-circuit contribution surcharge. The Commission hereby makes final Québec-Téléphone's interim wireless access rates set out in Order 97-1815.
|
|
Review of Sogetel's rates
|
30.
|
At paragraph 17(ii) of Order 97-1960, the Commission approved interim rates for Sogetel based on Québec-Téléphone's wireless access rates in effect on 1 November 1997, to be effective 1 January 1998. By letter dated 30 January 1998, Cantel submitted that Sogetel's interim rates for the cellular network component were higher than Québec-Téléphone's current interim rates and that Sogetel's rates should be adjusted to reflect Québec-Téléphone's rates.
|
31.
|
The Commission considers that Sogetel complied with Order 97-1960 as it used Québec-Téléphone's wireless access rates in effect on 1 November 1997. The Commission notes that Québec-Téléphone's rates for the cellular network component were subsequently revised downwards on 10 December 1997.
|
32.
|
The Commission is of the view that the rating criteria adopted to establish wireless access service rates for the other companies should generally apply to Sogetel, and approves the use of the network access rates approved for the other independent companies, as set out in Attachment 1. The Commission considers that the mark-up levels embedded in the cellular network access rates will provide adequate levels of contribution in lieu of an explicit per-circuit contribution surcharge. Since the revenue impacts associated with the approved rate reductions should be minimal, the Commission considers that it would be appropriate for Sogetel to recover any revenue shortfalls from the cellular network access rate reductions through sources other than increases to the contribution charge, like the other companies.
|
|
Retroactive rate adjustments
|
33.
|
Cantel requested that its proposed revised rates for the cellular and paging access services should be made final retroactive to 1 January 1998 for each company, the date at which the rates were made interim.
|
34.
|
Although the approved rates could be made final retroactive to 1 January 1998, the major issue raised by the companies was not with respect to reducing rates for wireless access services, but rather how the resulting revenue impacts would be recovered. As discussed in paragraph 17, the Commission considers it inappropriate to recover any revenue shortfalls from the approved rate reductions through an increase to the contribution requirement. If the approved rates were applied retroactively, the revenue shortfalls would be considerably greater than the projected annual revenue impacts and would not be appropriately absorbed by the companies, as indicated in paragraph 17. The Commission, therefore, considers it inappropriate to allow the approved rate reductions to be applied retroactively.
|
|
Final Commission approval
|
35.
|
The Commission approves the following on a final basis, effective the date of this order:
|
|
(a) the rates for the network and number elements of the cellular access service and the paging number service where applicable for Northern, Bruce, Thunder Bay Telephone, O.N. Tel, Kenora and Télébec, as set out in Attachment 1;
|
|
(b) Sogetel's current interim line-side wireless access rates as modified to reflect the cellular network rates of Attachment 1; and
|
|
(c) Québec-Téléphone's current interim line-side wireless access rates without modification.
|
36.
|
Moreover, the existing interim rates in place for these independent companies from 1 January 1998 to the date of this order are hereby made final. The Commission further determines that no retroactive adjustments are required. The companies, including Sogetel and Québec-Téléphone, are directed to issue tariff pages forthwith reflecting the above determinations.
|
|
Secretary General
|
|
This document is available in alternate format upon request and may also be viewed at the following Internet site: http://www.crtc.gc.ca
|