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Order CRTC 2000-654
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Ottawa, 14 July 2000
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Rate increases and new features for Bell Canada's PrimeLine service
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Tariff Notice 6452
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The Commission approves, by majority decision, Bell Canada's request to increase the monthly rate for PrimeLine Executive service from $14.95 to $19.95. It also approves the introduction of a schedule of service charges and separate monthly rates for new features Call Director ($4.95) and Call Attendant ($24.95).
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Opposition to rate increases for PrimeLine service
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1.
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A small number of customers objected to the rate increase and the service charges. Some customers view Bell Canada's proposal as increasing the basic rate for PrimeLine without increasing services.
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2.
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PrimeLine is a network-based service which provides users with the capability to be reached and to manage their communications from any location. It runs on a dedicated network with hardware and software components. Dedicated staff assist customers.
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3.
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Bell Canada replied that Call Attendant and Call Director are optional new features. Only customers who select these extra features will be charged for them. These features became available with the cutover of new software in the fall of 1999 and were subject to technical trial at that time. Bell Canada stated that it is clear from the requested tariff revisions that the proposed basic rate increase is from $14.95 to $19.95. Bell Canada added that the company's personnel is involved in making service changes. Bell Canada proposes to recover this expense though the service charges. Bell Canada has not increased the PrimeLine rates since the service introduction on 24 January 1994.
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Price cap regime considerations
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4.
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The Commission has traditionally treated enhanced services such as PrimeLine similar to optional local services because they are discretionary. Bell Canada and PrimeLine customers have viewed PrimeLine as a discretionary and competitive service.
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5.
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In Price cap regulation and related issues, Telecom Decision CRTC 97-9, dated 1 May 1997, the Commission established a new regulatory regime for the major incumbent telephone companies. Decision 97-9 excluded enhanced services and optional local services from an upper pricing constraint. Given the discretionary nature of these classes of service, the Commission was of the view that an upper pricing constraint was not warranted and Bell Canada should have pricing flexibility for these services.
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6.
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The Commission considers that Bell Canada's application to increase the rates for PrimeLine conforms to the pricing of uncapped services and Bell Canada has appropriately addressed the service specific concerns of the interveners.
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Implementation
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7.
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Bell Canada filed this application on 16 February 2000 to revise Item 2180 of its General Tariff.
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8.
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The revisions will take effect on 28 July 2000.
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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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Dissenting opinion of Commissioner Stuart Langford
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Introduction
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This is an application by Bell Canada (Bell) to significantly increase the monthly rate it charges subscribers to its PrimeLine Executive service. As well, this application introduces a series of five new service charges and two new service options. Customers who subscribe to the full package will see their monthly costs rise from $14.95 to $44.85. Those who subscribe to the minimum will face a rate increase of $5.00 per month or 33.4%. Service charges will be extra for all customers.
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I would deny these increases and new charges as unsubstantiated and, therefore, possibly unjust and unreasonable. To approve them may, in my view, run contrary to the Commission's stated intention to safeguard the interests of consumers in matters of pricing.
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The sky's the limit
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Stripped to its essential ingredients, Bell's justification for the proposed price increases comes down to this: We are doing it because we want to and we can. In its April 6, 2000 letter to the Commission, responding to some of the intervenors in this matter, Bell states: "PrimeLine is a discretionary and competitive service and, as such, the Company's proposal to increase prices for PrimeLine Service is fully compliant with the Commission's requirements." The majority accepts this reasoning. I do not.
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In Review of Regulatory Framework, Telecom Decision CRTC 94-19 (94-19), the Commission declared competition in local telecommunications markets to be in the public interest and set in motion the process of eliminating restrictions to such competition. This process culminated in Telecom Decisions CRTC 97-8 and 97-9 by which the Commission introduced local competition and moved away from a system of rate-of-return regulation of monopoly service providers to the present system generally referred to as the "Price Cap" regime. It would appear from the record that Bell's understanding of the current pricing regime is that service providers like Bell can charge whatever they wish for optional or discretionary services, things like voice mail, call waiting and call forwarding, so long as they do not abuse their dominant market positions by pricing such services below cost.
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To accept this interpretation of 97-8 and 97-9 as correct is to accept the proposition that the sky is the limit when pricing optional services. The majority decision puts it this way in paragraph 5: "Decision 97-9 excluded enhanced services and optional local services from an upper pricing constraint. Given the discretionary nature of these classes of service, the Commission was of the view that an upper pricing constraint was not warranted and Bell Canada should have pricing flexibility for these services."
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In my estimation, such an interpretation of the pricing provisions for optional services set out in 97-9 is incorrect in that it focuses on only one half of the regulatory approach to rate increase applications set out in that decision. It overlooks the public interest responsibilities placed on the Commission to safeguard consumers and promulgates a "fill your boots" approach to the pricing of optional services that leaves Canadians exposed to the dangers of price gouging and the Commission without a clear role to play. Nothing in my reading of the pertinent legislation or precedents leads me to believe that such is the status quo.
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Not set in stone
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Parliament, when it enacted the Telecommunications Act (the Act) to encourage a competitive market, did not abandon consumers. Neither did the Commission in ordering a transition from the former rate-of-return model to the current Price Cap regime abandon subscribers to make their own way in the marketplace, a marketplace that remains a long way from being truly competitive at the local level. No doubt, price cap anticipates a less intrusive regulatory role for the Commission but in no way does it preclude the Commission from stepping in as required to prevent service providers from unjustly enriching themselves at the expense of consumers, as may be the situation here, or to make more sweeping changes to the price cap plan.
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As authority for this proposition, I refer to Telecom Decision CRTC 99-20 (99-20) which concerned an application by competitive long distance providers to change the current contribution system as established under the Price Cap regime. While the Commission denied the application, it did clearly state that under the right circumstances it would consider making such changes: "The Commission considers that deviations would have to be of a material nature and impact unfavourably on the competitive environment in order to substantiate changing any of the price cap parameters at this point in time." (paragraph 22)
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The Commission has a protective role to play. The passage from paragraph 22 of 99-20 quoted above establishes a test which if met would, the Commission states, warrant interference, perhaps even on a grand scale, with the present pricing scheme. It is not necessary to apply that test here because another specific provision in the Price Cap regime provides the Commission with the power, indeed the duty depending upon the circumstances, to take remedial action should a proposed rate increase harm consumers without offsetting that harm by contributing to the overall goals of the Act. Paragraph 22 of 99-20 stands, however, as a reminder that though the Commission is reluctant to vary the fundamental principles of the new system, it has not ruled out such a solution where necessary. The Price Cap regime, in other words, is not set in stone.
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One paragraph of 97-9, paragraph 142, does unfortunately imply such immutability. Taken alone, it is more confusing than enlightening for anyone seeking to understand the Commission's intentions regarding the pricing of optional services on a going forward basis. I will turn to paragraph 142 presently. First, a look back at pre-Price Cap policy regarding the rates charged for services such as those underlying this application is required to put the present situation in perspective.
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What's past is prologue
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Under the former "rate-of-return" regulatory model, monopoly service providers like Bell could charge what it wished for optional or discretionary services. The incentive to do so, however, was very much curtailed because the revenues generated by these charges were rolled into the pool of money used to subsidize basic local residential service and profit margins were controlled. This process of subsidization was referred to as "contribution", a term with a double meaning today.
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Under the present Price Cap regime, revenues generated by the sale of optional services do not necessarily go to subsidize local residential service and Price Cap control mechanisms do not apply to all rates: "Services that were priced to maximize contribution prior to the implementation of price caps, such as optional local services . will not be included with capped services." (97-9, paragraph 16) Most of the funding for subsidies to residential local service today comes from customers and a new "contribution" scheme tied to long distance usage. Only in shortfall situations are revenues from other services utilized to close the gap. Once the gap is closed, the excess becomes totally divorced from regulatory influence. Bell is free to do what it chooses with the excess revenues it generates from optional services such as those at issue here. It can reinvest the money in the company, distribute it in the form of bonuses among its employees or pay it out as dividends to shareholders, to name just three options.
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Floors not ceilings
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It is clear from a reading of 97-8 and 97-9 that the Commission in framing those decisions was of the view that on a going forward basis rate increases for optional services would not be a problem. It saw the real danger in setting future rates for optional services in the possibility that the former monopoly providers might abuse their position of market dominance by pricing such services too low not too high. The future mischief the Commission sought to prevent by way of pricing constraints was predatory cost cutting. Offering optional services at less than cost would leave fledgling new service providers unable to match the well established former monopolies and in the end deny Canadians the benefits of a competitive market. A mechanism was put in place called the "imputation test" to prevent this mischief.
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Witness these statements from 97-8, the "Local Competition" decision:
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"The Commission is establishing in this decision a set of competitive safeguards that it considers are needed to protect against anti-competitive practices." (paragraph 12)
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"Most parties submitted that an imputation test is necessary to prevent carriers with market power from setting anti-competitive prices in markets subject to entry by competitors." (paragraph 208)
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"Currently, imputation test results must accompany each relevant tariff filing. The Commission considers the test to be an important competitive safeguard, particularly in the local exchange market which will be emerging from a monopoly regime." (paragraph 218)
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At first blush, then, it is low pricing or anti-competitive pricing that the Commission in 1997 appeared to see as the possible villain of the piece as the new Price Cap system and local competition unrolled. Price floors for optional services not price ceilings were from that time on to be the major preoccupation.
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What's the deal?
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One paragraph of 97-9 (one out of a total of 394 paragraphs) is particularly relevant in putting the Commission's going forward approach to optional services, and in my view the majority's decision in this matter, into perspective. I refer to paragraph 142:
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"The Commission's policy with respect to certain utility segment services, such as optional local services, has been to price these services to maximize contribution in order to keep rates for basic residential services as low as possible. Given the discretionary nature of this class of services, the Commission is of the view that an upper pricing constraint is not warranted. Accordingly, the Commission concludes that services priced to maximize contribution are appropriately excluded from the price cap regime."
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The second sentence of the above paragraph, taken out of context, appears to make the reasoning of the majority as set down in paragraphs 5 and 6 of their decision on this application unassailable. Read in the context of the two sentences that bookend it and paragraph 181 of 97-9, however, such a laissez-faire interpretation becomes far more difficult to support.
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The first sentence in paragraph 142 reminds readers that in the past high prices charged for optional services subsidized local residential rates. Sentence three, however, appears to suggest that past subsidization practices will continue, that "an upper pricing constraint is not warranted" in the future because such prices will "maximize contribution".
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That, of course, is not necessarily correct. Revenues from optional services no longer always contribute to or form part of the financial underpinnings of local rate subsidies. They are available to help fill the gap should a shortfall occur, but once the gap is filled the excess is excluded from the Price Cap regime and may be used by Bell in whatever way the company sees fit. That, not the "hands-off" approach alleged by Bell and accepted by the majority is the underpinning of the regulatory bargain under the Price Cap regime regarding optional services. And it is not the whole bargain. Paragraph 142 of 97-9 must be read both in historical perspective and in the context of the other pertinent paragraphs in that decision and in the Local Competition Framework decision, 97-8, that preceded it.
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Justice for all
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What was the overriding goal of the process that resulted in 97-8 and 97-9? Paragraph 6 of 97-8 sets it out clearly: "In this Decision, the Commission establishes a framework for local exchange competition that balances the interests and needs of consumers, local competitive entrants, toll competitors and incumbent telephone companies." In other words, justice for all. This quest for a regime that "balances the interests" of all, very much echoes the public interest objectives of the Telecommunications Act: "to render reliable and affordable telecommunications service of high quality accessible to Canadians in both urban and rural areas in all regions of Canada." [S. 7(b)] These foundation stones upon which the entire local competition scheme and the Price Cap regime are built cannot be eroded by one sentence of paragraph 142, a paragraph that in itself, as indicated above, may be misleading.
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Paragraph 142 of 97-9 is not the last word on the pricing of optional or discretionary services. Paragraph 181 is also instructive and, because it sets out an approach to pricing that is an extension of the basic "balance" principle referred to above, it is in my view far more persuasive than paragraph 142 as a statement of what must be considered by the Commission when applications to raise rates come before it. Paragraph 181 approves an ex parte process for tariff filings for uncapped services so as to meet the companies' need for confidentiality but at the same time sets out specific guidelines for protecting the interests of subscribers. It directs the Commission to go beyond the imputation test when assessing rate increase applications and to evaluate other issues such as ". consumer safeguards and privacy." (emphasis added)
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To properly analyse and evaluate the impact on consumers of the proposed rate increases that underlie this application by Bell, the Commission requires information. Bell's bald statement that ".no imputation test for PrimeLine Executive service is required as this proposal increases the overall price for this service." is not sufficient. It may meet the laissez faire approach to pricing optional services contained in the introductory statement to the way the Commission intends to approach such rate increase applications on a going forward basis (sentence 2, paragraph 142 of 97-9) but it overlooks completely the Commission's stated intention to safeguard consumers as set out in paragraph 181 of 97-9.
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Unanswered questions
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Those consumers who intervened in this process objected strenuously to the price increases and the charges proposed by Bell for services and new options. Bell's response to these interventions by its customers was to reject them wholesale. "The company generally denies any allegations contained in the above noted comments that are contrary to the Company's stated positions." (Bell reply of April 6, 2000) In that same reply, Bell confirmed the new rates it was seeking to charge and stated that its new $12.00 service charge was intended "to recover related expenses". Other than that, it supplied no information that would enable the Commission to evaluate TN 6452 and determine whether the proposed rates were just and reasonable.
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In a further reply of April 25, 2000, Bell again offered a blanket denial of all allegations made by intervenors. It took particular issue with an allegation by one intervenor, Time Critical Research Inc., that the revenues generated by the proposed price increases would be used by Bell to finance development work on a "superior" Bell-created PrimeLine product. "The Company wishes to re-enforce the fact that there is no relationship between the current proposed rate increases and future development work on this service."
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Perhaps. Blame for confusion on this issue, however, can hardly be laid by Bell on the doorstep of intervening customers. The source of the allegation made regarding product development comes from Bell's own March 13, 2000 letter to "Dear Valued Customer" announcing the upcoming "price adjustments". The letter does not reveal all intended price changes and new charges, only some of them, but under the heading "We heard you", it states: ".over the next few years we will be drawing on the expertise available from the BCE family of companies to develop Personal Communication Services that provide functionality similar to PrimeLine service." With only that statement to guide him, it is little wonder that Mr.Hrad Hekimian of Time Critical Research Inc. lost his way -- if, in fact he did.
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Far more information is required if the Commission is, as paragraph 181 of 97-9 states, to determine if Bell's proposed rate increases and new charges: ".meet all the Commission's criteria concerning matters such as the imputation test, consumer safeguards and privacy." Only Bell is in a position to supply such information and to date it has not done so. Accordingly, I would have denied this application as unsubstantiated. To do otherwise, I submit, could very well result in an unjust and unreasonable outcome.
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