ARCHIVED - Order CRTC 2000-1164

Order CRTC 2000-1164

Ottawa, 21 December 2000

Ontario Telecommunications Association final 2000 Carrier Access Tariffs

Reference: Tariff Notices 65, 65/A and 65/B

The Commission approves final 2000 CAT rates, for the period 1 January 2000 to 31 December 2000.

The Commission directs the members of the Ontario Telecommunications Association to file proposed final 2001 CATs by 31 January 2001.

Pursuant to Order CRTC 2000-554, dated 19 June 2000, OTA filed, on behalf of its members, proposed final 2000 Carrier Access Tariffs (CATs) with Tariff Notice 65 on 3 August 2000. OTA filed revisions to its proposed final 2000 CATs with TN 65A on 11 August 2000 and TN 65B on 2 November 2000. With TN 65B, OTA proposed final 2000 CATs ranging between $0.0575 and $0.1321 per minute.

Conversation and direct access line (DAL) minutes

According to the rules set out in paragraph 168 of Telecom Decision CRTC 99-5 Review of contribution regime of independent telephone companies in Ontario and Quebec, dated 21 April 1999, the Commission notes that the year 2000 is the first year that the billing and collection of CAT revenues will be based on actual minutes instead of proxy minutes.

OTA and Bell Canada agreed to the estimates of conversation minutes for 14 of the 19 independent companies and agreed to the estimates of DAL minutes for 13 of the 19independent companies.

The Commission notes that the estimates by both parties have included actual data for January to August 2000.

The Commission analyzed the conversation minute data and notes that both parties have agreed on the direction of the change in 2000 estimated minutes over 1999 proxy minutes, but not the magnitude.

The Commission considers the differences in the total forecasts represented by the estimates for the period September to December 2000 are small and have minor overall impact.

The Commission has also taken into consideration the risk faced by both parties should the actual conversation minutes differ from the estimated forecasts. For Bell Canada it may mean a modest overpayment of contribution to the top of the independents' rate of return (ROE) range, while for the independents, it may mean a contribution shortfall.

In the Commission's view, as noted above, the difference in estimated forecasts of minutes is minor and the overall impact of approving one estimate over the other is minimal. The Commission notes that there is little risk to the payer as an independent company receiving too much subsidy (such that it achieves an ROE above its allowed range) will be obligated to return any over-earnings. However, should the estimated minutes be too high resulting in a CAT rate that does not allow an independent to achieve the bottom of its allowed rate of return, the independent has no opportunity to recover this shortfall from the long-distance provider, and it will not be able to recover the shortfall from other sources for the year 2000.

Overall, the Commission considers the OTA figures, including actual and estimates of conversation and DAL minutes to be reasonable and has used these estimates in the determination of the contribution and direct toll rates.

Local rate increases

Rate increases pending approval

In its TN 65A filing, Section 2, Attachment 1, OTA included the estimated annualized impact on 2000 local revenues resulting from the rate increases implemented effective 1 July 1999.

Bell Canada submitted that some local rate increases that are currently pending before the Commission in a separate proceeding, if approved, would have an impact on the 2000 contribution requirement.

The Commission notes that only South Bruce and Wightman included estimates for pending increases. On 4 December 2000, the Commission issued Order CRTC 2000-1092 and Order CRTC 2000-1095, approving South Bruce's and Wightman's proposed rate increases respectively. The Commission however, delayed their implementation to 1 January 2001.

Therefore, the Commission has reduced the 2000 local revenue estimate for South Bruce and Wightman by $18,100 and $21,700 respectively.

Other rate increases

Bell Canada also suggested that North Renfrew in the calculation of its 2000 contribution requirement has failed to properly account for the annualized impact of its 1 July 1999 local rate increase. Similarly, Bell Canada noted that Quadro has not imputed a reduction to its contribution requirement equivalent to a $5 local rate increase, as proposed in its 1 March 2000 plan to reduce contribution to 25% of total revenue requirement.

In its reply comments, OTA submitted that in its proposed 2000 final CAT calculations for North Renfrew included a $24,000 adjustment to reflect the annualized impact of its 1999 local rate increase.

With respect to Quadro, OTA noted that the reduction in contribution equivalent to a $5 local rate increase, mentioned in the Quadro letter of 1 March 2000, is to come into effect as of 1 January 2001. As a result, OTA stated that such a reduction is not required in 2000.

The Commission has reviewed OTA's calculations regarding the impact of local rate increases on the 2000 contribution requirement. It accepts these calculations, subject to the revenue reduction, noted above, of $18,100 for South Bruce and $21,700 for Wightman.

Broadband investment

In Decision 99-5, the Commission directed the Ontario and Quebec small independents, as part of their annual CAT filings, to file detailed information on broadband applications including investment levels and planned use for any fibre investments.

OTA indicated that its fibre investment is used for utility-type applications. This included applications such as access to remote switches, extended area service links, inter-office trunks for transport of toll traffic to long-distance providers, and data facilities between host and remote switches.

Bell Canada noted that OTA provided very limited general explanations regarding the independent telephone companies' broadband applications. Bell Canada noted that it was unable to make informed comment based on the information provided. Bell Canada suggested that the Commission should carefully scrutinize the associated expenditures to ensure only legitimate expenditures are included in the Phase III results and the associated rate calculations.

In its reply comments, OTA stated that the independent telephone companies' fibre optic and fibre cable investments are assigned to the broad service categories (BSCs) of Access, Monopoly local, Toll, and Network based on inventories of working circuits in accordance with Phase III procedures.

The Commission notes that the intent of the directives of Decision 99-5 was to ensure the independent telephone companies did not include inappropriate broadband investments and expenses in the calculation of the CAT.

The Commission is satisfied with OTA's explanations of its broadband expenditures.

Intercorporate transactions

In Decision 99-5, the Commission directed those companies that have intercorporate transactions to file details of the pricing policies and accounting procedures associated with their intercorporate transactions. In response to Commission interrogatories in this proceeding, eight of the OTA members provided information concerning intercorporate transactions. Interested parties provided no comments.

The Commission is satisfied with OTA's report and will continue to monitor intercorporate transactions on a going-forward basis.

Rate of return for Gosfield

The Commission reviewed the Phase III calculations for each of the independent telephone companies and determined that one company, Gosfield, used an incorrect rate of return in determining its proposed contribution requirements and direct toll component. Gosfield used 11.5% instead of the 11.325% (midpoint of its rate of return range) as outlined in Regulatory framework for the independent telephone companies in Quebec and Ontario (except Ontario Northland Transportation Commission, Québec-Téléphone and Télébec ltée), Telecom Decision CRTC 96-6, 7 August 1996, Appendix I and Decision 99-5.

The Commission notes that the rate of return calculation does not impact the proposed contribution requirement as, pursuant to Decision 99-5, it is subject to a contribution cap based on the final 1999 contribution requirement.

However, the direct toll component is affected by the miscalculation. Adjusting for the lower rate of return of 11.325%, the Commission calculated the direct toll requirement for Gosfield and reduced the component from $203,766 to $202,631. This adjustment translates into a $0.0002 reduction to Gosfield's proposed direct toll rate.

Accordingly, the Commission approves a reduced direct toll component of $202,631 and a per-minute rate of $0.0323 for Gosfield.

Contribution requirement

Except for the above-mentioned adjustments, the Commission considers that the OTA filed its proposed final 2000 contribution requirement in accordance with Decision 99-5.

All of the OTA companies proposed the lower of the contribution requirement based on the Phase III calculation or the previous year's approved amount adjusted for local rate increases.

The Commission has reviewed the contribution requirement filings for each of the companies and finds the proposed final 2000 contribution requirements appropriate and reasonable.

Direct toll component

OTA provided the direct toll component for all companies and noted that three companies (People's, Hay and Roxborough) have direct toll components in excess of 5% over 1999 approved levels. In response to Commission interrogatories, OTA provided explanations for these increases.

Bell Canada accepted the explanations for Hay and Roxborough and did not provide comments on People's explanation.

The Commission has reviewed and accepted the explanations provided by the three companies.

Accordingly, the Commission approves the direct toll component and rates proposed by the OTA subject to the rate of return adjustment for Gosfield, noted above.

Implementation

In light of the above, the Commission:

a) approves the final 2000 company-specific contribution and direct toll rates listed in Appendix A of this order, for the period 1 January 2000 to 31 December 2000;

b) directs OTA to issue amended CAT tariff pages within 15 days;

c) directs OTA to proceed with billing adjustments as expeditiously as possible; and

d) directs OTA to file proposed final 2001 CATs by 31 January 2001.

Secretary General

This document is available in alternative format upon request and may also be examined at the following Internet site: http://www.crtc.gc.ca