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Decision CRTC 2001-756

Ottawa, 14 December 2001

Regulatory framework for the small incumbent telephone companies

Reference: 8663-C12-05/01

Table of contents

Summary

Thirty-nine small incumbent telephone companies, serving less than 2% of the Canadian population in generally rural communities, will be regulated under a framework that focuses on prices, rather than earnings.

Effective 1 January 2002, this new framework will allow for annual price increases based, primarily, on inflation and will incorporate the new contribution mechanism as established in Decision 2000-745, Changes to the contribution regime, dated 30 November 2000.

In order to reduce the regulatory burden of these small incumbent telephone companies, they will be allowed to use a proxy approach to determine their subsidy requirements, thereby eliminating the need to perform detailed costing studies. Since this proxy approach includes a residential local rate of $22.75 per month, they will be allowed to increase residential local rates to that level, effective 1 January 2002, subject to a maximum monthly increase of $4.

A four-year transition period will reduce the possible financial impact on those companies that will receive less subsidy under the new contribution mechanism than they do under the current mechanism.

Since no immediately workable proposals were brought forward with respect to the calculation and recovery of direct toll and network access costs, a consultative process led by Commission staff will begin during the first quarter of 2002 to address the issue. Until the consultative process is complete, the direct toll and network access costs and rates will be frozen at the 2001 levels and the corresponding rates made interim.

Background

1. There are currently 39 small incumbent local exchange carriers (ILECs) in Canada, which are listed in the attached appendix. Most are dispersed throughout Ontario and Quebec with one located in British Columbia. Most serve mainly rural areas and almost all have less than 25,000 subscribers. Twenty-two have less than 5,000 subscribers and four have less than 1,000. Overall, the small ILECs serve less than 2% of the total Canadian population.

2. The small ILECs would have received approximately $37.9 million in contribution (subsidy) in 2002, based on Phase III costs, and recovered an additional $24.4 million for direct toll from inter-exchange toll providers.

3. In Decision CRTC 2000-745, Changes to the contribution regime, dated 30 November 2000, the Commission determined that, as of 1 January 2002, the small ILECs will be part of the new contribution mechanism and will use a Phase II costing approach to determine their subsidy requirements.

4. In New regulatory framework for small independent telephone companies and related issues, Public Notice CRTC 2001-61, dated 30 May 2001, the Commission expressed the preliminary view that a simplified form of price regulation would be appropriate for the small ILECs. Accordingly, the Commission has decided to adopt a price regulation for all the small ILECs. The proceeding included the Commission's consideration of written submissions as well as comments gathered during a round table consultation that the Commission conducted in Hull, Quebec on 9 July 2001. 

5. The primary objectives of this proceeding included establishing a new regulatory framework for the small ILECs that would focus on prices rather than earnings, and develop a methodology to calculate the small ILECs' subsidy requirements using a Phase II costing approach. The Commission also examined whether it should modify the existing method of identifying, quantifying and recovering direct toll and network access costs. The Commission also sought comments on whether companies with service improvement plans (SIPs) should be required to maintain their special reserve accounts and on the need for on-going reporting requirements.

New regulatory regime for small ILECs

Price regulation

6. Only O.N.Telcom and Northern Telephone Limited were not in favor of adopting a regulatory regime of price regulation. The Commission considers that an appropriate pricing regime would encourage efficiency and innovation, ensure access to affordable and reliable services, provide the small ILECs with the opportunity to earn a fair return and reduce the regulatory burden.

Components of price regulation

7. Price regulation usually incorporates three basic components and determines the maximum allowable change in prices, on an annual basis, for services subject to pricing constraints. These components are an inflation factor, an exogenous factor and a productivity offset.

Inflation factor

8. Generally, the small ILECs favoured the use of an inflation factor as a component of an overall price regulation regime. This factor would account for changes to the input costs of the operator.

9. While some of the parties proposed the Consumer Price Index (CPI), most parties favoured the Gross Domestic Product Implicit Chain Price Index (GDP-PI) as the preferred measure of inflation. The main reasons given were:

  1. it is a much more broadly based index than other measures such as CPI;
  2. it is already being used by the Commission for the large ILECs subject to price regulation; and
  3. it is more focused on input prices that a business would be expected to deal with.

10. The Commission considers that the CPI is narrow in scope when compared to the GDP-PI. The CPI relates to the retail market where telecommunications operators only incur a portion of their costs. The GDP-PI takes into account more than just the retail sector; it includes government and business investment in fixed capital, as well as imports and exports of goods and services.

11. While each of these two inflation factors is a legitimate measure of inflation, taking into consideration the broader nature of the measure, the Commission determines that the use of the GDP-PI is appropriate for the small ILECs.

12. The Commission directs that the GDP-PI inflation factor be measured using year-to-year changes in order to avoid the problems associated with seasonality. In general, the Commission does not deem it necessary for the small ILECs to adjust for revisions in GDP-PI, made by Statistics Canada.

Exogenous factor

13. In Telecom Decision CRTC 97-9, Price cap regulation and related issues, dated 1 May 1997, the Commission determined that an exogenous factor adjustment, for the large ILECs, will be considered for events which satisfy the following criteria:

  1. they are legislative, judicial or administrative actions which are beyond the control of the company;
  2. they are addressed specifically to the telecommunications industry; and
  3. they have a material impact on the Utility segment of the company.

14. Most parties agreed that an exogenous adjustment should be included as a component of the price regulation regime.

15. Several of the companies submitted that the existing criteria determined in Decision 97-9, and set out above, are appropriate. Others considered that the criteria be expanded to encompass "Acts of God". The Ontario Telecommunications Association (OTA) and Northern stated that the measurement of any exogenous factor should be based on actual costs where available.

16. As noted above, some of the parties proposed that the criteria used for the large ILECs should be expanded to include "Acts of God". The Commission is of the view that these types of events, while beyond the control of the companies, would not be specific to the telecommunications industry and should not be considered exogenous.

17. The Commission is of the view that the criteria in Decision 97-9 applied to the small ILECs would capture events that should be considered to be exogenous. The Commission recognizes that modifications to the definition of an exogenous factor may arise as a result of the determinations of the proceedings initiated by Public Notice CRTC 2001-36, Implementation of price cap regulation for Québec-Téléphone and Télébec, dated 13 March 2001, and Public Notice CRTC 2001-37, Price cap review and related issues, dated 13 March 2001. If modifications are made to the criteria for the large ILECs as a result of these processes, the Commission will consider if it is appropriate to implement similar modifications to the criteria, for the small ILECs at a later date.

18. The Commission agrees that the actual financial impact should be used to measure the exogenous factor where available, and that it be determined on a company-wide basis and assigned on a cost-causal basis between capped and other services. The Commission also considers that the small ILECs should be required to file for approval of exogenous treatment for all events that meet the criteria, regardless whether the factor would be positive or negative.

19. The proposed exogenous adjustments are to be filed by the small ILECs as part of the annual update process or by other parties at any time through the filing of a Part VII application under the CRTC Telecommunications Rules of Procedure.

Productivity offset

20. Some of the parties to this proceeding submitted that a productivity offset is required as a component of the price regulation regime. The productivity offset is normally set based on an operator's expected productivity increases over the relevant period of time.

21. The OTA advocated that the productivity gains in the initial period should flow directly to the shareholders. It submitted that there is little opportunity to capture productivity gains. Action Réseau Consommateur, the Consumers' Association of Canada, and the Fédération des associations coopératives d'économie familiale du Québec (ARC et al.) submitted that the new regime must include some expectation of efficiency improvements and rejected the position taken by OTA.

22. The Société d'administration des tarifs d'accès des télécommunicateurs (SATAT) stated that its proposed schedule to gradually increase the deemed implicit contribution from other local services (such as optional services) is the only productivity measure required. The Canadian Alliance of Publicly-Owned Telecommunications Systems (CAPTS) advocated that the benefits of productivity should flow equally to the shareholders and subscribers.

23. The Commission notes that cost structures of the small ILECs vary significantly, resulting in major differences in such areas as depreciation, interest charges and operating expenses. Given the majority of the small ILECs will receive less subsidy under the Phase II proxy developed herein, the Commission will implement a transition period of four years to help deal with the impact of lost contribution revenue and give the companies time to find alternate source of revenue and/or cost reductions. It would be unreasonable for these companies to suffer a further loss in revenue through the application of a productivity offset. The Commission considers that the pricing flexibility discussed below, along with any productivity gains achieved by these companies, will help offset the loss of contribution revenues during the transition period. Accordingly, no productivity offset will apply during the transition period.

24. The Commission acknowledges that a minority of the small ILECs will receive more subsidy under the Phase II proxy. However, a productivity offset will not be applied to these companies in order to achieve the benefits of a common approach and to reflect uncertainty about whether or not significant productivity will be achieved by the small ILECs during the transition period. Once the transition period has expired, it may be appropriate to apply an explicit productivity factor in any revised price regulation regime. This issue will be revisited during the regulatory framework review.

Procedures for rate increases under price regulation

25. In order to determine appropriate price changes under price regulation, services are generally grouped into baskets based on criteria such as homogeneity and/or similarity in demand price elasticities. Prices for services within each basket may increase or decrease provided that they conform to the pricing constraint for that basket.

26. The Commission has determined that the small ILECs should be subject to a simplified form of price regulation. As such, the Commission does not intend to develop a complex basket structure. However, the Commission considers that certain services should be subject to upper pricing constraints to protect consumers. The Commission considers that this objective can be achieved by grouping services into four separate baskets, each with their own pricing constraints.

27. The first basket comprises residential primary exchange service (PES), both single line and party line, including all mandatory local services such as touch-tone. Rates for each of these services will be permitted to increase each year by no more than inflation in the absence of any exogenous factors.

28. The second basket comprises business PES for single line, multi-line and party line, including mandatory local services. Rates for each of these services will be permitted to increase each year by no more than inflation in the absence of exogenous factors.

29. The Commission notes that unused portions of a possible rate increase for any given year may be accumulated and requested in a following year. To allow for this option, the small ILECs are directed to identify as part of an annual filing whether or not allowable rate increases under the price regime were implemented. The annual filing should also include the GDP-PI for the previous calendar year and the existing and proposed rates (i.e., where price changes are requested) for any residential and business PES basket services.

30. The small ILECs are directed to submit, by 1 April each year commencing in 2002, their annual filing. The Commission notes that it expects that rate increases on any individual rate element in these two baskets of services will generally be proposed once in a 12 month period.

31. In paragraph 61 of this decision, the Commission approves monthly residential local rate increases to reach $22.75. The Commission considers that monthly business rates should, at a minimum, be no less than the monthly residential rates in the same serving territory.

32. Accordingly, the Commission directs all companies, whose monthly business rates are below $22.75, to file for approval, as soon as possible, proposed increases in business rates to reach a minimum of $22.75. In the event that any company considers a monthly business rate of $22.75 or that its existing rate is too low, it may file, for approval, proposed monthly business rates beyond the level of $22.75. All such proposals should be accompanied by supporting rationale and will be considered on a case by case basis. The Commission notes that any rate increases allowed under this option would be in addition to increases permitted under the price regulation regime as discussed in paragraph 28. 

33. The third basket will comprise 9-1-1, message relay service and toll restriction. For the same policy reasons enunciated in Decision 97-9, the Commission considers it appropriate to freeze, at the existing tariffed rates, the rates for these services provided directly by the small ILECs. For those small ILECs where the service is provided on their behalf by a large ILEC (i.e., the rate is simply a pass-through), the Commission will give expedited treatment to tariff filings submitted by a small ILEC to reflect any rate changes for these services approved by the Commission.

34. The fourth basket comprises all other services offered by the small ILECs, such as optional services, multi-element service categories, special facilities tariffs and competitor access tariffs. Rates for these services will generally be permitted to increase up to any already approved rate for the same service. Tariff applications may be submitted at any time and should reference when and where the Commission approved the rate. For rate increases that go beyond this, an economic study must accompany the application.

Earnings-sharing mechanism

35. All of the small ILECs, with the exception of Northern and O.N.Telcom, submitted that it would be inappropriate to implement an earnings-sharing mechanism as a component of the price regulation regime. Those opposed to an earnings-sharing mechanism submitted that

  1. it would be contrary to a simplified form of regulation,
  2. it would be complex to monitor, and
  3. it would not facilitate the stated goals of the proceeding.

36. O.N.Telcom submitted that, as it was advocating earnings-based regulation, an earnings-sharing overlay should be reviewed at a later date. Northern did not oppose an earnings-sharing mechanism as it fits with the regulatory regime that it proposed for the transition period.

37. The small ILECs are moving to a regime where they assume more risk while attaining more pricing flexibility. An earnings-sharing mechanism would address the concern that the actual outcome might differ materially from the expected results under this regime. The Commission must balance the interests of all stakeholders and assess the benefits and drawbacks of implementing an earnings-sharing mechanism.

38. The Commission also considers that the new regime will provide the small ILECs with more incentive to increase efficiencies and reap the rewards through increased earnings, and views these incentives as an element of the regulatory bargain entered into when moving to price regulation. The Commission notes that earnings-sharing reduces the incentive for cost reductions, which is contrary to the incentive to be more efficient, and fails to provide for streamlining of regulation. The Commission, therefore, does not consider it appropriate to overlay an earnings-sharing mechanism over the price regulation regime.

Length of the price regulation period

39. CAPTS submitted that a price regulation period longer than four years would be too long, while Northern indicated that four years was appropriate. Both SATAT and OTA submitted that five years was appropriate with a review after four years. OTA also wanted no modifications to the framework during the four-year transition period unless industry conditions changed significantly.

40. As the Commission views the length of the price regulation period as the only self-correcting mechanism to be implemented, it is important to select a period of time that is not too long, to allow adjustments as required to the price regulation regime, and not too short, to ensure that there is sufficient time for the small ILECs to achieve the efficiencies that should result from this regime.

41. The Commission notes that there will be a four-year transition period for those companies receiving a reduced subsidy. The Commission is of the view that the length of the price regulation period should not be shorter than the transition period.

42. The Commission is also of the view that the initial period should not be too long in order to ensure that any correction of the price regulation regime, if needed, can be done in a timely manner. As this is the initial price regulation regime for the small ILECs, it is even more important to minimize the impact of any errors that could occur in establishing the price regulation regime. Consequently, a shorter period rather than a longer one is appropriate.

43. In light of the above, the Commission has determined that a price regulation period of four years is warranted and that a review of the price regulation regime should be initiated in year four of the regime.

Contribution mechanism

Required contributors to the National Contribution Fund

44. Since 1 January 2001, all telecommunications service providers (TSPs), with the exception of the small ILECs, have been required to contribute a percentage of their contribution eligible revenues to a National Contribution Fund in accordance with Decision 2000-745. The small ILECs were exempted from the new revenue-based regime for 2001 to allow the Commission time to address the necessary modifications required to include them under the revenue-based regime in 2002. 

45. All TSPs are required to remit contribution based upon a percentage of contribution-eligible revenues to an independent third party, the Central Fund Administrator (CFA), on a monthly basis if their contribution-eligible revenues for the previous year exceed $10 million.

46. Contribution-eligible revenues for the purposes of the contribution regime are defined as Canadian telecommunications service revenues (CTSR) less revenues from the following exempted services and products: retail Internet services; retail paging; terminal equipment and less deductions for the following: contribution revenues received; and inter-carrier payments made to other TSPs to earn contribution-eligible revenues.

47. Based on current estimates, the following small ILECs are expected to be required contributors in 2002, as their CTSR in 2001 are expected to exceed the $10 million threshold:

48. In accordance with Decision 2000-745, each year the Commission will identify required contributors, based on financial information (for the previous fiscal year), which is to be filed on or before 31 March.

49. Consistent with Decision 2000-745, the Commission considers that the small ILECs who are required contributors will be able to recover the revenue-percentage charge on capped services through an exogenous adjustment.

Eligible recipients and calculation of subsidy proxy

50. In Decision 2000-745, the Commission indicated that, as of 1 January 2002, all small ILECs must use a Phase II costing approach to calculate their total subsidy requirements (TSR). The Commission, however, recognized that developing their own Phase II costs might be burdensome.

51. In order to mitigate the regulatory burden of Phase II costing studies, the Commission proposed in PN 2001-61 to use a TSR proxy rate for tax-paying and tax-exempt companies, determined on the following basis:

  1. a national weighted-average monthly residential PES cost based on the high-cost serving areas (HCSAs) of the large ILECs for the cost component;
  2. a national weighted-average monthly residential local rate of $22.75 based on the local rates in HCSAs of the large ILECs;
  3. a mark-up of 15% on the cost component; and
  4. a $5 per month deemed revenue from other local services.

52. In order to determine which network access service (NAS) are eligible for subsidy, the Commission also proposed to exclude the loop length criterion to determine the small ILECs' TSR in wire centres or exchanges with greater than 1,500 and less than 8,000 total NAS.

PES cost component

53. The majority of the small ILECs accepted the use of a proxy for the calculation of their TSR as proposed in PN 2001-61. However, several of the small ILECs indicated that the PES cost component proposed by the Commission should be increased to recognize the size of their operations; their lack of economies of scale and purchasing power; their financing structure; and the particulars of their network configuration in comparison to the large ILECs.

54. Bell Canada and TELUS Communications Inc. (TCI), on the other hand, supported using the large ILECs' national weighted-average monthly residential PES costs without any adjustment.

55. In addition to the above, the Commission also recognizes that there is a lack of cost advantages and/or savings available to the small ILECs in comparison to the large ILECs. Consequently, the Commission has made an upward adjustment to the proposed PES cost component of 7.5% to recognize cost differences.

56. The Commission considers that, this new regulatory framework which includes this adjustment to the PES cost component, in conjunction with

  1. the pricing flexibility available to these companies, discussed at paragraphs 25 to 34,
  2. the adjustment to the banding structure discussed below, and
  3. the retention of productivity gains during the new regulatory regime period, will provide all of the small ILECs with the necessary incentives to reduce costs while giving them a reasonable opportunity to earn a fair rate of return on their investment.

57. The Commission notes that all parties agreed that the only way to capture the small ILECs' actual residential PES costs for subsidy calculation purposes, is if company-specific Phase II cost studies were developed. Therefore, the Commission will allow the small ILECs to file company-specific Phase II cost studies at any time. The Commission notes, however, that once company-specific Phase II costs are submitted to the Commission, the approved costs will be incorporated on a going-forward basis in the company's TSR calculation, regardless of whether it is lower or higher than the proxy cost.

Residential PES revenue component

58. Most small ILECs supported using the proposed $22.75 residential PES revenue component, for TSR calculation purposes, for the duration of the transition period, as proposed in PN 2001-61, as long as they could increase their residential rates to that level on 1 January 2002. Northern proposed to use its actual residential local rates in conjunction with its own Phase II costs. CAPTS submitted that the $22.75 residential PES revenue component should be discounted for the public utilities commissions to account for their tax-exempt status. Bell Canada favoured adjusting the residential PES revenue component annually to reflect the prevailing national weighted-average monthly residential PES rates for the large ILECs' HCSAs and to bring the small ILECs' residential rates closer to the prevailing rates in the rest of Canada. ARC et al. submitted that residential local rates should not be allowed to increase to $22.75 unless the increases were required to offset subsidy reductions.

59. The Commission notes that a degree of rate rebalancing was allowed for the large ILECs before the Commission established price cap regulation. Many small ILECs' local rates still lag behind those of the large ILECs. The Commission considers that the required contributors of the National Contribution Fund would unduly subsidize some small ILECs if the current actual rates were used to determine the subsidy requirements. Also, consistent with the Commission's decision to use the large ILECs' national weighted-average monthly residential PES costs, as adjusted, to determine the small ILECs' PES cost component, the Commission finds that the residential PES revenue component should be determined on a similar basis. Accordingly, the Commission approves a fixed revenue rate of $22.75 per residential NAS per month (including touch-tone) for TSR calculation purposes for the duration of the transition period.

60. Given that residential local rates for the small ILECs are currently as low as $10.20 per month, the Commission is concerned with possible residential rate shock if rates were allowed to be increased to $22.75 per month immediately. The Commission considers that limiting the monthly residential local rate increases to $4 would mitigate rate shock.

61. In light of the above, the Commission allows the small ILECs to make monthly residential local rate increases to reach $22.75 per NAS, effective 1 January 2002, for those small ILECs whose residential local rates are currently between $18.75 and $22.74. For those companies whose residential local rates are below $18.75, the companies can only increase the monthly residential local rates by a maximum of $4. This increase would be over and above the increases allowable under the price regulation regime.

Procedures for rate increases to reach $22.75

62. In order for rates to become effective 1 January 2002, companies must issue their tariff pages on or before 31 December 2001. Rate increases for tariff pages issued after 1 January 2002 will take effect on or after the date of issue. In all cases, subscribers are to be advised of local rate increases by notification on their bill or by billing insert, as soon as possible.

63. The Commission notes that even with a maximum $4 rate increase in 2002, some companies may still have local residential rates below $22.75 per month. These companies may raise local residential rates on 1 January of subsequent years by a maximum of $4 per month until $22.75 is reached. Companies must issue tariff pages on or before 1 December of the preceding year. Subscribers are to be advised of local rate increases by notification on their bill or by billing insert.

64. In Decision CRTC 2001-583, O.N.Telcom - Implementation of toll competition and related matters, dated 13 September 2001, the Commission directed O.N.Telcom to raise its monthly residential local rates to $19.85, effective 1 January 2002. 

65. Given the size of the local rate increases that O.N.Telcom's residential subscribers will already experience, the Commission considers that O.N.Telcom should not be allowed to further raise its monthly rates to $22.75 until 1 January 2003. 

Mark-up component

66. Some small ILECs agreed with the 15% mark-up of the PES cost component proposed in PN 2001-61, while others proposed a larger mark-up to account for their higher fixed and common costs. Bell Canada and TCI submitted that if the Commission approved a greater mark-up for the small ILECs than the large ILECs, it would implicitly admit that the approved mark-up in the large ILECs' territories was insufficient.

67. The Commission notes that there was no quantitative evidence submitted on the record of this proceeding to support a finding that a 15% mark-up is insufficient to recognize a small ILEC's fixed and common costs.

68. The Commission considers that a 15% mark-up on the PES cost component, for TSR calculation purposes, is appropriate. The Commission also considers that a 15% mark-up will ensure an appropriate level of recovery of the small ILECs' fixed and common costs and at the same time encourage the efficient provision of basic local residential service in HCSAs.

Implicit revenues from other local services

69. In PN 2001-61, the Commission proposed that it would use $5 per month per NAS in revenues from other services in the calculation of the TSR.

70. Bell Canada and TCI submitted that, in Decision 2000-745, the Commission required the large ILECs to generate $5 per month from other local services in HCSAs as an incentive to increase margins from those services. In Bell Canada's and TCI's view, this conclusion should also apply to the small ILECs.

71. The small ILECs submitted that they could not generate $5 per month per NAS in revenues from other local services in light of the nature of their customer base (seasonal and rural customers) and the additional projected local rate increases proposed in this proceeding. In support of their position, the small ILECs indicated that their average revenues from other services are lower than those of the large ILECs. They also submitted that increasing rates for those other services would negatively impact the penetration rate of such services.

72. While there are variations in the average optional service revenues among the small ILECs, the Commission notes that some of these revenue differences are due to differences in marketing and pricing strategies among the small ILECs.

73. In light of the above, the Commission deems an amount of $5 per month per NAS, from other local services, be used for the calculation of the TSR.

Banding

74. In Decision CRTC 2001-238, Restructured bands, revised loop rates and related issues, dated 27 April 2001, the Commission determined that the band structure for the large ILECs would consist of the following three HCSA bands, based on wire centre and/or exchange classification:

  1. wire centres or exchanges with less than or equal to 1,500 total NAS;
  2. wire centres or exchanges with greater than 1,500 and less than 8,000 total NAS, and where the average loop length is greater than four kilometres; and
  3. remote wire centres or exchanges (e.g., without year-round road access or found in remote parts of a company's serving territory).

75. In PN 2001-61, the Commission proposed that the small ILECs adopt the HCSA banding criteria established for the large ILECs in Decision 2001-238, modified to exclude the loop length criterion as set out in paragraph 74 b) above.

Classification of high-cost areas

76. CAPTS, Prince Rupert City Telephones (CityTel) and OTA submitted that all small ILECs' NAS should be eligible for a subsidy, regardless of the size of the wire centre.

77. In particular, CAPTS submitted that actual small ILEC costs, not network architecture, should determine the extent to which NAS qualify as high-cost. Further, CAPTS submitted that Telecom Decision CRTC 99-16, Telephone service to high-cost serving areas, dated 19 October 1999, identified that a high-cost area is a clearly defined geographical area where the ILEC's monthly costs to provide basic service are greater than the associated revenues generated by an affordable rate.

78. The Commission notes that Decision 99-16 also found that high-cost areas occur primarily in remote, rural regions and in the far north. The advantages identified in Decision 2001-238 for the use of a wire centre and/or exchange classification band structure included

  1. it does not require an identification of technology or costs, and
  2. it has a uniform definition and criteria for all ILECs.

79. Therefore, the Commission considers that it remains appropriate to use wire centres to define high-cost areas. The determinations in this decision have generally addressed the issue of the small ILECs' higher costs.

Identification of wire centres

80. By letter dated 24 May 2001, Commission staff clarified the definition of a wire centre for the small ILECs, based on the Commission's determinations as set out in Decision 2001-238.

81. The Commission finds that areas served by an outside plant module (e.g., a DMS-1U) are not considered to be wire centres, unless the device is used to replace a switch and/or supporting evidence demonstrates that the area should be considered a wire centre. The Commission notes that a remote line concentrator module is similar to a DMS-1U.

82. Based on the criteria set out above, the Commission approves 144 of 150 wire centres proposed by the small ILECs. The six exceptions are as follows:

  1. The Lake Temagami NAS in O.N.Telcom's territory should be included as part of its Temagami wire centre;
  2. The Lithium and MacKenzie NAS in Thunder Bay Telephone's territory should be included as part of its Court wire centre; and
  3. The Kakabeka, Neebing and Slate River NAS in Thunder Bay Telephone's territory should be included as part of its Vickers wire centre.
Loop length criterion

83. In PN 2001-61, the Commission proposed to eliminate the loop length criterion for the small ILECs' 1,501 to 7,999 NAS band because a larger portion of their operational and maintenance costs are directly related to switching equipment, than is the case for the large ILECs.

84. Bell Canada maintained that the exclusion of the loop length criterion would result in proportionate higher subsidy requirements for the small ILECs as opposed to the large ILECs because

  1. wire centres and NAS would receive a subsidy that they would not otherwise be eligible for with the loop length criterion, and
  2. the proxy costs would be overstated because they were developed using loop lengths in excess of four kilometres.

85. The Commission continues to be of the view that the small ILECs high-cost band structure should be determined with no loop length criterion because a larger portion of the small ILECs' ongoing operational and maintenance costs are directly related to their switching equipment than is the case for the large ILECs.

Small ILEC band structure

86. In PN 2001-61, the Commission proposed to adopt the same band structure for the small ILECs as it had approved for the large ILECs.

87. Several parties proposed minor changes to the band structure approved for the large ILECs in Decision 2001-238. For example, Le Téléphone St-Éphrem Inc., La Compagnie de Téléphone de St-Victor and La Compagnie de Téléphone de Lambton Inc. proposed expanding the first band to include up to 2,000 NAS, while CityTel proposed a subsidy for more than 8,000 NAS.

88. While parties proposed minor changes to the band structure, no party proposed to adjust the corresponding PES cost component to account for larger band sizes.

89. The Commission is not persuaded that it would be appropriate to change the basic band structure identified in Decision 2001-238, except for the elimination of the loop length criterion as outlined above.

90. Therefore, the Commission approves the following band structure for the small ILECs:

  1. Band E - wire centres or exchanges with less than or equal to 1,500 total NAS;
  2. Band F - wire centres or exchanges with greater than 1,500 and less than 8,000 total NAS, with no loop length criterion; and
  3. Band G - remote wire centres or exchanges (e.g., without year-round road access or found in remote parts of a company's serving territory).

91. Both OTA and SATAT were concerned with the steep drop in subsidy as a wire centre grows beyond 1,500 NAS. OTA also noted that there is no corresponding drop in costs, as a wire centre grows, but rather there is gradual reduction in the cost per NAS.

92. To address this issue, OTA proposed a straight-line declining subsidy approach where each additional NAS would result in a slightly lower per NAS proxy rate, while SATAT proposed a step declining subsidy approach where each step would contain 500 NAS.

93. Northern stated that both the OTA and SATAT proposals would be acceptable because they resulted in a more gradual reduction in subsidy as a wire centre grows.

94. While ARC et al. agreed with the need for a "sliding scale", they submitted that any modifications must be tempered by the fact that the small ILECs can, if necessary, develop their own Phase II cost estimates. Therefore, while the proxy rates should be reasonable, they do not have to account for all of the differences between the small ILECs and the large ILECs.

95. Bell Canada submitted that both the OTA and SATAT proposals would provide the OTA and SATAT members with higher total subsidies than under the Commission's proposed proxy, and the total subsidies would be above their current entitlement pursuant to Telecom Decision CRTC 99-5, Review of contribution regime of independent telephone companies in Ontario and Quebec, dated 21 April 1999. Further, should the Commission determine that some form of "sliding scale" should be implemented for the small ILECs, then the total subsidy for the small ILECs, as a group, should be no greater than the total subsidy calculated on the basis of the approved HCSA band definitions and cost levels.

96. Due to the increased CFA administrative work that would be required, the Commission does not consider that the OTA or SATAT proposals provide a workable alternative to correct the steep drop in subsidy. Further, the Commission considers that economies of scale would occur in larger steps rather than one or 500 NAS at a time.

97. The Commission considers that a step methodology has merit and could be used to develop a workable model. The Commission is of the view that limiting the number of sub-bands to a maximum of four, would address the steep drop in subsidy issue, while at the same time acknowledge that a company gains economies of scale as a wire centre grows in size. This approach would also be easier for the CFA to implement than either the OTA or SATAT proposal.

98. To develop the four sub-bands, the Commission considered the sizes of the wire centres, how the sizes are grouped in relation to one another and the possible gains a company could make through economies of scale as a wire centre grows in size.

99. Therefore, the Commission approves four sub-bands in the 1,501-7,999 NAS band. Taking into consideration all the components of the subsidy proxy and the adjustment to the proposed PES cost approved by the Commission, the following per NAS proxy rates are to be used to determine the small ILECs' subsidy requirements:

Proxy subsidy rates per NAS
Wire centre classification Tax-paying company Tax-exempt company
0 to 1,500 NAS (Band E) $16.57 $8.98
1,501 to 2,500 NAS (Band F-1) $15.93 $8.46
2,501 to 4,000 NAS (Band F-2) $14.35 $7.17
4,001 to 6,000 NAS (Band F-3) $12.12 $5.37
6,001 to 7,999 NAS (Band F-4) $ 8.31 $2.27
Remote NAS (Band G) $37.87 $27.30

100. Each small ILEC's proxy subsidy amount is identified in the "2005" column in the Appendix to this decision.

101. The Commission notes that the total amount of subsidy (contribution) paid to the small ILECs will decrease from an estimated $37.9 million in 2002, under the previous Phase III methodology and Decision 99-5, to approximately $25.8 million in 2005, under the Phase II proxy approach as a result of the determinations in this decision.

Transition period

102. In Decision 2000-745, the Commission identified that, in the event that a Phase II costing methodology leads to a considerable reduction in the small ILECs' subsidy requirements, a transition period may be required to adjust to the new mechanism.

103. In PN 2001-61, the Commission requested comments on whether a transition period would be required and, if such was the case, the duration of the transition period and how it should be implemented.

Need for a transition period

104. All parties agreed on the need for a transition period.

105. Based on the Commission's determinations in this decision, the small ILECs' total annual subsidy (contribution) will decrease by approximately $12.1 million.

106. The small ILECs submitted that if the subsidy proxy includes a deemed residential local rate of $22.75 per month, then they should be allowed to increase their residential local rates to that level.

107. As indicated above, the Commission is concerned with possible residential rate shock, for some companies, if rates were allowed to be increased to $22.75 per month immediately.

108. The Commission considers that a transition period is required to allow the small ILECs time to increase residential local rates without causing undue rate shock for some customers and to introduce other measures to adjust to possibly lower subsidy levels.

Length of the transition period

109. Proposals for the duration of the transition period ranged from three to five years.

110. The Commission considers that a four-year transition period for those companies whose subsidy is being reduced would be appropriate, as it would allow the small ILECs sufficient time to adjust to lower subsidy levels, by generating new revenue and/or finding expense reductions, and allow for residential local rate increases without causing undue rate shock.

Timing and size of transition subsidy reductions

111. Under the four-year transition period, the Commission considers that annual subsidy reductions, where required, should occur at a rate of 25% of the total subsidy reduction per year.

112. The Commission also considers that the estimated revenues generated from an increase of residential local rates to $22.75 per month should be offset with corresponding subsidy reductions, until the proxy subsidy amount is reached.

113. In order to ensure that the decreasing subsidy amounts are reduced in a timely manner, the Commission assumes that the small ILECs will have increased residential local rates by the maximum amount allowed, regardless of whether or not the small ILECs actually raise their residential local rates. Each small ILEC will have to determine the extent to which it will raise residential local rates towards $22.75 per month.

114. Therefore, for those small ILECs requiring a transition period, the annual transition subsidy amounts have been calculated by deducting, from the previous year's subsidy amount, the greater of

  1. 25% of the total subsidy reduction, or
  2. the estimated revenue that would be generated from the allowed residential local rates increases to bring rates to $22.75.

The Commission notes that a company's subsidy will not be reduced below the proxy subsidy amount calculated in accordance with the proxy subsidy rates in paragraph 99. 

115. For the year 2002, the previous year's subsidy amount is the lower of

  1. the approved 2001 contribution requirement, or
  2. the forecast 2002 contribution requirement calculated using the 25% contribution cap in Decision 99-5.

116. As determined above, O.N.Telcom is not allowed to raise its monthly residential local rates to $22.75 until 1 January 2003. Therefore, O.N.Telcom's 2002 transition subsidy amount has been calculated by deducting 25% of its total subsidy reduction from its forecast 2002 contribution requirement.

117. The Appendix to this decision identifies the annual transition subsidy amounts for each small ILEC for the 2002 to 2005 transition period.

Direct toll and network access

Direct toll costs and rates

118. In PN 2001-61, the Commission noted that, as a result of the change in methodology for calculating subsidy requirements, using Phase III costs and originating and terminating toll minutes to estimate the small ILECs' direct toll (DT) costs and rates may no longer be appropriate. Participants were invited to submit proposals to modify the existing method of identifying, quantifying and recovering DT costs in the small ILECs' territories.

Identification of costs

119. OTA and SATAT proposed the continued use of an embedded cost methodology or Phase III-like methodology in the determination of DT, while CAPTS and O.N.Telcom supported the use of Phase II costing methodology (plus an appropriate mark-up). CityTel indicated that the Phase III methodology remained appropriate pending development of Phase II costing.

120. Northern stated there was no requirement to change the DT methodology at this time and indicated that changing from Phase III to Phase II would result in the company incurring a revenue shortfall.

121. The Commission notes that O.N.Telcom, Northern and Cochrane Public Utilities Commission have unbundled direct connect (DC) charges and equal access (EA) rates in lieu of DT rates. These unbundled rates were determined in Decision 2001-583, are to be effective 1 January 2002 and are to be settled on the basis of conversation minutes.

122. The Commission is of the view that no immediately workable proposals or alternatives were brought forth in this proceeding by the small ILECs with respect to the determination of DT.

123. In final argument Bell Canada proposed that the switching and aggregation rates of the small ILECs should be set for 2002 based on proxy Phase II costs and the current Commission-approved mark-up of 25%.

124. Bell Canada further proposed that any difference arising from the implementation of Phase II-based switching and aggregation rates, and the already approved 2001 DT rates, should be recovered through the national subsidy plan. In Bell Canada's view, this subsidy could be eliminated over a transition period, consistent with the approach being taken for the TSR.

125. In reply argument, Bell Canada proposed the establishment of a combined DC and EA start-up rate for all the small ILECs that, in Bell Canada's view, would be no higher than $0.005 per minute. It would include an average start-up rate component to be used by all of the small ILECs.

126. The Commission is of the view that, although Bell Canada's proposals may have merit, neither the other parties nor the Commission have had the opportunity to challenge the methodology and data provided by Bell Canada in support of its proposals. The Commission considers that the determination of what constitutes an appropriate DT cost recovery methodology and the requirement for a transition mechanism cannot be determined based on the record of this proceeding.

127. Therefore, the Commission is of the view that this issue would best be addressed within the context of a follow-up proceeding.

128. The Commission notes that most parties indicated a willingness to participate in a further process to review alternative costing models, in conjunction with Commission staff.

129. Several parties to the proceeding either proposed or indicated support for the freezing of DT requirements at the forecast or actual 2001 levels.

130. The Commission is of the view that none of the proposals relating to freezing of DT costs provided sufficient detail on the factors or conditions necessary to support the freezing of DT costs as a suitable long term alternative to Phase III or Phase II costing. As noted below, the Commission will establish a consultative process to examine this issue.

Basis for recovery of costs

131. Parties did not agree on the appropriate method of recovering the DT costs. Some parties proposed that costs could be recovered using trunks rather than minutes, while others preferred the continued use of minutes or even a combination of both.

132. The Commission notes that where parties supported using trunks instead of minutes to calculate DT, they all provided qualifiers that such a change would require further investigation and analysis. The Commission concurs with comments such as the need to properly define a trunk and its components, assess its usefulness in a multi-carrier environment and determine allocations of trunk usage for toll or local traffic.

133. The Commission is therefore of the view that a further review of alternatives to minutes for the allocation of DT costs should be undertaken as part of a follow-up proceeding.

134. In consideration of the lack of details surrounding the proposals to replace the current DT costing and allocation mechanism, the Commission has determined that a CRTC Interconnection Steering Committee (CISC)-like consultative proceeding will be initiated in the first quarter of 2002. The Commission anticipates that such a proceeding will review all aspects of DT costing in the small ILECs' territories, with a view to establishing a final methodology for determining DT cost recovery and allocation of costs, in time for 1 January 2003 implementation.

135. In view of the follow-up proceeding noted above, the Commission has determined that for the small ILECs, other than O.N.Telcom, Northern, and Cochrane, which will have DC rates in effect for 2002, the DT costs for 2002 are to be frozen at approved 2001 levels pending the outcome of the above proceeding. The costs frozen at 2001 levels are subject to any one-time adjustments allowed for 2001 that must be removed in 2002. In addition, the Commission has also determined that the 2001 approved DT rates be made interim for 2002. 

136. Given the DT costs and rates are frozen at the 2001 levels, the Commission considers that the 2001 approved proxy minutes should continue to be used during 2002, for the billing and collection of DT, pending the outcome of the above proceeding.

137. As a result of the above determination to freeze the DT costs and rates of the small ILECs, except for O.N.Telcom, Northern, and Cochrane, the Commission considers that any of these three companies may be disadvantaged by their earlier conversion from DT Phase III based costing to DC and EA Phase II based costs. The Commission has therefore determined that the DC and EA rates indicated in paragraph 64, of Decision 2001-583, for Northern, O.N.Telcom and Cochrane, be made interim effective 1 January 2002. 

138. The Commission further notes that, although the DC and EA rates have been made interim for Northern, O.N.Telcom and Cochrane, the Commission clearly does not envisage significant changes to the terms and conditions of toll competition that would in any way hinder the rollout of inter-exchange toll competition in the territory of O.N.Telcom.

Network access/¼ mile costs and rates

139. OTA and SATAT proposed the continued use of an embedded cost methodology in the determination of the network access tariff (NAT), while CAPTS and O.N.Telcom supported using a Phase II costing approach.

140. Bell Canada stated that, in the future, the NAT should move to market-based levels. Bell Canada was of the view that the Commission should direct the small ILECs to file their NATs based on Phase II costs with an appropriate mark-up.

141. The Commission is of the view that most of the issues and concerns raised in relation to DT are equally applicable to network access costs.

142. In light of the above, the Commission has determined that the follow-up consultative proceeding noted above for DT, will include network access costs in order to determine a final methodology for cost recovery and allocation in time for 1 January 2003 implementation.

143. Pending the outcome of the above proceeding, the Commission has determined that each company's network access/¼ mile costs will be frozen at approved 2001 levels, subject to any one-time adjustments allowed for 2001, that need to be removed in 2002. As well, the Commission has determined that the 2001 approved NAT/¼ mile rates of the small ILECs be made interim for 2002. 

144. The Commission is also of the view that in small ILECs' serving areas, a true-up mechanism may be required for 2002, to account for any over payments or under payments of network costs, based on the outcome of the follow-up proceeding.

Quality of service

145. In Telecom Decision CRTC 96-6, Regulatory framework for the independent telephone companies in Québec and Ontario (except Ontario Northland Transportation Commission, Québec-Téléphone and Télébec ltée), dated 7 August 1996, the Commission decided to regulate quality of service issues through complaints, for small ILECs with less than 25,000 NAS. Only Northern and Thunder Bay Telephone, which have more than 25,000 NAS, must file quality of service reports on a quarterly basis.

146. While OTA proposed expanding the 25,000 NAS limit to 30,000, the Commission does not find it necessary or appropriate to do so at this time. The Commission notes that only Amtelecom may exceed the 25,000 NAS limit in the foreseeable future. In the Commission's view, Amtelecom's concerns can more effectively be addressed in the review of the price regulation regime in year four or when the company reaches the 25,000 NAS threshold, whichever comes first.

147. While the Commission, for the small ILECs with less than 25,000 NAS, will continue monitoring quality of service through complaints, the Commission would like to ensure that the existing level of service is not affected under the new price regulation regime. The Commission finds it appropriate that the small ILECs with less than 25,000 NAS are to report to the Commission, on 31 March of each year starting in 2002, the following information for the previous calendar year:

  1. the number of customers to whom service was not provided within 10 days from the date of the customer's request;
  2. the total of initial out-of-service trouble reports not cleared within 24 hours;
  3. the number of customers who reported a trouble with their service;
  4. the number of customers who reported that their listing in the white pages was either omitted or erroneous; and
  5. the number and nature of written and verbal complaints addressed to officers and/or department heads of the telephone company and/or to the Commission.

Special reserve accounts

148. The Commission required the small ILECs with SIPs to file tracking reports to ensure that the work was completed as projected. The Commission also required that these companies maintain a special reserve account to track their associated SIP expenses and revenues. The Commission, in PN 2001-61, stated that it would examine in this proceeding whether the small ILECs would need to maintain their special reserve accounts after 2001. 

149. The Commission is of the view that maintaining the special reserve accounts will allow the Commission to monitor whether the revenues generated by the small ILECs' rate increases (approved for their SIPs), are in line with the realized expenses.

150. Accordingly, the Commission directs Amtelecom, North Frontenac Telephone Corporation Ltd., Northern and O.N.Telcom to continue to account for the revenues and expenses associated with their SIP programs in a special reserve account to 2005. 

Reporting requirements

151. The Commission asked parties to this proceeding to list their current reporting requirements under rate of return regulation and to outline the reporting requirements that should be kept, modified or eliminated.

152. Both OTA and CAPTS commented that if the Commission establishes a price regulation regime, neither Phase III nor depreciation filings would be required. However, all other filings should be retained.

153. SATAT indicated that depreciation studies and Phase III studies for contribution purposes should be avoided and all other current reporting requirements should be maintained. However, actual modified-Phase III or a new embedded cost model results may be necessary for direct toll and network access cost calculations.

154. Northern suggested that the current filings be maintained, as it proposed to continue being regulated under the rate of return/rate base regime for the next four years.

155. O.N.Telcom stated that it would not be in a position to provide its comments until it has reviewed Decision 2001-583 and that its analysis of that decision would not be completed prior to the close of the record of the current proceeding.

156. St-Victor, St-Éphrem and Lambton suggested eliminating all reports except annual audited financial statements.

157. The Commission considers that neither Phase III forecasts nor depreciation filings are required under price regulation.

158. Regarding the remaining filings, the Commission considers that, since the change from rate of return regulation to price regulation entails a transition period, these filings should be retained for monitoring purposes for the duration of the first price regulation period. Further, these filings are in addition to the annual filing requirements listed in paragraphs 29 and 30. 

Revenue-based contribution regime agreements and procedures

159. Pursuant to Decision 2000-745, paragraph 141, the small ILECs will be included under the revenue-based contribution mechanism beginning 1 January 2002. 

160. Under the revenue-based contribution mechanism, each TSP that has been determined by the Commission to contribute to the National Contribution Fund (required contributor) is required to become a party to the National Contribution Fund Administration Agreement (NCFA) through the execution and delivery to the CFA of a Required Contributor Accession Agreement. In addition, each TSP that has been determined by the Commission to be eligible to receive subsidy requirement from the National Contribution Fund (eligible recipient) is required to become party to the NCFA through the execution and delivery to the CFA of an Eligible Recipient Accession Agreement.

161. Each TSP that becomes a party to the NCFA is bound by all of the provisions of the Agreement and agrees to perform each and every covenant and obligation, including compliance with the Procedures for operation of the revenue-based contribution regime. These procedures set out the rules for the operation of the National Contribution Fund.

162. The revenue-based regime also requires all TSPs, including the small ILECs that are determined to be eligible recipients, to become a member of the Canadian Portable Contribution Consortium (CPCC) by entering into the Unanimous Shareholders Agreement. TSPs that are required to pay into the fund, but are not eligible recipients, may become a member of the CPCC, but are not required to do so.

163. All TSPs (including small ILECs) are required to report to the Commission on an annual basis and to the CFA on a monthly basis. The reporting obligations are set out in Decision 2000-745 and in the Procedures for operation of the revenue-based contribution regime. The Commission has established, in Order CRTC 2001-876, Interim 2002 revenue-percent charge, national subsidy requirement and procedures for the revenue-based contribution regime, dated 14 December 2001, interim procedures to ensure a smooth transition of the small ILECs to the new regime.

Additional process to review the agreements and procedures

164. The various agreements and procedures currently in place for the administration of the contribution fund were developed and agreed to by the members of the industry, to ensure the efficient operation of and compliance with the revenue-based regime.

165. SATAT suggested that, since these documents were developed by large corporations for their own needs, a follow-up process, similar to the supplemental CISC process that the large ILECs had after the release of Decision 2000-745, would make sure that the implementation issues are adequately modified to accommodate the small ILECs.

166. Northern submitted that the small ILECs should sign amended versions of these documents and suggested that the detailed approach towards reporting, fund remittance and other measures should be dealt with through a specific implementation committee where the small ILECs would work with existing members of the CPCC and the CFA to define the appropriate interim and permanent methodologies to be used.

167. CAPTS suggested that these documents, as they are today, are for private companies, not public utility commissions, and reserved the right to make further comments.

168. The Commission expects that most small ILECs will be eligible recipients under the new regime. The only reporting requirement currently expected from eligible recipients, other than the annual filing with the Commission required by all TSPs in accordance with Decision 2000-745, is the monthly reporting of their respective contribution eligible NAS, necessary for the monthly distribution of the subsidy. However, the subsidy has been predetermined for each of the four years and therefore no monthly reporting of NAS is required.

169. For those small ILECs that will be identified as required contributors, they will be required to report their contribution-eligible revenues to the CFA on a monthly basis and to make the annual filing with the Commission required by all TSPs in accordance with Decision 2000-745.

170. Consequently, the Commission has concluded that the reporting requirements and procedures established by the industry working group and approved by the Commission do not impose any additional regulatory burden on the small ILECs and therefore no modifications will be necessary to the current agreements and procedures.

One-time non-recoverable shareholder contribution of $2,500 to the CPCC

171. Under the approved Unanimous Shareholders Agreement, a shareholder, which may hold only one share in the CPCC, is required to pay a one-time subscription price of $10 for the share. A shareholder is also required to contribute to the CPCC a one-time contribution of $2,500 called a non-recoverable shareholder contribution.

172. SATAT suggested that associations should be able to subscribe as shareholders in the name of their respective members, thus paying only one non-recoverable shareholder contribution on behalf of all its members.

173. OTA suggested that the non-recoverable shareholder contribution amount should be adjusted to better reflect the size of the OTA member companies as shareholders.

174. The Commission notes that it regulates TSPs, not the agencies/associations set up by the companies.

175. Since most small ILECs will be eligible recipients under the new revenue-based contribution regime, the efficient administration and operation of the fund is of significant importance. The Commission considers the one-time amount of $2,500 to be just and reasonable.

176. Accordingly, the Commission determines that no change is necessary to the current application of the non-recoverable shareholder contribution.

Filing date for financial information

177. As previously stated, each TSP is required to file with the Commission on or before 31 March of each year a calculation of its CTSR and a calculation of its Contribution-Eligible Revenues based on the financial data of the fiscal year ending in the immediate prior calendar year. Each filing is to be accompanied by the appropriate supporting documents including financial statements.

178. SATAT and CityTel requested that the filing date for the annual financial information be changed from 31 March to 31 May.

179. The Commission notes that this and other related issues are currently under consideration by the Commission in the proceeding initiated by PN 2001-37. A determination on any changes to the filing dates will be issued at a later date. Until such a determination is made, companies are directed to file their annual financial information by 31 March.

Availability of funds

180. The OTA indicated that its members would require full subsidy payments on a monthly basis for cash flow purposes, and that any fund shortfall that may occur may be financially detrimental to the small ILECs.

181. Under the revenue-based contribution regime, the TSR collected on a monthly basis may not equal the amount to be distributed each month. A true-up mechanism is built in as part of the revenue-based contribution regime to ensure any under collection of the TSR in the current calendar year (beginning 2002) is carried over and adjusted for in the following calendar year.

182. The Commission notes that although the true-up process ensures every TSP will receive the total subsidy amount it is due, there could be a delay in receiving full payment that could extend to the following year.

183. The Commission acknowledges that the timely receipt of the total monthly subsidy for the small ILECs is important to their financial viability. Therefore, the Commission directs the CFA to remit the total monthly subsidy allocation payable to the small ILECs prior to the normal distribution of subsidy to the remaining LECs, but subsequent to payments of the administration costs of the CFA and CPCC and payments to Northwestel Inc. As a result, no true-up mechanism for the small ILECs will be necessary.

Secretary General

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

Appendix

Transition subsidy amounts
Company 2002
($'000) 		2003
($'000) 		2004
($'000) 		2005
($'000)
British Columbia
Prince Rupert City Telephones 372.0 71.6 0.0 0.0
Ontario
Amtelecom Inc. 3,896.3 3,486.8 3,077.3 2,667.9
Brooke Telecom Co-operative Ltd. 384.8 348.6 317.0 307.6
Bruce Municipal Telephone System 846.7 786.2 786.2 786.2
Cochrane Public Utilities Commission 468.7 344.0 241.2 180.6
Dryden Municipal Telephone System 90.4 90.4 90.4 90.4
Execulink Telecom Inc. 1,195.6 1,075.9 956.3 836.6
Gosfield North Communications Co-operative Limited 334.9 334.9 334.9 334.9
Hay Communications Co-operative Limited 859.2 859.2 859.2 859.2
Huron Telecommunications Co-operative Limited 644.7 644.7 644.7 644.7
Kenora Municipal Telephone System 318.9 105.8 105.8 105.8
Lansdowne Rural Telephone Co. Ltd. 506.9 452.5 403.8 374.5
Mornington Communications Co-operative Limited 483.5 430.2 382.2 349.8
Nexicom Telecommunications Inc. 503.6 458.5 413.4 368.3
Nexicom Telephones Inc. 400.1 348.5 296.9 245.3
North Frontenac Telephone Corporation Ltd. 434.1 421.4 408.7 396.1
North Renfrew Telephone Company Limited 345.9 336.9 327.8 318.7
Northern Telephone Limited 7,705.9 6,764.9 5,823.8 4,882.8
O.N.Telcom 735.3 631.4 631.4 631.4
People's Telephone Company of Forest Inc. 1,098.9 1,002.6 906.4 810.1
Quadro Communications Co-operative Inc. 1,085.7 953.8 822.0 690.1
Roxborough Telephone Company Limited 96.6 96.6 96.6 96.6
Thunder Bay Telephone 1,828.4 612.9 612.9 612.9
Tuckersmith Communications Co-operative Limited 517.8 517.8 517.8 517.8
Westport Telephone Company Limited 471.0 446.1 421.3 396.4
Wightman Telecom Ltd. 1,219.3 1,153.7 1,088.0 1,022.3
Quebec
CoopTel 805.1 775.6 762.8 762.8
La Cie de Téléphone de Courcelles inc. 85.3 85.3 85.3 85.3
Téléphone Guèvremont inc. 983.0 983.0 983.0 983.0
La Corporation de Téléphone de La Baie 101.4 101.4 101.4 101.4
La Compagnie de Téléphone de Lambton Inc. 231.1 231.1 231.1 231.1
Téléphone Milot inc. 902.5 902.5 902.5 902.5
Compagnie de téléphone Nantes inc. 49.6 48.7 47.8 46.9
Sogetel inc. 2,453.4 2,453.4 2,453.4 2,453.4
Le Téléphone St-Éphrem Inc. 194.7 194.7 194.7 194.7
Le Téléphone de St-Liboire de Bagot Inc. 255.9 255.9 255.9 255.9
La Compagnie de Téléphone de St-Victor 220.5 220.5 220.5 220.5
La Compagnie de Téléphone Upton Inc. 329.4 329.4 329.4 329.4
La Compagnie de Téléphone de Warwick 759.1 748.0 748.0 748.0
Total 34,216.2 30,105.4 27,881.8 25,841.9
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