ARCHIVED - Order CRTC 2001-137

Order CRTC 2001-137

Ottawa, 14 February 2001

CRTC denies application by Call-Net and AT&T Canada for a refund of amounts paid for direct connection service

Reference: 8622-C25-08/00

The Commission denies a request by Call-Net, on behalf of itself and AT&T Canada Corp., to review and vary the rates charged for direct connection service for the period 1 January 1998 to 8 March 2000 and to direct a refund of any overpayment. On 9 March 2000, the Commission reduced the rate for direct connection service from $0.007 per minute to $0.003 per minute. The Commission notes that the direct connection rate of $0.007 per minute was set on a final basis using the best information available at the time. The Commission considers that, as a matter of regulatory policy, rates approved on a final basis should not generally be subject to adjustment.

Call-Net Enterprises Inc., on behalf of itself and AT&T Canada Corp. (collectively, the entrants), asked the Commission to review and vary the rates charged for direct connection service for the period 1 January 1998 to 8 March 2000, and to direct a refund of any overpayment.

Direct connection service, a component of switching and aggregation services, is a service provided by the incumbent local exchange carriers (ILECs) to providers of long-distance services as well as to the ILECs themselves.

In Unbundled rates to provide equal access, Telecom Decision CRTC 97-6, dated 10 April 1997, the Commission set a rate of $0.007 per minute per end for direct connection service. This rate recovered Phase II costs and included a mark-up for the recovery of fixed and common costs.

On 9 March 2000, the Commission reduced the rate for direct connection service from $0.007 per minute to $0.003 per minute.

In a letter decision dated 16 May 2000 dealing with subsequent ILEC requests for price cap adjustments, the Commission found that:

· the costs underlying the direct connection rate have been reduced from the level of the 1995 estimate used to establish the direct connection rate set in Decision 97-6 to support the new rate of $0.003 per minute; and

· had the direct connection rate been updated as at January 1998 in a manner consistent with the principles applied by the Commission in Decision 97-6, the direct connection rate would have been reduced at that time to no lower than $0.00487 per minute.

The entrants asked the Commission to reduce the rate for direct connection service:

· for the period 1 January 1998 through 1 December 1998 to $0.00487 per minute;

· for the period 1 January 1999 through 31December 1999 to $0.00394 per minute; and

· for the period 1 January 2000 to 8 March 2000 to $0.003 per minute.

The entrants also asked the Commission to refund to the entrants the difference between the amount actually paid by them to the ILECs for direct connection service, based on the Commission approved rate of $0.007 per minute, and the amount they would have paid had they been paying the correct rates over that same period.

In the alternative, or in addition, the entrants asked the Commission for an order:

a) finding as a fact that the ILECs unjustly discriminated against the entrants or gave an undue or unreasonable preference toward themselves pursuant to section 27(2) of the Telecommunications Act (the Act); and

b) ordering the ILECs to pay the overpayment to the entrants, pursuant to sections 27 and 32 of the Act.

The entrants submitted that there is substantial doubt as to the correctness of that part of Decision 97-6 which established the direct connection rate for 1 January 1998 forward. According to the entrants, this substantial doubt is evidenced by the Commission's conclusion in its direct connection letter decision that, had the direct connection rate been updated in January 1998 based on the principles the Commission established in Decision 97-6, the entrants would have paid a lower rate.

The entrants also submitted that there is substantial doubt as to the correctness of Decision 97-6 with respect to the period after 1 January 1998 because it:

· did not set just and reasonable rates for the ILECs as required by subsection 27(1); and

· created a situation where the entrants were unjustly discriminated against and/or the ILECs were granted an undue or unreasonable preference, contrary to subsection 27(2).

Comments opposing the application were received from Bell Canada, Island Telecom Inc., Maritime Tel & Tel Limited, MTS Communications Inc., NBTel Inc. and NewTel Communications Inc. (collectively, the companies) and from TELUS Communications (B.C.) Inc. and TELUS Communications Inc. (collectively, TELUS). The entrants also submitted comments in response.

Specifically, the entrants asked to be refunded the following amounts:

· for the year 1998, an amount equal to $0.00213 (=$0.007-$0.00487) multiplied by the number of 1998 connect minutes in respect of which the direct connection rate was applied by the ILEC;

· for the year 1999, an amount equal to $0.00306 (=$0.007-$0.00394) multiplied by the number of 1999 connect minutes in respect of which the direct connection rate was applied by the ILEC; and

· for the period 1 January 2000 - 8 March 2000, $0.004 (=$0.007-$0.003) multiplied by the number of connect minutes in respect of which the direct connection rate was applied by the ILEC over that period.

The entrants argued that the Commission has the authority to make orders that have retroactive effects. The companies and TELUS submitted that the entrants' contention is wrong and should be rejected by the Commission.

The companies argued that their going-in revenue requirements, contribution requirements and other Utility segment service rates set in Telecom Decisions CRTC 97-18 and 98-2, which became effective January 1998, were directly impacted by the Commission's decision to set the final direct connection service rate at $0.007 per-minute. For companies whose 1997 contribution rates were below $0.02 per minute, the $0.007 direct connection rate resulted in lower contribution rates than would otherwise have been required; for other companies, the result was lower going-in rates for residential services.

The Commission notes that setting the direct connection service rate at $0.007 per minute impacted on the ILECs' price cap going-in revenue requirements, contribution requirements and other Utility segment rates.

For example, at the beginning of the price cap period, for companies whose 1997 contribution rates were below $0.02 per minute, the rate of $0.007 per minute resulted in a lower contribution rate than would have been the case if the direct connection rate had been set at $0.00487 per minute.

The Commission notes that in suggesting that a refund be based on the rate of $0.007 per minute, the entrants have failed to take this into account.

The Commission notes that the direct connection rate of $0.007 per minute was set on a final basis using the best information available at the time.

The Commission considers that modifying rates retroactively, which have previously granted final approval, would create uncertainty as to the finality of Commission decisions.

In the Commission's view, this would potentially give rise to frequent changes in rates, after the fact, giving rise to further uncertainty.

Accordingly, the Commission considers that, as a matter of regulatory policy, rates approved on a final basis should not generally be subject to adjustment.

In the circumstances, the Commission denies the entrants' application.

Secretary General

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