ARCHIVED - Public Notice CRTC 2001-61

Public Notice CRTC 2001-61

Ottawa, 30 May 2001

New regulatory framework for small independent telephone companies and related issues

Reference: 8663-C12-05/01

This public notice initiates a proceeding to develop and implement an appropriate regulatory framework for the small Canadian independent telephone companies (CITCs), which focuses on prices rather than on earnings. The Commission proposes to establish, as part of the implementation of the new regulatory framework, the CITCs' subsidy requirements based on: (a) the methodology for the total subsidy requirement calculation prescribed for all ex-Stentor companies across Canada under the new national contribution collection regime, and (b) a uniform approach to identify high-cost serving areas in the CITCs' territories.

In a letter dated 14 March 2000, the Commission, among other things, expressed its intention to consider implementing, by 2002, a simplified regulatory framework for the small Canadian independent telephone companies (CITCs) that would focus on prices rather than on earnings. This public notice outlines a specific proposal designed to focus and facilitate discussion at a proposed round table discussion with the CITCs and interested parties, to be held on 9 July 2001.

In Changes to the contribution regime, Decision CRTC 2000-745, dated 30 November 2000, the Commission introduced major changes to the Canadian telecommunications contribution regime, which subsidizes the high cost of local service in rural and remote areas. Among other things, the Commission introduced a new methodology to calculate each ex-Stentor company's subsidy requirement for high-cost serving areas (HCSAs). Under this methodology, the ex-Stentor companies' total subsidy requirement (TSR) is calculated based on four components: (a) residential primary exchange service (PES) revenue; (b) residential PES costs established on the basis of a Phase II costing approach; (c) a mark-up on the Phase II costs of residential PES to provide an appropriate contribution towards fixed and common costs, and (d) an implicit contribution amount generated by other local services utilized by residential customers.

On 27 April 2001, the Commission issued Restructured bands, revised local loop rates and related issues, Decision CRTC 2001-238. In that decision, the Commission established new bands for the ex-Stentor companies that more accurately identify HCSAs and the amount required to subsidize residential PES in these areas. The Commission adopted: (a) a uniform approach to identify the HCSAs in the ex-Stentor companies' territories; and (b) a consistent set of costing methodologies by which ex-Stentor companies are to determine the costs for local loops and residential PES.

Considering that the CITCs' current subsidy requirement is calculated on a Phase III basis and that bands have yet to be established in their territories, the Commission indicated, in Decision 2000-745, that the CITCs may need assistance to implement a Phase II costing methodology. Furthermore, to mitigate the additional burden on the CITCs in developing Phase II costs, the Commission indicated that Phase II cost proxies could be developed. The Commission also recognized that the CITCs may require a transition period, in the event that a Phase II costing methodology leads to a considerable reduction in their current subsidy requirement. The Commission added that the process of establishing a Phase II costing methodology in the CITCs' territories, as well as the new regulatory framework for the CITCs and other related issues, would be discussed at a round table, which was scheduled for the first quarter of 2001.

On 18 January 2001, the round table was postponed, at the request of the CITCs,in order that they may review the Commission's determinations in the proceeding leading to Decision 2001-238, prior to the commencement of the round table.

The Commission notes that the CITCs were not part of the process that led to Decision 2001-238, and invites the CITCs to address and discuss, at the round table, the process to identify HCSAs in their territories by 1 January 2002.

The Commission notes that Commission staff consulted with representatives of the CITCs to identify issues they would like addressed at the round table. The issues raised, such as difficulties with the existing regulatory framework, the need for a more flexible regulatory framework that responds to each CITC's particular needs, the affordability and quality of telephone service in CITCs' territories, the process to establish a Phase II costing methodology in the CITC's territories, the CITCs' financial viability within the new framework, and the recovery of direct toll and network access expenses, will form part of the round table discussions.

Scope of proceeding

The Commission hereby initiates a proceeding to consider the issues associated with establishing a new regulatory framework for the CITCs, effective 1 January 2002. In their proposals, the CITCs are requested to address the issues outlined in the following paragraphs.

New regulatory framework

The Commission intends to examine whether a simplified regulatory framework that focuses on prices rather than on earnings is appropriate for the CITCs. The Commission is of the preliminary view that an appropriate price regulation regime will:

a) provide the CITCs with incentives to be more efficient and innovative;

b) ensure that the CITCs' customers continue to have access to reliable and affordable services;

c) provide the CITCs with a reasonable opportunity to earn a fair return; and

d) reduce the regulatory burden.

In light of the above, the Commission seeks comments on the appropriateness of a price regulation regime as noted in paragraph 9 and on, but not limited to, the following:

a) the appropriate parameters for a price regulation regime for the CITCs, including:

i) which tariffed services should be subject to the price regulation regime and the associated pricing constraints;

ii) how any proposed transition period identified at paragraph 16 h) would be implemented within the parameters of the price regulation regime;

iii) whether the CITCs' current filing and reporting requirements should be simplified and, if so, the CITCs' proposed changes to their filing and reporting requirements; and

iv) whether ancillary reporting requirements are necessary to monitor the effectiveness of a price regulation regime in the CITCs' territories.

Subsidy requirement

As stated in paragraph 2 of this public notice, in Decision 2000-745, the Commission determined that the TSR for ex-Stentor companies will consist of four basic components. When extending the methodology to quantify the TSR for each CITC's HCSA territory, a proxy could be determined on the following basis:

a) the use of a national weighted average monthly residential PES rate, based on the residential network access service (NAS) and monthly revenue by band provided by ex-Stentor companies for HCSAs during the proceeding that led to Decision 2001-238, and fixed at $22.75, for the duration of the transition period, if any;

b) the use of national average monthly residential PES costs (based on HCSAs of the ex-Stentor companies) as a Phase II proxy for the cost component. This national average cost proxy takes into account the CITCs' tax status;

c) a 15% mark-up on the PES cost component;

d) a fixed monthly amount of $5 per residential NAS as an implicit contribution amount generated by other local services; and

e) no subsidies extended to single-line business service provided in HCSAs.

Attachment 1 provides a summary of the proposed monthly subsidy requirement by HCSA bands for CITCs.

In Decision 2001-238, the Commission established the following criteria to define HCSAs:

a) wire centres or exchanges with less than or equal to 1,500 total NAS;

b) 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 4 km; and

c) remote wire centres or exchanges (e.g., without year-round road access or found in remote parts of a company's serving territory).

In view of the fact that a larger portion of the CITCs' ongoing operational and maintenance costs are directly related to their switching equipment, the Commission proposes to adopt the criteria in Decision 2001-238 to define HCSAs, modified to exclude loop length as set out in paragraph 13(b). The Commission notes that, under these criteria, residential NAS in wire centres or exchanges with 8,000 or more total NAS would not be eligible to receive subsidies.

The Commission also recognizes that the special circumstances in which the CITCs operate may require other adjustments to certain TSR components, such as the national cost component or the implicit contribution amount for other local services.

The Commission seeks comments on the appropriateness of the above proxy based on national HCSA averages, and on, but not limited to, the following:

a) the CITCs' calculation for their subsidy requirement, calculated in accordance with the methodology outlined above and the ensuing subsidy requirements per residential NAS contained in attachment 1;

b) any other suggested subsidy requirement calculation, with supporting rationale for each company, that may be proposed which is consistent with the national subsidy plan;

c) the use of a national weighted average residential PES rate for HCSA of the ex-Stentor companies as a proxy for the revenue component to calculate the TSR;

d) whether the national cost component of the TSR should be adjusted upwards to account for any specific company's special circumstances, along with supporting rationale for that company;

e) the appropriateness of using a 15% mark-up on the PES cost component to recover fixed and common costs;

f) whether any downward adjustments to the monthly $5 implicit contribution amount per residential NAS generated by other local services is appropriate, with supporting rationale;

g) the criteria proposed in this public notice to identify HCSAs in CITCs' territories;

h) if the new level of subsidy requirement received by certain individual companies, pursuant to the proxy contribution collection mechanism, is significantly lower than the subsidy requirement that those individual companies are projected to receive in 2002 pursuant to Contribution on traffic carried by alternate providers of long distance services over direct access lines, Telecom Decision CRTC 99-5, dated 20 July 1999, whether a transition period would be required and, if such is the case, the duration of that transition period and how the transition should be implemented; and

i) whether CITCs' single-line business service provided in HCSAs should be subsidized.

Direct toll

In Telecom Decision CRTC 96-6, Regulatory framework for the independent telephone companies in Quebec and Ontario (except Ontario Northland Transportation Commission, Québec-Téléphone and Télébec ltée), dated 7 August 1996, the Commission found that the CITCs' direct toll rate should be calculated using originating and terminating toll minutes associated with trunk-side access to the switch.

In Decision 2000-745, the Commission determined that a new contribution collection mechanism based on revenues from telecommunications service providers would replace the existing per-minute mechanism.

The Commission notes that relying on Phase III costs and originating and terminating toll minutes to estimate CITCs' direct toll costs and rates may no longer be appropriate. Accordingly, the Commission invites proposals from the CITCs to modify the existing method of identifying, quantifying and recovering direct toll costs in their territories.

Network access

Currently, network access rates for Ontario CITCs are determined based on Phase III costs and the number of circuits, while Quebec CITCs' network access rates are calculated based on Phase III costs and the number of quarter mile increments. The Commission notes that relying on Phase III costs to calculate network access costs may no longer be appropriate. The Commission therefore invites proposals from the CITCs to modify the existing method of calculating and distributing network access costs in their respective serving territories.

Special reserve accounts for service improvement plans (SIPs)

In Orders CRTC 2000-1096, 2000-1097, 2000-1099 and 2000-1100, dated 4 December 2000, the Commission ordered that Amtelecom Inc., North Frontenac Telephone Co., Northern Telephone Limited and O.N.Telcom maintain a special reserve account for the years 2000 and 2001 to track revenues and expenses associated with their SIP. The Commission also stated that for the years 2002 onwards, it would decide whether these companies would need to continue reporting expensesand revenues associated with their SIPs.

The Commission seeks comments on whether Amtelecom Inc., North Frontenac Telephone Co., Northern Telephone Limited and O.N.Telcom should continue maintaining a special reserve account to track the revenues and expenses associated with their SIPs.

Other issues

While the Commission has outlined above a number of specific issues on which it seeks comments, parties may submit comments on other issues or alternative proposals which are relevant to this proceeding.

Procedure

The CITCs listed in attachment 2 are made parties to this proceeding.

Parties wishing to participate at the round table and/or in this proceeding must notify the Commission of their intention to do so by 15 June 2001. By that same date, parties wishing to participate in the oral phase of the round table, should notify the Commission of their intention to do so, specifying the proposed extent of their participation. These parties should contact the Secretary General by mail at CRTC, Ottawa, Ontario, K1A 0N2, by fax at (819) 953-0795, or by email at procedure@crtc.gc.ca. Parties are to indicate in the notice their email address, where available. If parties do not have access to the internet, they are to indicate in their notice whether they wish to receive disk versions of hard copy filings. The Commission will issue, as soon as possible, after the registration date, a complete list of interested parties and their mailing address (including email address if available), identifying those parties who wish to receive disk versions.

Any person who wishes merely to file written comments in this proceeding, without receiving copies of the evidence filed, may do so by writing to the Commission at the address noted in paragraph 25by 24 September 2001.

The Commission will issue an organization and conduct letter with regard to the round table after interested parties have registered with the Commission.

The CITCs are to file a detailed overview of their proposals, addressing all the matters identified in this proceeding. Each proposal must be filed with the Commission and a copy is to be served on all parties by 29 June 2001. The round table will be held in Hull, Quebec, on 9 July 2001. A transcript of the discussions at the round table will form part of the public record of this proceeding.

Following the round table discussions, the CITCs are to file their proposals, addressing all matters within the scope of this proceeding. Each proposal must be filed with the Commission and a copy is to be served on all parties by 20 July 2001.

The CITCs' proposals can be examined at the CITCs' respective business offices or at the CRTC offices at the following locations:

Central Building
Les Terrasses de la Chaudière
1 Promenade du Portage, Room G-5
Hull, Quebec K1A 0N2
Tel: (819) 997-2429 - TDD: 994-0423
FAX: (819) 994-0218

405 de Maisonneuve Blvd. East
2^nd Floor, Suite B2300
Montréal, Quebec H2L 4J5
Tel: (514) 283-6607 - TDD: 283-8316
FAX: (514) 283-3689

55 St. Clair Avenue East
Suite 624
Toronto, Ontario M4T 1M2
Tel: (416) 952-9096
FAX: (416) 954-6343

Kensington Building
275 Portage Avenue
Suite 1810
Winnipeg, Manitoba
R3B 2B3
Tel: (204) 983-6306 - TDD: 983-8274
FAX: (204) 983-6317

530-580 Hornby Street
Vancouver, B.C. V6C 3B6
Tel: (604) 666-2111 - TDD (604) 666-0778
FAX: (604) 666-8322

By 27 July 2001, the Commission will, and the parties may, address interrogatories to the CITCs regarding issues set out in this public notice. Parties' interrogatories must be filed with the Commission and served on the CITCs in question. The CITCs are directed to file responses to the interrogatories with the Commission and serve a copy on all parties by 24 August 2001.

Requests by parties for further responses to their interrogatories, specifying in each case why a further response is both relevant and necessary, and requests for public disclosure of information for which confidentiality has been claimed, setting out in each case the reasons for disclosure, must be filed with the Commission and served on all parties by 31 August 2001.

Written responses to requests for further responses to interrogatories and for public disclosure must be filed with the Commission and served on all parties by 7 September 2001.

The requests for further information and for public disclosure will be disposed of as soon as possible. It is expected that any information to be provided pursuant to that disposition will be filed with the Commission and served on all parties by 17 September 2001.

All parties may file arguments with the Commission on any matters within the scope of this proceeding, serving copies on all other parties by 24 September 2001.

All parties may file reply arguments with the Commission, serving a copy on all other parties by 1 October 2001.

Where a document is to be filed or served by a specific date, the document must be actually received, not merely sent, by that date.

Parties wishing to file electronic versions of their comments can do so by email at the address shown above, or on diskette.

The electronic version should be in the HTML format. As an alternative, those making submissions may use "Microsoft Word" for text and "Microsoft Excel" for spreadsheets.

Please number each paragraph of your submission. In addition, please enter the line ***End of document*** following the last paragraph. This will help the Commission verify that the document has not been damaged during transmission.

The Commission will make submissions filed in electronic form available on its web site at www.crtc.gc.ca in the official language and format in which they are submitted. This will make it easier for members of the public to consult the documents.

The Commission also encourages interested parties to monitor the public examination file (and/or the Commission's web site) for additional information that they may find useful when preparing their submissions.

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 

Attachment 1

Proxy subsidy requirements per residential NAS per month for CITCs

National average Phase II costs, including 15% mark-up

less national average residential local rates

less deemed revenues from other services

Tax paying CITCs

National average Phase II cost including 15% mark-up

Less national average residential local rate

Less deemed revenues from other services

Subsidy requirement per residential NAS per month

Tax exempt CITCs

National average Phase II cost including 15% mark-up

Less national average residential local rate

Less deemed revenues from other services

Subsidy requirement per residential NAS per month

Attachment 2

Amtelecom Inc.

Brooke Telecom Co-operative Ltd.

Bruce Municipal Telephone System

Cochrane Public Utilities Commission

Dryden Municipal Telephone System

Execulink Telecom Inc.

Gosfield North Communications Co-Operatives Limited

Hay Communications Co-operative Limited

Huron Telecommunications Co-Operative Limited

Kenora Municipal Telephone System

Lansdowne Rural Telephone Co. Ltd.

Mornington Communications Co-operative Limited

Nexicom Telecommunications Inc.

Nexicom Telephones Inc.

North Frontenac Telephone Co.

North Renfrew Telephone Company Limited

Northern Telephone Limited

O.N.Telcom

People's Telephone Company of Forest Inc.

Quadro Communications Co-operative Inc.

Roxborough Telephone Company Limited

The Corporation of the City of Thunder Bay - Telephone Division

Tuckersmith Communications Co-operative Limited

Westport Telephone Company Limited

Wightman Telecom Ltd.

CoopTel

La Cie de Téléphone de Courcelles Inc.

La Compagnie de Téléphone de Lambton Inc.

La Compagnie de Téléphone de St-Victor

La Compagnie de Téléphone Upton Inc.

La Compagnie de Téléphone de Warwick

Le Téléphone de St-Liboire de Bagot Inc.

Le Téléphone St-Éphrem Inc.

La Corporation de Téléphone de la Baie (1993)

Téléphone Guèvremont Inc.

Téléphone Milot inc.

Compagnie Téléphone Nantes Inc.

Sogetel inc.

Prince Rupert City Telephones