ARCHIVED - Public Notice CRTC 2001-37

Public Notice CRTC 2001-37

Ottawa, 13 March 2001

Price cap review and related issues

Reference: 8678-C12-11/01 and
8624-B20-01/00

This public notice initiates a proceeding to review the price cap regime for the major incumbent telephone companies and to establish an appropriate regulatory regime that will go into effect in 2002.

Introduction

In Price cap regulation and related issues, Telecom Decision CRTC 97-9, dated 1 May 1997, the Commission established its regulatory framework in respect of price caps with a view to achieving the following objectives:

a) to render reliable and affordable services of high quality, accessible to both urban and rural area customers;

b) to foster competition in the Canadian telecommunications markets;

c) to provide incumbents with incentives to increase efficiencies and to be more innovative, and with a reasonable opportunity to earn a fair return for their Utility segments; and

d) to implement a price cap plan that is simple, straightforward, easy to understand and reduces the regulatory burden to the greatest extent possible.

In Decision 97-9, the Commission also determined that the period of the new price cap regime would be four years and would apply to the major incumbent telephone companies commencing 1 January 1998. The companies concerned were: Bell Canada, Island Telecom Inc., Maritime Tel & Tel Limited (MTT), MTS Communications Inc., NBTel Inc., NewTel Communications Inc.; and TELUS Communications Inc. and TELUS Communications (B.C.) Inc. (formerly BC TEL) (collectively TELUS). The Commission further noted that a review of the price cap regime should be completed prior to the end of the price cap period.

Saskatchewan Telecommunications (SaskTel) came under federal regulation on 30 June 2000, further to SaskTel - Transition to federal regulation, Decision CRTC 2000-150, dated 9 May 2000. In Decision 2000-150, the Commission approved an 18-month transitional period for SaskTel, and indicated that the company would likely be included in the price cap review of the other major incumbent telephone companies.

In Proceeding to determine the scope of the price cap review, Public Notice CRTC 2000-99, dated 14 July 2000, the Commission requested comments on the scope of the upcoming review of the price cap regime for the major incumbent telephone companies. The Commission indicated that, as determined in Decision 97-9, while the focus of a review of the price cap parameters would be the performance of the Canadian telecommunications market in terms of pricing and the competitive nature of the industry, the Utility segment financial results would also be one of the factors examined in re-setting the price cap parameters.

In PN 2000-99, the Commission also sought comments from parties on the following:

a) whether price cap regulation or the current price cap regime can permit sustainable competition to evolve;

b) the criteria to measure the success of the current price cap regime in achieving its goals and objectives; and

c) the issues that should be considered in the upcoming proceeding to review price cap regulation.

In the proceeding related to PN 2000-99 comments were received from:

- Bell Canada, on behalf of itself, Island Tel, MTT, MTS, NBTel and NewTel (Bell Canada et al.),

- SaskTel,

- TELUS,

- AT&T Canada Corp. and AT&T Canada Telecom Services Company (collectively AT&T Canada),

- Call-Net Enterprises Inc.,

- the Canadian Cable Television Association (CCTA),

- the Public Interest Advocacy Centre, on behalf of Action Réseau Consommateur, the Consumers' Association of Canada, the Fédération des associations coopératives d'économie familiale, and the National Anti-Poverty Organization (ARC et al.),

- the British Columbia Public Interest Advocacy Centre, on behalf of the B.C. Old Age Pensioners Organization, the Council of Senior Citizens Organizations of B.C., the Federated anti-poverty groups of B.C, the Senior Citizens Association of B.C., the West End Seniors Network, End Legislated Poverty, the B.C. Coalition for Information Access and the Tenants Rights Action Coalition (BCOAPO et al.),

- the Consumers' Association of Canada (Alberta division),

- Rogers Wireless Inc. (RWI), and

- Arthur N. Entlich.

Bell Canada et al., SaskTel, TELUS, Call-Net, RWI and MaxLink Communications Inc. filed reply comments. Interested parties' views were similar on certain aspects of the current price cap regime and its impacts on the telecommunications market. On certain other issues, parties held opposing views on how these questions should be addressed in the regulatory framework.

The Commission has carefully considered all of the comments received. This input, combined with the Commission's statements in Decision 97-9 and in other decisions, has formed the basis for the price cap review issues outlined in the current public notice.

Accordingly, the Commission hereby initiates a proceeding to review the price cap regime for the major incumbent telephone companies and to establish the regulatory regime that will go into effect in 2002. The Commission directs the telephone companies made parties to this proceeding in paragraph 41 to file evidence, and invites evidence and submissions from interested parties on this matter.

Company financial results

As stated in Decision 97-9, Utility segment financial results will be one of the factors examined in re-setting the price cap parameters.

In Decision 97-9, the Commission indicated that the Utility segment examination was also necessary for a review of the magnitude of the contribution requirement remaining at the end of the price cap period. However, the Commission notes that the review for this purpose is no longer necessary, due to changes made to the contribution mechanism in Changes to the contribution regime, Decision CRTC 2000-745, dated 30 November 2000. In Decision 2000-745, the Commission changed the methodology for identifying the subsidy or contribution requirement to a Phase II approach. In that decision, the Commission also determined that any increases to rates for primary exchange residential service in high-cost serving areas will reduce the subsidy requirement.

To assist in re-setting the price cap parameters, the Commission will therefore require the companies currently under price cap regulation, as well as SaskTel, to file certain basic financial information. This information will be sought in a series of Commission interrogatories to be issued by 16 March 2001.

The Commission does not intend to conduct a revenue requirement assessment of Utility segment results unless a telephone company proposes rate increases, to be effective at the outset of the next price regulation regime, other than those that would reduce the subsidy requirement in high-cost serving areas. This would apply, for example, to any such proposed rate increases related to: (a) the service improvement plans (SIPs) filed pursuant to the Commission letter sent 29 January 2001; and (b) any proposed recovery of Phase III/Phase II contribution shortfalls that may be warranted.

Any rate changes to be effective after the outset of the next price regulation regime will be subject to the appropriate pricing rules established, in this proceeding, for the new regime.

Should any company propose rate increases to be effective at the outset of the next price regulation regime, other than rate increases that reduce the subsidy requirement in high-cost serving areas, it is to file, along with its other evidence, the evidence normally filed as part of an application pursuant to Part III of the CRTC Telecommunications Rules of Procedure, but confined to its Utility segment.

Appropriate form of price regulation

As indicated in paragraph 1, the Commission established, in Decision 97-9, a set of objectives for the price cap regulatory framework. These objectives sought to balance the interests of three main stakeholder groups: consumers, incumbent telephone companies, and competitors.

As part of the price cap review, the Commission will evaluate whether the current form of price caps continues to represent the appropriate basis of regulation for balancing the interests of the three main stakeholder groups.

The Commission invites comments on whether the current form of price caps continues to represent the most appropriate form of regulation, or whether some other form of price regulation with or without an earnings-sharing overlay, should be adopted.

Elements of price regulation

The Commission seeks proposals on what determinations should be made with regard to the elements of the new price regulation regime, including:

a)1 the components of a price cap formula, including the appropriate measure of inflation, the level and applicability of a productivity factor, and the treatment of any exogenous factor;

b) the definition and treatment of capped and uncapped services;

c) the service basket structure; and

d) the length of the price cap period.

Proposals may also address whether there should be any departure from the use of uniform parameters for all telephone companies, to recognize company-specific circumstances.

In Decision 2000-745, the Commission concluded that a pre-determined productivity offset would be used to annually re-evaluate the total subsidy requirement, based on a Phase II methodology. This productivity offset would reflect cost reductions in providing residential services in high-cost serving areas that could reasonably be expected by carriers operating in such territories. Parties should provide evidence on the appropriate methodology to arrive at that productivity offset, in addition to addressing the possible need to apply a productivity offset to capped services.

Competitor services

Under the current regulatory regime, Utility segment competitor services are excluded from the capped services basket. In Decision 97-9, the Commission determined that rates for competitor services should be based on Phase II costs, plus an approved mark-up to contribute to the fixed and common costs of the telephone companies. Rates for these services are subject to change only upon application by the telephone companies, competitors, or through a proceeding initiated by the Commission. The Commission invites proposals on any changes to the current treatment of Utility segment competitor service rates that parties might consider appropriate.

Competitive segment services

The Commission notes that certain Competitive segment services remain subject to tariff regulation. The Commission invites comments on the appropriate treatment of Competitive segment service rates that parties might consider appropriate.

Total subsidy requirement

In Decision 2000-745, the Commission outlined the components of the total subsidy requirement (TSR) for high-cost serving areas. These areas will be categorized into costing bands and identified in the proceeding initiated by Restructured bands, revised local loop rates and related issues, Public Notice CRTC 2000-27, dated 18 February 2000. Various costing parameters used to determine loop rates in that proceeding will also be used to determine the TSR.

The Commission determined, in Decision 2000-745, that the TSR calculation for high-cost serving areas would be updated annually. The Commission further determined that the specific timing of the annual TSR updates would depend on the nature of the regulatory mechanism after 1 January 2002, and would be established during the price cap review proceeding.

For 2001, the distribution of the subsidy will be based on current bands and allocation factors. Any remaining implementation issues for 2002, such as changes to the basis for distributing the subsidy, will be determined in the proceeding initiated by this public notice.

Rates in high-cost serving areas

With the subsidy mechanism established by Decision 2000-745, incumbents and competitors will be compensated for providing residential local service, and possibly business service, in high-cost areas. The Commission invites proposals on the appropriate treatment of rates in high-cost serving areas.

Service improvement plans

In Telephone service to high-cost serving areas, Telecom Decision CRTC 99-16, dated 19 October 1999, the Commission established a basic service objective for all telephone companies in Canada. To ensure that telephone companies meet the basic service objective, the Commission directed all incumbent local carriers to file SIPs for Commission approval, or to demonstrate that the basic service objective has been and will continue to be achieved in their territory.

On 29 January 2001, the Commission sent a letter to the companies currently under price cap regulation and to SaskTel, directing them to file SIP information by 15 March 2001. The information filed by the companies will form part of the record of the current proceeding, and will include SIP roll-out plans as well as forecasts of capital expenditures for each year of the SIP and any related operating costs.

As part of this proceeding, the Commission will review the various SIPs to ensure that the telephone companies meet the basic service objectives and other key elements of Decision 99-16, including the use of least-cost technology.

Basic toll constraints

In Forbearance - Regulation of toll services provided by incumbent telephone companies, Telecom Decision CRTC 97-19, dated 18 December 1997, and in Decision 2000-150, the Commission considered that the competitive market would generally be sufficient to ensure that the incumbent telephone companies' toll rates were just and reasonable. Consequently, the Commission forbore from regulating toll services, while retaining upward pricing constraints on North American basic toll schedules.

In this proceeding, the Commission intends to review the continued need to maintain the five conditions set out in Decision 97-19, including upward pricing constraints on North American basic toll schedules. This review will also address Bell Canada's Part VII application, on behalf of itself, Island Tel, MTT, MTS, NBTel and NewTel, to have commercial credit card surcharges removed from the basic toll schedules. The information filed in that application will form part of the record of the current proceeding.

Accordingly, the Commission invites comments on whether the five conditions for forbearance in respect of basic toll services, set out in Decision 97-19, should be modified.

Quality of service and consumer bill of rights

In Decision 97-9, the Commission decided not to include a quality of service factor (Q-factor) in the price cap formula. In Quality of service indicators for use in telephone company regulation, Telecom Decision CRTC 97-16, dated 24 July 1997, the Commission noted that the principal purpose of a Q-factor is to act as a deterrent to the telephone companies from downgrading service quality to increase profits under a price cap regime.

The Commission invites comments on the appropriateness of including a quality of service component in the price regulation regime, or of other methods such as targeted refunds to customers, to address inadequate service quality.

In addition, the Commission seeks input on the extent to which the telephone companies' adherence to other benchmarks for consumer service, if any (e.g. billing policies, consumer bill of rights), should be linked to the price regulation regime and what form any such benchmarks might take.

Monitoring and information reporting requirements

The current price cap regime reduced the filing requirements for companies subject to this form of regulation. The Commission considers that monitoring and information reporting requirements should be re-assessed in the price cap review.

The Commission considers that any reduction in monitoring and information reporting requirements should be balanced against the need for competitive and consumer safeguards that are addressed through monitoring and information reporting requirements.

Proposals to revise monitoring and information reporting requirements should identify the appropriate safeguards that will compensate for any loss of information.

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

Bell Canada, Island Tel, MTT, MTS, NBTel, NewTel, SaskTel and TELUS (the telephone companies) are all made parties to this proceeding.

Other parties wishing to participate in this proceeding must notify the Commission of their intention to do so, by 23 April 2001. These parties should contactthe Secretary General by mail at CRTC, Ottawa, Ontario, K1A 0N2; by fax at (819) 953-0795; or by email at procedure@crtc.gc.ca.  hey 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 their 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 or appearing at the hearing, may do so by writing to the Commission, at the address noted in paragraph 42, by 15 October 2001.

By 16 March 2001, the Commission will address interrogatories to the telephone companies regarding the issues set out in this public notice. The telephone companies are directed to file responses to the interrogatories with the Commission and serve copies on all parties by 31 May 2001.

The telephone companies are to file with the Commission, serving copies on all parties, their evidence on all matters within the scope of this proceeding. All such material is to be filed with the Commission and served, together with the SIP information referred to in paragraph 29and the information filed in relation to Bell Canada's Part VII application referred to in paragraph 32, by 31 May 2001.

Parties may address interrogatories to the telephone companies. Any such interrogatories must be filed with the Commission and served on the telephone companies in question by 26 June 2001.

Responses to interrogatories addressed pursuant to paragraph 46 are to be filed with the Commission and served on all parties by 16 July 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 23 July 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 30 July 2001.

A determination will be issued with respect to requests for further information and public disclosure as soon as possible, and it is expected that any information to be provided pursuant to that determination will be filed with the Commission and served on all parties by 13 August 2001.

Parties other than the telephone companies may, by 20 August 2001, file evidence with the Commission, serving all other parties.

Parties may address interrogatories to any party who files evidence pursuant to paragraph 51. Any such interrogatories must be filed with the Commission and served on all parties by 31 August 2001.

Responses to interrogatories addressed pursuant to paragraph 52 are to be filed with the Commission and served on all parties by 13 September 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 18 September 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 24 September 2001.

An oral hearing will take place in Hull from 1 October 2001 to 12 October 2001. It is expected that the first day will be reserved for comments from the general public, with cross-examination of evidence commencing thereafter. An organization and conduct letter will be issued prior to the commencement of the oral hearing.

Persons requiring communications support such as assistive listening devices and sign language interpretation are requested to inform the Commission at least twenty (20) days before the commencement of the oral hearing so that necessary arrangements can be made.

All parties may file argument with the Commission on any matter within the scope of this proceeding, serving a copy on all other parties, by 17 October 2001.

All parties may file reply argument with the Commission, serving a copy on all other parties, by 26 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.

Submissions may be examined or will be made available promptly upon request at the following Commission offices during normal business hours:

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

Bank of Commerce Building
1809 Barrington Street
Suite 1007
Halifax, Nova Scotia B3J 3K8
Tel: (902) 426-7997 - TDD: 426-6997
Fax: (902) 426-2721

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

Cornwall Professional Building
2125 - 11^th Avenue
Room 103
Regina, Saskatchewan S4P 3X3
Tel: (306) 780-3422
Fax: (306) 780-3319

Suite 520 - 10405 Jasper Avenue
Edmonton, Alberta T5J 3N4
Tel: (780) 495-3224
Fax: (780) 495-3214

530-580 Hornby Street
Vancouver, British Columbia V6C 3B6
Tel: (604) 666-2111 - TDD: 666-0778
Fax: (604) 666-8322

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