ARCHIVED - Telecom Decision CRTC 2002-41

Telecom Decision CRTC 2002-41

Ottawa, 22 July 2002

Request by Northern Telephone Limited Partnership to increase its direct connection service rate

Reference: Tariff notice 171

In this decision, the Commission denies an application by Northern Telephone Limited (now Northern Telephone Limited Partnership) (Northern) to increase its interim direct connect (DC) service rate from $0.00370 to $0.00944 per minute. The Commission notes that it is addressing issues related to Northern's application in a consultative proceeding initiated in Decision CRTC 2001-756.

The application

The Commission received an application dated 15 February 2002 by Northern Telephone Limited (now Northern Telephone Limited Partnership) (Northern) to increase the interim direct connect (DC) rate that it charges toll carriers for interconnection at its end offices from $0.00370 to $0.00944 per minute, effective 1 January 2002.

Background

In O.N.Telcom - Implementation of toll competition and related matters, Decision CRTC 2001-583, 13 September 2001 (Decision 2001-583), the Commission established the framework for long-distance competition in the area of northeastern Ontario served by O.N.Telcom, including provisions for competitor interconnections at either the local or toll switch, at rates based on Commission costing principles. In that decision the Commission approved a DC service rate of $0.00370 per conversation minute per end for Northern to be effective 1 January 2002. This rate was derived on the basis of forward-looking incremental causal costs. The Commission approved similar cost-based DC service rates for O.N.Telcom and Cochrane Public Utilities Commission (Cochrane). The Commission has relied upon Phase II costs for similar services offered by the large incumbent local exchange carriers (ILECs).

In Regulatory Framework for the small incumbent telephone companies, Decision CRTC 2001-756, 14 December 2001 (Decision 2001-756), the Commission determined that no immediately workable proposals had been brought forward by the small ILECs with respect to the calculation and recovery of direct toll (DT) and network access costs. The Commission determined that a consultative proceeding similar to a CRTC Interconnection Steering Committee (CISC) proceeding should be initiated in the first quarter of 2002, to review all aspects of DT costing and network access costs in the small ILECs' territories. This would allow for the establishment of a final methodology for cost recovery and cost allocation in time for implementation on 1 January 2003. In view of this follow-up consultative proceeding (the consultative proceeding), the Commission determined that the DT rates and network access costs for the small ILECs, other than O.N.Telcom, Northern, and Cochrane, would be frozen at the levels approved for 2001 and the rates made interim for 2002 until the consultative process was complete.

The Commission considered, however, that O.N.Telcom, Northern or Cochrane may be disadvantaged by such an approach because of their earlier conversion from DT Phase III based costs to DC and equal access (EA) Phase II based costs. The Commission therefore, determined that the DC and EA rates established in Decision 2001-583, for Northern, O.N.Telcom and Cochrane, would be made interim effective 1 January 2002, until the consultative proceeding was complete. The Commission notes that the consultative proceeding is currently underway.

Position of Northern

In support of its application, Northern argued that its estimated revenues for 2002 of $1.3 million from the interim DC rate of $0.00370 per minute established in Decision 2001-583, could have been $3.3 million if the company had been allowed to use its DT rate, like the other small ILECs. Consequently, Northern accordingly proposed a higher DC rate of $0.00944 per conversation minute, in order to eliminate an estimated $2 million revenue shortfall for 2002.

Northern further noted the Commission's concerns in Decision 2001-756 that Northern, O.N.Telcom and Cochrane might be disadvantaged because of their earlier conversion from the DT Phase III based costs to DC and EA Phase II based costs. Northern submitted that the approval of its application would ensure that it could maintain its financial integrity pending the outcome of the consultative proceeding.

Comments on the application

In letters dated 26 February 2002 and 18 March 2002, O.N.Telcom expressed concerns regarding Northern's proposal and requested that the Commission deny Northern's application.

O.N.Telcom argued that Northern's application was a request to review and vary Decision 2001-583 and Decision 2001-756; that Northern had not addressed the criteria for a review and vary application; and that Northern had not addressed the effects of its application on toll carriers in O.N.Telcom's toll territory. O.N.Telcom submitted that approval of Northern's proposed rate increase would mean that O.N.Telcom would incur an additional expense of approximately $1 million in 2002 for the use of Northern's DC service.

O.N.Telcom requested that the Commission reinstate the DC and EA service rates on a final basis, as set out in Decision 2001-583 for O.N.Telcom, Northern and Cochrane. O.N.Telcom also submitted that, in the event that the Commission determines that changes are required to the costing and rating of the DC and EA services for O.N.Telcom, Northern and Cochrane, then any rate changes should be made only on a going-forward basis.

Reply comments

In its reply comments dated 10 April 2002, Northern submitted that by granting the increase requested in its application, the Commission would be providing consistent regulatory treatment for all small ILECs in Canada. In Northern's view, such a decision would place it on an equal footing with other small ILECs prior to the commencement of the consultative proceeding. In response to O.N.Telcom's argument that its application did not address the criteria for a review and vary application, Northern argued that it has the right to ask the Commission for a DC rate increase under the CRTC Telecommunication Rules of Procedure. Northern therefore requested that the Commission disregard the comments filed by O.N.Telcom.

Commission determinations

The Commission acknowledges that in Decision 2001-756, it stated O.N.Telcom, Northern and Cochrane might be disadvantaged by the early conversion from the DT Phase III cost-based rates to DC and EA Phase II cost-based rates, and accordingly, made the DC and EA rates interim. Additionally, in Decision 2001-756, the Commission established a consultative proceeding to review the calculation and recovery of DT and network access costs for the small ILECs. The Commission notes that, among other things, the consultative proceeding provides an opportunity to address the issue of an appropriate level of compensation for Northern's estimated revenue shortfall of $2 million in 2002.

Given that the rates in question have been made interim and that the follow-up proceeding has been established to set these rates on a final basis for 2002, the Commission does not consider Northern's application as one constituting a review and vary application.

The issues relating to setting rates on a final basis and other related issues raised by O.N.Telcom in its intervention will be addressed in the consultative proceeding. Accordingly, the Commission does not consider it appropriate to address these issues in this proceeding.

In light of the foregoing, the Commission denies the application by Northern to increase its interim DC rate to $0.00944 per minute.

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