ARCHIVED - Telecom Decision CRTC 2002-71

Telecom Decision CRTC 2002-71

Ottawa, 22 November 2002

Final 2002 revenue-percent charge and related matters

Reference: 8638-C12-45/01

In this decision, the Commission approves, on a final basis, effective 1 January 2002, a 2002 contribution collection revenue-percent charge of 1.3%, the 2002 subsidy per residential network access service (NAS) for the territories of the large incumbent local exchange carriers (ILECs) and the 2002 contribution requirements for Société en commandite Télébec (Télébec) and TELUS Communications (Québec) Inc. (TELUS Québec).

The Commission also approves, on an interim basis, effective 1 January 2003, a 2003 contribution collection revenue-percent charge of 1.3%, the 2003 subsidy per residential NAS for the territories of the large ILECs and the 2003 contribution requirements for Télébec and TELUS Québec.

Introduction

1.

In Changes to the contribution regime, Decision CRTC 2000-745, 30 November 2000 (Decision 2000-745; the contribution regime), the Commission introduced a national revenue-based contribution collection mechanism and a new approach for determining the subsidy requirements for the incumbent local exchange carriers (ILECs).

2.

Under the contribution regime, telecommunications service providers (TSPs) with annual Canadian telecommunications service revenues equal to or greater than $10 million are required to contribute towards the subsidization of residential local service in high-cost serving areas. This contribution is collected through a revenue-based mechanism where a revenue-percent charge is applied against a TSP's contribution-eligible revenues. Contribution-eligible revenues are calculated based upon a TSP's Canadian telecommunications service revenues less certain specific deductions including retail Internet revenue, retail paging revenue and terminal equipment revenue. The revenue-percent charge is calculated using the ratio of the national subsidy requirement to the total reported contribution-eligible revenues of all TSPs who are required to contribute.

3.

In Interim 2002 revenue-percent charge, national subsidy requirement and procedures for the revenue-based contribution regime, Order CRTC 2001-876, 14 December 2001 (Order 2001-876), the Commission set, on an interim basis, a 2002 revenue-percent charge of 1.4%.

4.

The Commission notes that it has now received the information necessary to determine the national subsidy requirement for 2002 in order to set the final revenue-percent charge for 2002 and the interim revenue-percent charge for 2003.

Subsidy per residential NAS for the territories of the large ILECs

5.

In Restructured bands, revised loop rates and related issues, Decision CRTC 2001-238, 27 April 2001, as amended by Decision CRTC 2001-238-1 and Decision CRTC 2001-238-2, the Commission adopted a uniform approach to identify high-cost serving areas and a consistent set of costing methodologies to determine the subsidy per residential network access service (NAS) for the large ILECs in their respective territories. The carriers referred to as large ILECs were Aliant Telecom Inc. (Aliant Telecom), Bell Canada, MTS Communications Inc. (MTS), Saskatchewan Telecommunications (SaskTel) and TELUS Communications Inc. (TCI).

6.

In Regulatory framework for second price cap period, Telecom Decision CRTC 2002-34, 30 May 2002 (Decision 2002-34), the Commission provided the large ILECs with the information required to finalize the subsidy per residential NAS for their respective territories. The Commission directed the large ILECs to file revised subsidy per residential NAS calculations that included an annual cost adjustment for inflation, a 3.5% productivity offset, estimated service improvement plan (SIP) costs, as required, and the cost recovery of the interim 1.4% revenue-percent charge.

7.

By letters dated 2 August and 6 August 2002, respectively, SaskTel and TCI filed estimated subsidy per residential NAS calculations.

8.

By letter dated 6 August 2002, Bell Canada, on behalf of itself, Aliant Telecom and MTS, filed estimated subsidy per residential NAS calculations. By letter dated 9 August 2002, Bell Canada filed revised information for MTS, due to errors in the calculation of MTS' SIP costs.

9.

The Commission did not receive any comments with respect to the subsidy per residential NAS calculations that were submitted by the large ILECs.

10.

The Commission has reviewed the subsidy per residential NAS calculations submitted by the large ILECs and finds them in accordance with the directives in Decision 2002-34. Accordingly, for the purpose of calculating the revenue-percent charge, the Commission finds it appropriate to use the estimate of $186.5 million as the 2002 total subsidy requirement for the large ILECs.

Télébec and TELUS Québec subsidy requirements

11.

In Implementation of price regulation for Télébec and TELUS Québec, Telecom Decision CRTC 2002-43, 31 July 2002 (Decision 2002-43), the Commission established a new regulatory framework for Société en commandite Télébec (Télébec) and TELUS Communications (Québec) Inc. (TELUS Québec).

12.

In Decision 2002-43, the Commission directed Télébec and TELUS Québec to file revised 2002 subsidy requirements taking into account the Commission's determinations in that decision. Télébec and TELUS Québec were also directed to separately identify the adjustments to their subsidy requirements resulting from the application of the inflation factor and the productivity offset (the price cap adjustments).

13.

Télébec and TELUS Québec filed their revised 2002 subsidy requirements on 30 August 2002. The Commission did not receive any comments with respect to the revised 2002 subsidy requirements submitted by either Télébec or TELUS Québec.

14.

TELUS Québec filed a revised 2002 subsidy requirement of $13.14 million. TELUS Québec indicated that its revised subsidy requirement consisted of seven-twelfths of its estimated 2002 Phase II subsidy requirement to cover the period from January to July, and five-twelfths of its estimated 2002 Phase II price cap subsidy requirement less the price cap adjustment of $1.351 million, for the period from August to December.

15.

The Commission finds that TELUS Québec's revised 2002 subsidy requirement of $13.14 million has been calculated in accordance with the Commission directives in Decision 2002-43 and Decision 2000-745.

16.

Télébec filed a revised 2002 subsidy requirement of $18.637 million. Télébec submitted that, for the period from January to July, it estimated its subsidy requirement as $13.766 million, based on seven-twelfths of its estimated 2002 Phase III subsidy requirement. For the remaining five months of 2002, Télébec stated that it estimated its subsidy requirement as $4.871 million, based on the directives of Decision 2002-43.

17.

Télébec submitted that its approach was appropriate since its price cap regime had only become effective 1 August 2002. Télébec argued that its subsidy requirement for the first seven months of 2002 should therefore be calculated in a manner consistent with rate of return regulation.

18.

The Commission notes that, at paragraph 49 of Decision 2000-745, it directed the large ILECs, Télébec and Québec-Téléphone, now known as TELUS Québec, to use a Phase II costing methodology to calculate their subsidy requirements as of 1 January 2002.

19.

The Commission therefore finds that Télébec's proposal to use a Phase III-based subsidy requirement for the first seven months of 2002 is not in accordance with the Commission's directives in Decision 2000-745.

20.

The Commission notes that, in Decision 2002-43, it determined that Télébec's 2002 subsidy requirement was $15.7 million, consisting of a Phase II-based subsidy requirement of $8.1 million and an amount of $7.6 million which was a transition subsidy. The Commission further notes that the $15.7 million was net of a $5.1 million reduction which related to Télébec's rate restructuring deferral account established in CRTC approves an application to review and vary Order CRTC 2000-531 - Télébec ltée - Rate restructuring, Order CRTC 2001-216, 14 March 2001.

21.

The Commission considers that Télébec's 2002 subsidy requirement requires an upward adjustment of $5.1 million because Télébec was only able to withdraw funds from its rate restructuring deferral account starting 1 August 2002. The Commission finds that Télébec's subsidy requirement for the first seven months of 2002 should be $12.129 million.

22.

The Commission finds that Télébec's subsidy requirement of $4.871 million for the last five months of 2002 is in accordance with the Commission directives.

23.

The Commission notes that Télébec's final 2002 subsidy requirement of $17.0 million includes a transition subsidy of $5.925 million.

24.

In light of the above, the Commission approves the final 2002 subsidy requirements of $13.14 million for TELUS Québec and $17.0 million for Télébec, effective 1 January 2002, and directs the central fund adminstrator (CFA) to adjust the monthly subsidy that was distributed to equal one-twelfth of the final 2002 subsidy requirements, effective 1 January 2002.

25.

The Commission notes that the 2002 subsidy requirements for TELUS Québec and Télébec include annual price cap adjustments as of 1 August 2002. The Commission notes that these price cap adjustments carry forward into 2003 and that further price cap adjustments come into effect on 1 August 2003. The Commission finds that the estimated 2003 subsidy requirements are $11.804 million for TELUS Québec and $10.194 million for Télébec. The Commission concludes that the subsidy requirements for TELUS Québec and Télébec are to be reduced, effective I January 2003, on an interim basis. The Commission notes that Télébec's interim 2003 subsidy requirement of $10.194 million includes a transition subsidy of $2.094 million.

26.

In light of the above, the Commission approves interim 2003 subsidy requirements of $10.194 million for Télébec and $11.804 million for TELUS Québec, effective 1 January 2003, and directs the CFA to distribute one-twelfth of these interim subsidy requirements, on a monthly basis, effective 1 January 2003.

Subsidy amounts for the small ILECs

27.

In Regulatory framework for the small incumbent telephone companies, Decision CRTC 2001-756, 14 December 2001 (Decision 2001-756), the Commission established a new regulatory framework for the small ILECs and specific annual subsidy amounts that each small ILEC were to receive for the years 2002 through 2005. The Commission approved total subsidy amounts of $34.216 million for 2002 and $30.105 million for 2003. The carriers referred to as small ILECs are listed in Attachment A.

28.

In Ontario Telecommunications Association - Review and vary regarding the regulatory framework decision and the national subsidy requirement order, Telecom Decision CRTC 2002-49, 16 August 2002 (Decision 2002-49), the Commission approved an application to review and vary Decision 2001-756 and Order 2001-876, to increase the annual subsidy amounts for Nexicom Telecommunications Inc., Nexicom Telephones Inc. and North Renfrew Telephone Company Limited, as the three companies had inadvertently provided incorrect information during the proceeding that lead to Decision 2001-756.

29.

The Commission notes that, in Decision 2002-49, it increased the small ILECs' total subsidy amounts by $14,200 for 2002 and $28,200 for 2003.

30.

In Thunder Bay Telephone - Application to review and vary certain aspects of Regulatory framework for small incumbent telephone companies, Decision CRTC 2001-756, 14 December 2001, Telecom Decision CRTC 2002-70, 7 November 2002 (Decision 2002-70), the Commission approved an application to review and vary Decision 2001-756 and Order 2001-876, granting high-cost wire centre status for four wire centres for Thunder Bay Telephone.

31.

The Commission notes that, in Decision 2002-70, it increased the small ILECs' total subsidy amounts by $513,000 for 2003.

32.

Taking into account the above determinations, the Commission finds that the total subsidy amounts for the small ILECs is $34.230 million for 2002 and $30.647 million for 2003.

33.

In view of the decrease in total subsidy amounts from 2002 to 2003, the Commission directs the CFA to distribute, effective 1 January 2003, monthly subsidy amounts to the small ILECs equal to one-twelfth of the approved 2003 subsidy amounts identified in Appendix A.

Supplemental funding for Northwestel Inc.

34.

In Decision 2000-745, the Commission determined that any supplemental funding for Northwestel Inc. (Northwestel) for 2002 would be added, as a separate amount, to the 2002 national subsidy requirement. In Order 2001-876 the Commission approved, on an interim basis, the 2002 supplemental funding for Northwestel of $18.7 million.

35.

In Long-distance competition and improved service for Northwestel customers, Decision CRTC 2000-746, 30 November 2000, the Commission determined that supplemental funding would continue to be made available to Northwestel, on an interim basis, pending the final approval of Northwestel's 2002 supplemental funding amount.

36.

On 1 March 2002, the Commission initiated Northwestel Inc. - Initial annual review of supplemental funding, Telecom Public Notice CRTC 2002-1 (Public Notice 2002-1) to assess, among other things, the level of Northwestel's supplemental funding for 2002.

37.

The Commission notes that its final determination in that proceeding is still pending as a result of delays caused by a recent labour dispute at Northwestel.

38.

The Commission therefore considers that it is appropriate to continue using $18.7 million as the annual supplemental funding amount for Northwestel until a final determination has been made in the proceeding initiated by Public Notice 2002-1. The Commission directs the CFA to continue to distribute the interim monthly distribution of $1,558,333 to Northwestel.

39.

In light of the above, the Commission concludes that Northwestel's interim 2002 supplemental funding should be extended into 2003, on an interim basis, effective 1 January 2003.

CPCC/CFA administrative and operational costs

40.

The Commission notes that, in Order 2001-876, it approved the interim Canadian Portable Contribution Consortium (CPCC) and CFA administrative and operational costs of $2.5 million for 2002. Based on the June 2002 year-to-date costs incurred and the anticipated costs for the remainder of the year, the Commission considers that this is still a reasonable estimate for 2002.

41.

The Commission will review the administrative and operational costs for 2003 during the finalization of the 2003 revenue-percent charge.

Final 2002 and interim 2003 revenue-percent charge

42.

Based on the determinations, set out above, the Commission finds that the estimated 2002 national subsidy requirement is $272 million, and is comprised of the following:

$ million

CPCC/CFA administrative and operational costs

2.5

Northwestel

18.7

Small ILECs

34.2

Télébec territory

17.0

TELUS Québec territory

13.1

Large ILEC territories

186.5

Total

272.0

43.

The Commission notes that, based upon the 2001 revenue reports received from TSPs and the June year-to-date contribution-eligible revenues reported to the CFA, the contribution-eligible revenue for 2002 is expected to be approximately $21 billion.

44.

The Commission also notes that interest earned on surplus contribution funds and late payment fees collected by the CFA are accounted for in the calculation of the revenue-percent charge.

45.

The Commission finds that the final revenue-percent charge required for 2002 is 1.3%, effective 1 January 2002. The Commission also finds that an interim revenue-percent charge of 1.3% is appropriate for 2003, effective 1 January 2003.

46.

The Commission considers that the subsidy per residential NAS calculations for the large ILECs should be adjusted for the cost recovery of the final revenue-percent charge of 1.3% rather than the interim 1.4% revenue-percent charge.

47.

Accordingly, the Commission has adjusted the proposed 2002 subsidy per residential NAS for each band in the territories of the large ILECs, as set out in the table below.

Territory

Final monthly subsidy per residential NAS by band

E($)

F($)

G($)

Aliant Telecom

- Island Telecom

6.41

7.80

n/a

- MTT

2.26

1.07

n/a

- NBTel

7.00

0.33

n/a

- NewTel

7.21

7.92

13.80

Bell Canada

5.55

4.37

25.15

MTS

21.84

n/a

69.27

SaskTel

23.89

16.74

35.19

TELUS

- TCI

3.81

0.62

5.98

- TCBC

26.73

14.92

23.23

48.

The Commission approves, on a final basis, effective 1 January 2002 and, on an interim basis, effective 1 January 2003, the monthly subsidy per residential NAS for each band in the territories of the large ILECs set out in the above table.

49.

The Commission directs the CFA to adjust the distribution of monthly subsidy per residential NAS, to reflect the final subsidy per residential NAS, effective 1 January 2002. The Commission also directs the CFA to distribute the monthly subsidy per residential NAS, on an interim basis, effective 1 January 2003.

50.

The Commission approves a final 2002 revenue-percent charge of 1.3%, effective 1 January 2002, and an interim 2003 revenue-percent charge of 1.3%, effective 1 January 2003.

51.

The Commission further directs the CFA to adjust the monthly contribution paid by the TSPs to reflect the final 2002 revenue-percent charge of 1.3%, effective 1 January 2002.

Secretary General

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

2003 Subsidy Amount ($000)

British Columbia

Prince Rupert City Telephones

71.6

Ontario

Amtelecom Inc.

3,486.8

Brooke Telecom Co-operative Ltd.

348.6

Bruce Municipal Telephone System

786.2

Cochrane Public Utilities Commission

344.0

Dryden Municipal Telephone System

90.4

Execulink Telecom Inc.

1,075.9

Gosfield North Communications Co-operative Limited

334.9

Hay Communications Co-operative Limited

859.2

Huron Telecommunications Co-operative Limited

644.7

Kenora Municipal Telephone System

105.8

Lansdowne Rural Telephone Co. Ltd.

452.5

Mornington Communications Co-operative Limited

430.2

Nexicom Telecommunications Inc.

459.8

Nexicom Telephones Inc.

362.8

North Frontenac Telephone Corporation Ltd.

421.4

North Renfrew Telephone Company Limited

349.5

Northern Telephone Limited Partnership

6,764.9

O.N.Telcom

631.4

People's Telephone Company of Forest Inc.

1,002.6

Quadro Communications Co-operative Inc.

953.8

Roxborough Telephone Company Limited

96.6

Thunder Bay Telephone

1,125.9

Tuckersmith Communications Co-operative Limited

517.8

Westport Telephone Company Limited

446.1

Wightman Telecom Ltd.

1,153.7

Quebec

CoopTel

775.6

La Cie de Téléphone de Courcelles Inc.

85.3

Téléphone Guèvremont inc.

983.0

La Corporation de Téléphone de La Baie

101.4

La Compagnie de Téléphone de Lambton Inc.

231.1

Téléphone Milot inc.

902.5

Compagnie de téléphone Nantes inc.

48.7

Sogetel inc.

2,453.4

Le Téléphone de St-Ephrem inc.

194.7

Le Téléphone de St-Liboire de Bagot Inc.

255.9

La Compagnie de Téléphone de St-Victor

220.5

La Compagnie de Téléphone Upton Inc.

329.4

La Compagnie de Téléphone de Warwick

748.0

Total

30,646.6