ARCHIVED - Telecom Decision CRTC 2003-18

Telecom Decision CRTC 2003-18

Ottawa, 18 March 2003

TELUS Communications Inc.

2002 Annual price cap filing

In this decision, the Commission approves, on a final basis, with some exceptions that are given interim approval, applications filed by TELUS Communications Inc. (TCI), proposing rate changes pursuant to Regulatory framework for second price cap period, Telecom Decision CRTC 2002-34, 30 May 2002. The Commission also approves, with some exceptions, the remainder of TCI's rates on a final basis.

Introduction

1.

In Regulatory framework for second price cap period, Telecom Decision CRTC 2002-34, 30 May 2002 (Decision 2002-34), the Commission established the price regulation regime that is now applicable to the following incumbent local exchange carriers (ILECs): Aliant Telecom Inc., Bell Canada, MTS Communications Inc., Saskatchewan Telecommunications and TELUS Communications Inc. (TCI) (collectively, the ILECs).

2.

In Decision 2002-34, the Commission directed the ILECs to file their 2002 annual price cap filings, including updates to the price indices, on 1 August 2002. In Decision 2002-34, the Commission also made all of the ILECs' tariff rates interim, effective 1 June 2002, to ensure that the annual price cap period for 2002 would reflect a full year, with the expectation that any rate changes approved for the ILECs to meet their price cap commitment would become effective retroactive to that date.

3.

The Commission received applications by TCI, dated 1 August 2002, and amended on 15 August 2002 and 1 November 2002, proposing tariff revisions for the company to meet its 2002 price cap commitment.

4.

The Commission received comments from Call-Net Enterprises Inc. (Call-Net) on 15 August 2002, Acme Protective Systems on 22 October 2002 and AT&T Canada Corp., on behalf of itself and AT&T Canada Telecom Services Inc. (collectively, AT&T Canada), on 3 September 2002.

5.

TCI filed reply comments on 13 September 2002.

6.

In Part I of this decision, the Commission addresses TCI's proposed tariff revisions. In Part II of this decision, the Commission addresses specific requests made by AT&T Canada and Call-Net.

Part I - TCI's application

7.

In its applications, TCI proposed to revise the following tariff items:

8.

In particular, TCI proposed the following tariff changes to services in the single and multi-line business local exchange services basket:

for Alberta,

and for British Columbia,

9.

TCI submitted that the proposed tariff revisions would ensure that the service basket index (SBI) does not exceed the service basket limit (SBL) for the single and multi-line business local exchange services basket.

10.

TCI proposed the following tariff changes to services within the other capped services basket:

for Alberta,

for British Columbia,

and for Alberta and British Columbia,

11.

TCI submitted that the proposed tariff revisions would ensure that the SBI does not exceed the SBL for the other capped services basket.

12.

TCI also proposed a $1.00 per month increase to various Individual Call Management services, Grandfathered Individual Call Management services and packages for residential customers in high-cost serving areas (HCSAs).

13.

TCI submitted that the proposed tariff revisions complied with all of the pricing constraints set out in Decision 2002-34 and passed the imputation test, where required.

14.

TCI requested that the proposed tariff revisions become effective on 1 June 2002.

Parties' comments

15.

AT&T Canada submitted that one clear objective of the ILECs' annual price cap proposals appeared to have been to obstruct competition. AT&T Canada stated that the ILECs have proposed price increases for business local exchange services in rural areas where there was little, if any, competition. AT&T Canada stated that in contrast the ILECs have proposed significant rate reductions to the access and link components of DNA service and, in some cases, to Megalink, Digital Channel and Digital Exchange Access services. AT&T Canada argued that the ILECs have targeted the required rate reductions in such a way as to undermine any potential advantage the creation of competitor-DNA service might have offered competitors. AT&T Canada submitted that the proposed rate reductions would squeeze the margins available to competitors through the use of the newly established competitor-DNA service.

16.

Acme Protective Systems was opposed to the retroactive effective date of 1 June 2002 requested by TCI for increases to Signal Transmission service.

Reply comments

17.

TCI argued that AT&T Canada's allegations were groundless and should be rejected by the Commission. TCI submitted that as the proposed rate changes were in compliance with the Commission's rules as set out in Decision 2002-34, they could not be anti-competitive.

Commission analysis

18.

With respect to Acme Protective Systems' opposition to the retroactive effective date of 1 June 2002 requested by TCI for increases to Signal Transmission service, the Commission notes that, in Decision 2002-34, it made all rates interim effective on 1 June 2002 to ensure that the ILECs would have to meet their 2002 price cap commitment over an entire year. The Commission therefore considers that TCI is entitled to have rate changes come into effect as allowed by the price cap regime.

Costing issues

19.

The Commission notes that for a new service or a rate decrease, the proposed rates must satisfy the imputation test. The Commission considers that the imputation test is the accepted method, under the current regulatory regime, of determining whether the proposed rates would be anti-competitive.

20.

The Commission finds that the proposed rates for business individual line service, DNA service, Signal Transmission service and Inter-Office Digital Channels pass the imputation test.

Compliance with the pricing constraints in Decision 2002-34

21.

In Decision 2002-34 the Commission applied a number of constraints to the rates for services in the single and multi-line business local exchange services basket and the other capped services basket, in order to provide customers of those services with price protection.

22.

The pricing constraints which apply to services in the single and multi-line business local exchange services basket include:

23.

The Commission notes that the proposed rate increases to business local exchange services do not exceed the rate element constraint of 10%. The Commission finds that the proposed tariff revisions comply with the basket constraint requirement that the SBI not exceed the SBL for the single and multi-line business local exchange services basket.

24.

The Commission also finds that the proposed tariff revisions comply with the Commission's prohibition, set out in Decision 2002-34, against further de-averaging of rates for business local exchange services within a band.

25.

The pricing constraints which apply to services in the other capped services basket include:

26.

The Commission notes that the proposed rate increases to Local Channel services, Interexchange Foreign Exchange service, Tie Trunk service, and Channels for Data Transmission do not exceed the rate element constraint of 10%. The Commission finds that the proposed tariff revisions comply with the basket constraint requirement that the SBI not exceed the SBL for the other capped services basket.

27.

The Commission also finds that the proposed tariff revisions comply with the Commission's prohibition, set out in Decision 2002-34, against further de-averaging of rates for other capped services within a band.

28.

The Commission further considers that TCI's proposal to reinstate wording that had been dropped from the conditions of service for Local Channels is acceptable.

29.

In Decision 2002-34, the Commission concluded that rate increases for residential optional local services in HCSAs should not exceed one dollar per feature per year. The Commission finds that the proposed rate increases to individual features within Call Management services and Grandfathered services do not exceed that constraint.

30.

Accordingly, the Commission is satisfied that TCI's proposals are consistent with the pricing constraints established in Decision 2002-34.

Part II - AT&T Canada and Call-Net's requests

AT&T Canada's request for a fixed margin between retail and wholesale rates

31.

AT&T Canada submitted that price reductions applied to services with retail and wholesale counterparts, such as DNA service, should be similar in magnitude so as to protect against anti-competitive targeted pricing strategies by the ILECs aimed at squeezing or eliminating the margins available to their competitors.AT&T Canada argued that such a link between retail and wholesale pricing would ensure that the ILECs could not use the price cap formula to squeeze the competitors' margins.

32.

TCI submitted that the Commission should reject AT&T Canada's proposal to link the pricing of wholesale and retail rates. TCI stated that Decision 2002-34 specified that the rates for competitor-DNA service should be based on Phase II costs plus a 15% mark-up. TCI argued that AT&T Canada's proposal was a request for a guaranteed margin. TCI submitted that the Commission has consistently rejected proposals of this nature after hearing considerable evidence on the matter, as in the proceedings resulting in Review of regulatory framework, Telecom Decision CRTC 94-19, 16 September 1994 and Local competition, Telecom Decision CRTC 97-8, 1 May 1997.

33.

The Commission notes that it explicitly required the ILECs to file rates for a competitor-DNA service based on Phase II costs plus a 15% mark-up. The Commission considers that AT&T Canada's request to establish a link between price reductions to services with retail and wholesale counterparts is inconsistent with Decision 2002-34.

Call-Net and AT&T Canada's request for DNA and Digital Channel services rates to remain interim

34.

Call-Net and AT&T Canada requested that the rates for DNA service and related services in the other capped services basket be approved on an interim basis. Call-Net and AT&T Canada argued that until a decision has been issued in the proceeding initiated by Competitor Digital Network Access service proceeding, Telecom Public Notice CRTC 2002-4, 9 August 2002 (Public Notice 2002-4), the precise components and configurations that will make up the final competitor-DNA service and potentially related services are unknown. Call-Net and AT&T Canada submitted that the retail DNA service and related services could serve as the basis for the competitor-DNA service. Call-Net and AT&T Canada submitted that interim approval would allow any associated rate reductions that might result from the Public Notice 2002-4 proceeding to apply on a retroactive basis to 1 June 2002.

35.

TCI submitted that only the narrow set of rates that are currently interim pending final approval of the competitor-DNA service tariff should remain interim. TCI argued that all other rates should receive final approval and be subject to further adjustments, if any, only on a prospective basis, once a decision is issued in the proceeding initiated by Public Notice 2002-4.

36.

The Commission notes that among the issues being considered in the proceeding initiated by Public Notice 2002-4, are whether specific rate elements of DNA service and Inter-Office Digital Channels should be included in the newly established competitor-DNA service, and whether the reduced rates for any additional service components that might be added to competitor-DNA service at the conclusion of the proceeding should be approved retroactive to 1 June 2002. The Commission further notes that, in the meantime, competitors will be subscribing to potential competitor-DNA service components at DNA service and Inter-Office Digital Channels rates. Accordingly, the Commission finds that it would not be appropriate to grant final approval to the retail rates for DNA service and Inter-Office Digital Channels at this time.

Commission directions

37.

In light of the foregoing, the Commission concludes the following:

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