ARCHIVED - Telecom Decision CRTC 2003-18

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Telecom Decision CRTC 2003-18

Ottawa, 18 March 2003

TELUS Communications Inc.

Reference: TCI Tariff Notices 59, 62
Former TCI Tariff Notices 495, 496, 497, 499/A and 499B and 508
Former TCBC Tariff Notices 4180, 4183 and 4184/A/B

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:

· former TCI General Tariff, item 350, Interexchange Foreign Exchange service, item 355, Interexchange Off-Premise service, item 360, Interexchange Private Line service, item 365, Interexchange Tie Trunk service, item 385, Channels for Data Transmission, item 425, Exchange service, item 500, Digital Network Access (DNA) service, item 615, Local Channel service (Outside the City of Edmonton), item 620, Local Channel Conditioning, (Outside the City of Edmonton), item 625, Local Channel service (In the City of Edmonton), and item 630, Local Channel Conditioning (In the City of Edmonton);
· former TELUS Communications (B.C.) Inc. General Tariff, CRTC 1005, item 32, Exchange rates, item 410, Signal Transmission service, and item 447, DNA service; and
· TCI General Tariff, Call Management services, item 300.5 Grandfathered services, and item 503, Inter-Office Digital Channels.

8.

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

for Alberta,

· rate increases ranging from $2.00 to $4.55 per month (4.26% to 9.92%) for non-contracted business individual line service in rate bands C through G, with the exception of sub-bands C3, D2, E2 and F2;
· rate increases ranging from $1.10 to $2.25 per month (1.71% to 3.56%) for non-contracted business multi-line service in rate bands C through G;
· rate revisions ranging from a $1.00 decrease per month to a $4.50 increase per month, as well as increases in the primary interexchange carrier (PIC) discounts, for contracted business individual line service in rate bands C to G;
· rate increases ranging from $4.50 to $5.50 per month (7.39% to 9.96%), with off-setting increases in the PIC discounts, for contracted business multi-line service in rate bands C through G; and
· adjustments to PIC discounts to establish a uniform discount structure by minimum volume commitment and contract term across bands;

and for British Columbia,

· rate increases ranging from $3.50 to $4.94 per month (8.62% to 10%) for business measured service in certain sub-bands of bands B through G;
· rate decreases ranging from $4.20 to $8.25 per month (9.02% to 14%) to the non-contracted rates for business individual line service, business multi-line service and Information system access (ISA);
· rate decreases ranging from $1.00 to $6.00 (2.37% to 11.61%), together with increases to the PIC discounts, to contracted business individual line and other eligible line rates;
· rate increases ranging from $1.25 to $5.65 (1.95% to 9.99%) to the non-contracted rates for business individual line service, business multi-line service and ISA service in bands C to G;
· rate increases ranging from $1.50 to $5.50 (3.04% to 9.93%), with off-setting increases in PIC discounts to the contracted rates for business individual line and other eligible line rates; and
· changes to the PIC discounts for contracted individual and multi-line access in order to establish a uniform discount structure by minimum volume commitment level and contract term across bands.

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,

· a 10% increase to the rates of all recurring rate components of Local Channel service and Local Channel Conditioning service for both "in the city of Edmonton" and "outside the city of Edmonton" services;
· the reinstatement of wording in the conditions of service provisions that are associated with Local Channel service "in the city of Edmonton", which was inadvertently dropped at the time of the filing for the integration of the former TCI and TELUS Communications (Edmonton) Inc. Local Channel services;
· a 10% rate increase to the distance mileage rate components of Interexchange Foreign Exchange service, Tie Trunk service, and Channels for Data Transmission;
· decreases to the monthly rates for the Digital Network Access (DNA) service elements of Access, Link and Intra-exchange channels for Low Speed DS-1, DS-3 and the Fractionalization Feature; and
· decreases to the monthly rates for the Channelizing Feature used with the DS-1 and DS-3 speeds;

for British Columbia,

· decreases in the monthly rates for the DNA service elements of Access, Link and Intra-exchange channels for Low Speed, DS-1, DS-3 and Fractional DS-1 Access;
· rate decreases for the Channelizing Feature used with the DS-1 and DS-3 speeds; and
· a 10% increase to the monthly rates for Signal Transmission service - Local and Interexchange Channels;

and for Alberta and British Columbia,

· reductions of 50% to the existing base charge and the per mile rate for DS-3 Channels for Inter-Office Digital Channels; and
· the elimination of the DS-2 option for Inter-Office Digital Channels.

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:

· a basket constraint, operating through the SBL for that basket, which must be updated annually by the rate of inflation;
· a rate element constraint limiting rate increases for a service to 10% per year; and
· a provision, in order to prevent an ILEC from decreasing rates in more competitive areas and increasing rates in less competitive areas of the same band, that rates for business local exchange service would not be permitted to be further de-averaged within a band.

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:

· a basket constraint, operating through the SBL for that basket, which must be updated annually by the rate of inflation less the productivity offset;
· a rate element constraint limiting rate increases for a service to 10% per year; and
· a provision, in order to prevent an ILEC from decreasing rates in more competitive areas and increasing rates in less competitive areas of the same band, that rates for other capped services would not be permitted to be further de-averaged within a band.

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:

· the Commission approves, on an interim basis, the proposed tariff revisions to DNA service;
· the Commission approves, on a final basis, the proposed tariff revisions to business local exchange services, Local Channel service, Signal Transmission service, Interexchange Foreign Exchange service, Interexchange Off-premise service, Interexchange Private Line service, Interexchange Tie Trunk service, and Channels for Data Transmission, Call Management services and Grandfathered services;
· the Commission approves, on a final basis, the remainder of TCI's rates with the exception of (i) the rates for DNA service and Inter-Office Digital Channels, which will remain interim, and (ii) the rates for competitor services. The Commission notes that TCI's proposals regarding rates for competitor services are addressed in Rates for co-location floor space, Direct Connection service, Wireless Access Service: Line-side Access services, and Wireless Service Providers Enhanced Provincial 9-1-1 Network Access service, Telecom Decision CRTC 2003-12, 18 March 2003 and in Rates for Competitor Services, Telecom Decision CRTC 2003-13, also issued today;
· the approved rates take effect on 1 June 2002. TCI is to issue revised tariff pages forthwith; and
· the Commission directs TCI to provide all customers affected by the rate reductions approved in this decision with rebates forthwith.

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 

Date Modified: 2003-03-18

Date modified: