|
Telecom Decision CRTC 2003-24
|
|
Ottawa, 17 April 2003
|
|
Aliant Telecom Inc.
|
|
Reference: 8638-C12-75/02
|
|
Follow-up to Telecom Order CRTC 2002-201 - Late Payment Charges
|
|
In this decision, the Commission finds that Aliant Telecom Inc.'s (Aliant Telecom) Late Payment Charges (LPCs), with no minimum LPC, provide adequate compensation for late payments. The Commission directs Aliant Telecom to remove the minimum LPC for customers in Nova Scotia and Prince Edward Island.
|
|
Background
|
|
1.
|
A late payment charge (LPC) is applied when a customer does not remit payment on his or her account within a prescribed period of time. In accordance with a Commission approved formula, LPCs are based on the monthly equivalent of the per annum prime rate of one of the major banks plus 7%.
|
|
2.
|
Aliant Telecom Inc. (Aliant Telecom) applies an LPC on all accounts above $22.00 overdue in excess of thirty days from the billing date. Aliant Telecom further charges a minimum LPC of $1.25 in Nova Scotia and a minimum LPC of $1.00 in Prince Edward Island. The other incumbent local exchange carriers (ILECs) do not have a minimum LPC.
|
|
3.
|
On 1 September 2000, Maritime Tel & Tel Limited filed an application, on behalf of Island Telecom Inc., to increase the minimum LPC in Prince Edward Island from $1.00 to $1.25 and, on behalf of each of NBTel Inc. and NewTel Communications Inc., to introduce a minimum LPC of $1.25 in New Brunswick and Newfoundland and Labrador. In CRTC denies proposals to introduce or increase minimum late payment charges, Order CRTC 2000-1003, 3 November 2000, the Commission denied the application, finding that the existing LPCs provided adequate compensation for late payments.
|
|
4.
|
On 27 February 2002, Aliant Telecom filed an application, in which it proposed to increase the minimum LPC in Prince Edward Island from $1.00 to $1.25 and to introduce minimum LPCs of $1.25 in New Brunswick and Newfoundland and Labrador.
|
|
5.
|
In Aliant Telecom Inc. - Late payment charges, Telecom Order CRTC 2002-201, 16 May 2002 (Order 2002-201), the Commission denied Aliant Telecom's proposal and stated that it was of the preliminary view that Aliant Telecom's LPCs, with no minimum LPC, provided adequate compensation for late payments and, consistent with the tariffs of all of the other ILECs in Canada, a minimum LPC should not be maintained for customers in Prince Edward Island and Nova Scotia. The Commission invited interested parties to comment on its preliminary view.
|
|
6.
|
Aliant Telecom and the Public Interest Advocacy Centre on behalf of Action Réseau Consommateur et al (ARC) filed comments on 18 June 2002. Aliant Telecom filed reply comments on 25 June 2002.
|
|
Aliant Telecom's comments
|
|
7.
|
Aliant Telecom argued that LPCs alone, without a minimum charge, would not provide adequate compensation for late payments. Aliant Telecom stated that removal of the minimum LPC would reduce its revenues by approximately $650,000 per year. Aliant Telecom stated that, in 2001, its revenue from LPCs, including minimum LPCs, was $13 million, which was less than the sum of bad debt written off and the cost of credit services, which were $17 million and $7 million respectively.
|
|
8.
|
Aliant Telecom submitted that if the minimum LPC were removed, there would be more overdue accounts and the company would have to resort to collection activity more frequently. Aliant Telecom indicated that the labour costs required to address these accounts individually would not be compensated by the basic LPC.
|
|
9.
|
Aliant Telecom further submitted that there was no need for the ILECs' LPC tariffs to be consistent and indicated that the ILECs' billing and collection practices were not consistent. Aliant Telecom stated that it billed one month in arrears for monthly recurring charges whereas other ILECs billed one month in advance for such charges.
|
|
10.
|
Aliant Telecom further argued that, as a commercial business, it should be governed by cash and credit conditions in the commercial marketplace. Aliant Telecom indicated that LPCs at higher interest rates and the use of minimum and flat rated LPCs were a common commercial practice.
|
|
11.
|
Aliant Telecom noted that the LPC was classified as an uncapped service and argued that removing the minimum LPC, which would reduce revenues by $650,000, would be inconsistent with the price cap framework set out in Regulatory framework for second price cap period, Telecom Decision CRTC 2002-34, 30 May 2002 (Decision 2002-34). Aliant Telecom submitted that it should be made whole for this money should the Commission confirm its preliminary view.
|
|
Comments from ARC
|
|
12.
|
ARC stated that it supported the Commission's preliminary view that a minimum LPC was neither necessary nor appropriate.
|
|
13.
|
ARC submitted that customers incurring LPCs did not generally choose to use the credit facilities offered by their telephone service provider over those offered by other providers. ARC was of the view that, for many customers, credit alternatives were unavailable.
|
|
Aliant Telecom's reply
|
|
14.
|
Aliant Telecom submitted that the proper management of cash flow was an important process for any business and that the customer had adequate time to determine the most cost-effective way to settle the charges because its monthly recurring charges were billed in arrears.
|
|
Commission analysis and determinations
|
|
15.
|
The Commission notes that Aliant Telecom indicated that, in 2001, its revenue from LPCs, including minimum LPCs, was $13,000,000. Aliant Telecom stated that removing the minimum LPC would reduce LPC revenues by approximately $650,000. The Commission further notes that, in 2001, Aliant Telecom's revenues from LPCs without a minimum charge, approximately $12,350,000, recovered the $7,000,000 cost of providing credit to its customers.
|
|
16.
|
The Commission is of the view that LPC rates should recover the cost of providing credit to customers on overdue payments. The Commission considers that bad debt and collection activities are not causal to the cost of providing credit on overdue payments. Accordingly, the Commission concludes that LPC rates should not be set to recover the cost of bad debt nor the cost of collection activities.
|
|
17.
|
The Commission considers that the billing and collection practices of other ILECs, such as whether an ILEC bills in advance or arrears, and the practices of other commercial enterprises are not relevant to the question of whether the basic LPC, without a minimum charge, provides adequate compensation to Aliant Telecom.
|
|
18.
|
The Commission considers that Aliant Telecom did not provide evidence to counter the Commission's preliminary view that the basic LPC, without a minimum LPC, provided adequate compensation for late payments.
|
|
19.
|
The Commission notes Aliant Telecom's argument that it should be made whole for lost revenues if the Commission removed the minimum LPC. In Decision 2002-34, the Commission stated that exogenous events should continue to be events of a material impact beyond the control of the ILEC that were not otherwise accounted for in the price cap parameters. The Commission considers that the reduction in revenues resulting from the elimination of the minimum LPC would not have a material impact on the company. Accordingly, the Commission concludes that the removal of the minimum LPCs would not qualify as an exogenous factor under the price cap regime.
|
|
20.
|
In light of the above, the Commission confirms its preliminary view that Aliant Telecom's LPCs, with no minimum LPC, provide adequate compensation for late payments. The Commission directs Aliant Telecom to issue revised tariff pages, removing the minimum LPC for customers in Nova Scotia and Prince Edward Island within 30 days of the date of this decision.
|
|
Other matter
|
|
21.
|
The Commission notes that Aliant Telecom filed an application, dated 6 March 2002, requesting that the Commission find that LPCs are not telecommunications services as defined in the Telecommunications Act or, in the alternative, if LPCs are found to be telecommunications services, that the Commission forbear from regulating LPCs. The Commission will be disposing of this application at a later date.
|
|
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: 2003-04-17