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Telecom Decision CRTC 2003-42
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Ottawa, 27 June 2003
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Bell Canada - Application to review and vary Telecom Decision CRTC 2002-34
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Reference: 8662-B2-06/02
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The Commission denies Bell Canada's application to review and vary that part of Telecom Decision CRTC 2002-34 relating to the capital cost criteria for provision of service to unserved premises as part of its service improvement plan.
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Application to review and vary Decision 2002-34
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1.
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The Commission received an application dated 18 September 2002 by Bell Canada, pursuant to section 62 of the Telecommunications Act and Part VII of the CRTC Telecommunications Rules of Procedure, to review and vary that part of Regulatory framework for second price cap period, Telecom Decision CRTC 2002-34, 30 May 2002 (Decision 2002-34) relating to the capital cost criteria for provision of service to unserved premises as part of its service improvement plan (SIP).
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2.
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On 18 October 2002, the Consumers' Association of Canada, the National Anti-Poverty Organization, and l'Union des consommateurs (the Consumer Groups) provided comments on Bell Canada's application.
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Background
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3.
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In Telephone service to high-cost serving areas, Telecom Decision CRTC 99-16, 19 October 1999 (Decision 99-16), the Commission defined the basic service objective (BSO) as, among other things, an individual line with privacy protection features and the capability to connect via low-speed data transmission to the Internet at local rates. The Commission set three goals: (i) to extend service to the few areas that were unserved; (ii) to upgrade service levels in those areas where customers did not have access to telecommunications services that met the BSO; and (iii) to maintain service levels. In order to achieve these goals, the Commission directed incumbent local exchange carriers to file SIPs. In Decision 99-16, the Commission also determined that SIPs should incorporate least-cost technology, target larger communities or areas first, serve unserved areas prior to providing upgrades, and serve permanent dwellings before seasonal ones.
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4.
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In the proceeding leading to Decision 2002-34, Bell Canada proposed a SIP using a maximum capital cost criteria of $25,000 for permanent premises and $5,000 for seasonal premises, and its own forecast take rates to calculate the aggregate capital cost of serving a locality. Aliant Telecom Inc. (Aliant Telecom) proposed the same capital cost criteria as Bell Canada. TELUS Communications Inc. (TCI) proposed to serve permanent, but not seasonal, premises. In Decision 2002-34, the Commission established a framework that Bell Canada, Aliant Telecom and TCI should apply when extending service to unserved premises. Specifically, the Commission approved, among other things, the following: (i) a maximum capital cost criteria of $25,000 for both permanent and seasonal premises, including a $1,000 customer contribution; and (ii) use of a 100% take rate in each locality for calculating the total capital cost of the SIP.
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5.
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With regard to its approval of capital cost criteria of $25,000 for both permanent and seasonal premises, the Commission noted that it was often difficult to differentiate between permanent and seasonal premises and that the status of a particular dwelling could change. The Commission considered that the capital cost criteria should be the same for seasonal and permanent premises. The Commission went on to state that it was appropriate to approve capital cost criteria which would ensure that service was provided to as many unserved premises as was reasonably possible over the following four years.
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6.
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The Commission concluded that the 100% take rate to be used in calculating each SIP would ensure that funding was available for the maximum number of unserved premises that met the capital cost criteria.
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7.
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Using its proposed criteria of $25,000 for permanent premises and $5,000 for seasonal premises, and its own forecast take rates, in the proceeding leading to Decision 2002-34, Bell Canada estimated that its SIP would involve a capital cost of $31.2 million over two years. In Decision 2002-34, the Commission was of the view that the capital required to carry out a SIP within Bell Canada's territory to meet the criteria the Commission had approved would vary between $75.3 million and $137.2 million over four years. The Phase II SIP costs in high-cost serving areas (HCSAs) would be recovered through its annual total subsidy requirement (TSR).
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Bell Canada's application
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8.
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In its application, Bell Canada requested that the Commission review Decision 2002-34 to: (a) vary the capital cost criterion for service to entirely seasonal localities from $25,000 to $5,000 per seasonal premise; and (b) modify its proposed SIP accordingly. Bell Canada noted that the variance requested would reduce the revised estimated capital cost of its SIP from $127.8 million to $78.5 million, a difference of $49.3 million. This difference reflects the reduction in capital cost to serve 4,413 cottages in 479 purely seasonal localities.
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9.
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Bell Canada submitted that there was substantial doubt as to the correctness of Decision 2002-34, to the extent that the decision required substantial capital expenditures to provide service to entirely seasonal localities where the upfront capital cost to serve was between $5,000 and $25,000 per premise. Bell Canada argued that the significant level of capital expenditures required to provide telephone service to the cottages in question was an unintended consequence, which was not evident from the record of the proceeding leading to Decision 2002-34. Reducing the capital cost of the SIP would result in a reduction of approximately $4.2 million from its annual TSR.
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10.
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Bell Canada submitted that the funding for extension of service would come ultimately from the general subscriber base and it argued that this funding was not unlimited.
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11.
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Bell Canada argued that a new limit of $5,000 for each premises in a locality that was purely seasonal in nature would be a reasonable capital cost criterion to use for such localities. Bell Canada stated that residents of the localities not included in the SIP due to the reduction in the capital cost limit would be notified in due course that service would still be provided if residents opted to pay the difference between the new aggregate capital cost allowance and the upfront capital cost to serve.
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12.
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Bell Canada argued that while it might sometimes be difficult to differentiate between permanent and seasonal premises, in the vast majority of cases the differentiation could be made in a straightforward manner. Bell Canada submitted that permanent premises were generally the principal premises of an individual and therefore the focal point for the individual, whereas seasonal premises were generally cottages, chalets or hunting cabins that were, by definition, used on an occasional basis and of secondary importance to their occupants. Bell Canada noted that the distinction between permanent and seasonal premises was made in statutes relating to income tax, elections, municipal land use, and family law.
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13.
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Bell Canada submitted that changes in the status of particular premises would not make differentiating between permanent and seasonal premises too difficult since Decision 2002-34 established parameters for the SIP that required it to accommodate changes.
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14.
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Bell Canada argued that, based on its survey of unserved premises, there were low predicted take rates for seasonal premises. Bell Canada submitted that this statistical evidence suggested that many occupants of seasonal premises have such premises to get away from the demands of everyday life, including the telephone. Bell Canada further submitted that the statistical evidence strongly supported the conclusion that permanent and seasonal premises had different social and economic requirements.
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15.
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Bell Canada submitted that in assessing the benefit received under the SIP, it was necessary to recognize that many of the seasonal localities currently defined as unserved made use of alternative forms of communications: cellular, radio-telephone, satellite or some other means.
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Position of the Consumer Groups
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16.
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The Consumer Groups submitted that while they supported the modification proposed in Bell Canada's application to review and vary Decision 2002-34, it did not go as far as they would propose. The Consumer Groups submitted that it was particularly inappropriate to use funds from the general subscriber base in order to provide telephone service to any vacation homes.
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17.
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The Consumer Groups submitted that there was substantial doubt as to the correctness of Decision 2002-34 regarding Bell Canada's SIP, to the extent that it required an inappropriate level of subsidization from the general subscriber base to entirely seasonal dwellings.
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Commission analysis and determinations
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18.
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The Commission considers that establishing, in Decision 2002-34, the same capital cost criteria of $25,000 for both permanent and seasonal premises for Bell Canada, Aliant Telecom, and TCI is consistent with other Commission decisions. In Long-distance competition and improved service for Northwestel customers, Decision CRTC 2000-746, 30 November 2000, the Commission approved capital cost criteria of $25,000 for both permanent and seasonal premises for Northwestel Inc. In Implementation of price regulation for Télébec and TELUS Québec, Telecom Decision CRTC 2002-43, 31 July 2002, the Commission approved the same capital cost criteria for Société en commandite Télébec and TELUS Communications (Québec) Inc. In Northern Telephone Limited - Service improvement plan, Order CRTC 2000-1096, 4 December 2000, the Commission approved capital cost criteria of $15,000 for both permanent and seasonal premises.
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19.
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The Commission considers that, in defining the BSO in Decision 99-16, it clearly established its intent to serve as many premises as feasible. The Commission considers that the directive in Decision 99-16 to generally target large communities or areas first, to serve unserved areas before underserved, and to serve permanent premises before seasonal, speaks to the order in which premises that qualify under a SIP are served within the SIP. These directives were to assist in achieving the objective of meeting the BSO for as many premises as feasible, with no distinction made between permanent and seasonal premises.
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20.
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In Decision 2002-34, the Commission furthered this objective by approving capital cost criteria which would ensure that service would be provided to as many unserved premises as was reasonably possible over the next four years. The Commission was fully aware that adopting a higher take rate and a higher capital cost criterion for seasonal premises than proposed in Bell Canada's original SIP would result in many more seasonal premises being included. The Commission notes that applying the approved take rate and capital cost criteria to the proposal that Bell Canada submitted in the proceeding leading to Decision 2002-34 shows that a significant number of localities that contained only seasonal premises would receive service.
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21.
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Furthermore, the Commission was well aware that the imposition of the $25,000 capital cost criteria for both permanent and seasonal premises would substantially increase Bell Canada's original SIP capital cost estimate of $31.2 million. The Commission stated in Decision 2002-34 that it was aware that the capital costs over four years, based on its criteria, would vary between $75.3 million and $137.2 million, depending on the take rate. The Commission notes that in its application, Bell Canada estimated that the capital costs of its revised SIP, which includes premises in purely seasonal localities, would be $127.8 million.
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22.
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The Commission notes that most of the localities in question where the average capital cost to serve premises is between $5,000 and $25,000 are located in HCSAs, and accordingly, costs are recovered through the national subsidy requirement, estimated to be about $272 million in 2002. The Commission finds that the $4.2 million estimated annual increase in Bell Canada's subsidy requirement that would flow from the difference between $78.5 million and $127.8 million in SIP capital expenditures would not alter the 2002 revenue-percent charge of 1.3%.
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23.
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In light of the above, the Commission findsthat Bell Canada has not demonstrated that there is substantial doubt as to the correctness of Decision 2002-34. Accordingly, the Commission finds that Bell Canada has not met the criteria set out in Guidelines for review and vary applications, TelecomPublic Notice CRTC 98-6, 20 March 1998, for a review and variance of a Commission decision. The Commission therefore denies Bell Canada's application to review and vary Decision 2002-34 as it relates to its SIP.
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Secretary General
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This document is available in alternative format upon request and may also be examined at the following Internet site: http://www.crtc.gc.ca
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Date Modified: 2003-06-27