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Telecom Decision CRTC 2003-57
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Ottawa, 22 August 2003
See also: 2003-57-1
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Société en commandite Télébec and TELUS Communications (Québec) Inc. 2002 annual price cap filings
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Reference: 8678-C12-14/02
TELUS Québec Tariff Notices 333 and 337/A
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In this decision, the Commission approves, with changes, applications filed by TELUS Communications (Québec) Inc. (TELUS Québec), proposing rate changes pursuant to Implementation of price regulation for Télébec and TELUS Québec, Telecom Decision CRTC 2002-43, 31 July 2002 and directs TELUS Québec to file further rate changes so as to meet its 2002 price cap commitment. The Commission approves the remainder of TELUS Québec's rates on a final basis. The Commission also approves Société en commandite Télébec's rates on a final basis.
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Introduction
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1.
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In Implementation of price regulation for Télébec and TELUS Québec, Telecom Decision CRTC 2002-43, 31 July 2002 (Decision 2002-43), the Commission established the price regulation regime applicable to Société en commandite Télébec (Télébec) and TELUS Communications (Québec) Inc. (TELUS Québec) (collectively, the Companies).
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2.
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In Decision 2002-43, the Commission directed the Companies to file their 2002 annual price cap filings, including updates to the price indices, on 1 October 2002. In Decision 2002-43, the Commission also made all of the Companies' tariffed rates interim, effective 1 August 2002, to ensure that the annual price cap period for 2002 reflected a full year, with the expectation that any rate changes approved for the Companies in order to meet their price cap commitment would become effective retroactive to that date.
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3.
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Pursuant to Decision 2002-43, TELUS Québec filed an application under
Tariff Notice 333 (TN 333), dated 1 October 2002, which proposed various tariff revisions to meet its 2002 price cap commitment.
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4.
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In addition, the Commission received an application by TELUS Québec, filed as Tariff Notice 337 (TN 337), dated 22 November 2002 and amended on
20 December 2002, where it proposed to restructure the rates for local business service.
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5.
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The Commission received a request from TELUS Québec, dated 7 March 2003, that
TN 333 and TN 337 be considered together, as both applications proposed rate changes to local business service.
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6.
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Télébec filed its first annual update to its service basket limits (SBLs) on 22 January 2003, but did not propose any rate changes at that time.
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7.
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The Commission received comments from Groupe Négotel Inc. (Négotel), dated 23 December 2002. Négotel objected, among other things, to the rate restructuring of local business service proposed by TELUS Québec in TN 337. The Commission also received comments from Mr. Jean-Guy Laberge, dated 23 January 2003, with respect to the proposed rate increases to TELUS Québec's SmartTouch services. TELUS Québec did not file reply comments.
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8.
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The Commission received a letter from TELUS Québec, dated 28 July 2003, expressing concerns regarding the negative impact on its customers that retroactive approval of the rate increases proposed in its 2002 annual price cap filing could have in view of the timing of this decision.
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TELUS Québec's applications
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9.
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In its applications, TELUS Québec proposed revisions to the following tariff items:
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- General Tariff, item 2.01, Basic service and Regional service; item 2.05, Directory listings; item 2.20, TELUS Québec's SmartTouch services; item 2.27, Residential bundles; item 4.04, Radio paging access service; item 4.05, Wireless access service; item 5.01, Digital network services and item 5.01.10, Large capacity digital network service; and
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- Access Services Tariff, item 1.01, Access services for interconnection with interexchange service providers; item 1.02, Access installation; item 1.03, Billing and collection service; item 1.04, Co-location for Canadian telecommunications carriers and high-speed internet service providers; and item 2.01, Basic listing interchange file (BLIF).
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10.
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In particular, TELUS Québec proposed the following changes to services within the residential local optional services in high-cost serving areas (HCSAs) sub-basket:
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- increase the monthly rates for the following features within TELUS Québec's SmartTouch services: Three-way calling, 8-code and 30-code Speed calling,
Call display (number), Call display (name and number), Call waiting, Ident-a-call, Call return, Call Forwarding, Call screen and Intercommunication by $1.00 for residential subscribers in HCSAs; and
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- increase the monthly rate for the Basic bundle by $1.45, the monthly rates for Intermediate bundle 1, Intermediate bundle 2 by $2.05 and the monthly rate for Intermediate bundle 3 by $2.50 for residential subscribers in HCSAs.
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11.
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TELUS Québec also proposed the following changes to services within the single-line and multi-line business local exchange services basket:
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- increase the monthly rate for local business service by 8.3% in Band A, 4.1% in Band B and 1.9% in Band C;
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- introduce 1-year and 3-year contract options at lower rates for local business service subscribers who choose TELUS Québec as their primary interexchange carrier, except for subscribers residing in the exchanges of Baie-des-Moutons, Bonne-Espérance, Chevery, Harrington Harbour, La Romaine, Lourdes-de-Blanc-Sablon, Port-Meunier, St-Augustin (Duplessis) and Tête à la Baleine, who would only be eligible for the non-contract rates. The rate reductions associated with the contract options would range between 1.4% and 7.6%; and
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- introduce a promotion whereby the processing charge and other charges would be waived for a period of four months following approval of the proposed contract options by the Commission.
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12.
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TELUS Québec submitted that the proposed tariff revisions would ensure that the service basket index (SBI) would not exceed the SBL for the single and multi-line business local exchange services basket.
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13.
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TELUS Québec also proposed the following changes to services within the other capped services basket:
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- decrease the monthly rate for Unlisted number service for residential subscribers from $4.45 to $2.00;
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- decrease the monthly rate for Non-published number service for residential subscribers from $4.45 to $2.00;
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- reduce the monthly rates of ProxiRéseau service for transmission speeds above 256 kilobits per second by amounts ranging from 10.0% to 20.8%; and
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- reduce the monthly rates for various components of Large capacity digital network service by amounts ranging from 3.3% to 4.0%.
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14.
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TELUS Québec submitted that the proposed tariff revisions would ensure that the SBI would not exceed the SBL for the other capped services basket.
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15.
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TELUS Québec also proposed to reduce rates for Category I Competitor services by the rate of inflation minus the productivity offset.
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16.
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TELUS Québec proposed that 1 August 2002 be the effective date for the proposed tariff revisions, with the exception of tariff revisions associated with Residential bundles and with its proposal in TN 337 to introduce contract options and to increase non-contract rates for local business service for which it proposed an effective date of 1 February 2003.
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17.
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TELUS Québec filed imputation test results by band in support of the proposed rate decreases to local business service. In support of the proposed rates for Unlisted number service and Non-published number service for local residential service subscribers, TELUS Québec stated that the proposed rates were identical to the rates approved for the large incumbent local exchange carriers (ILECs) and were filed pursuant to the concerns expressed by the Commission relative to Unlisted number service in Decision 2002-43. With respect to the proposed rates for Large capacity digital network service and ProxiRéseau service, TELUS Québec noted that market conditions had changed considerably and that market rates for digital private line services were decreasing.
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18.
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TELUS Québec submitted that the proposed rate revisions complied with all of the pricing constraints set out in Decision 2002-43 and would ensure that it met its price cap obligations for 2003.
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19.
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As noted above, TELUS Québec was concerned about its customers' reaction if the rate increases that it proposed were to be approved on a retroactive basis.
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Négotel's and Mr. Laberge's comments
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20.
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Négotel objected to the rate restructuring of TELUS Québec's local business service proposed under TN 337. Négotel argued that the increases to the monthly rates for local business service would result in customers migrating to a long term contract in order to avoid a rate increase. Négotel was of the view that this would ensure TELUS Québec retained its local business customers, thereby hindering competition.
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21.
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Mr. Laberge objected to the proposed rate increases to TELUS Québec's SmartTouch services for residential subscribers in HCSAs and to the fact that the proposed rates could apply on a retroactive basis. Mr. Laberge noted that TELUS Québec was the sole provider of these services.
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Commission analysis
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Costing Issues
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22.
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In Commission approves terms and conditions for local exchange and local payphone competition in the territories of TELUS Communications (Québec) Inc. and Télébec ltée, Order CRTC 2001-761, 3 October 2001, the Commission found it appropriate to subject TELUS Québec and Télébec to the same local competition rules that were in place for the large ILECs. In Local competition, Telecom Decision
CRTC 97-8, 1 May 1997, the Commission directed the large ILECs to file imputation test results with all tariff applications regarding the introduction of new services or proposing explicit or implicit price decreases.
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23.
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The Commission notes that the average of the proposed rates is higher than the current rate for local business service in each of TELUS Québec's three rate groups. As noted above, the current regulatory regime does not require that imputation test results be filed in support of proposed rate increases. Consequently, the imputation test results filed by TELUS Québec in support of the proposed rates for local business service were not considered.
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24.
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In Télébec and TELUS Québec - Rates for unlisted number service, Telecom Decision CRTC 2003-40, 20 June 2003 (Decision 2003-40), the Commission directed
TELUS Québec to reduce the rate for Unlisted number service for residential subscribers to $2.00. For that reason, the Commission considers that it would not be appropriate to require TELUS Québec to file cost studies and imputation test results in support of the proposed rate reductions to Unlisted number service and Non-published number service for residential subscribers.
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25.
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The Commission agrees with TELUS Québec that market conditions have resulted in rates reductions for digital private line services subscribers of the large ILECs. The Commission considers that the rates proposed by TELUS Québec for Large capacity digital network service and ProxiRéseau service would likely exceed the costs associated with the provision of the similar services by the large ILECs. Accordingly, the Commission considers that the proposed rates for these services are likely to recover the associated costs.
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26.
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As noted above, the regulatory framework applicable to the large ILECs, Télébec and TELUS Québec would require the Companies to file imputation test results with all tariff applications regarding the introduction of new services or proposing explicit or implicit price decreases. The Commission acknowledges, however, that it might be difficult for the Companies to file imputation test results and the associated cost studies in respect of access services until a decision has been issued in the proceeding initiated by Implementation of competition in the local exchange and local payphone markets in the territories of Télébec and TELUS (Québec), Public Notice CRTC 2001-69,
14 June 2001. In that decision, the Commission expects to issue its determinations on Télébec's and TELUS Québec's Phase II costs for local loops and local exchange services. Consequently, the Commission considers it appropriate, as an interim measure, to evaluate Télébec's and TELUS Québec's applications for access services on a case-by-case basis, using alternate costing support submitted by the companies.
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27.
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The Commission concludes that Télébec and TELUS Québec should file cost studies and imputation test results or alternate costing support, whichever is appropriate depending on the type of service, when filing tariff applications to introduce a new service or to propose implicit or explicit rate reductions to an existing service.
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Compliance with the pricing constraints set out in Decision 2002-43
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28.
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In Decision 2002-43, the Commission applied a number of basket and rate element constraints to services in the residential local services in HCSAs and non high-cost serving areas (non-HCSAs), the single-line 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.
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29.
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In Decision 2002-43, the Commission determined that Télébec would receive a transitional subsidy from the national contribution fund to cover its residual going-in revenue requirement shortfall. In Decision 2002-43, the Commission determined that, for Télébec, it would suspend the application of the inflation minus the productivity constraint to the basket of residential services in non-HCSAs and the basket of other capped services. The Commission also determined, in Decision 2002-43, that the rate element constraints applicable to services in these baskets and the basket and rate element constraints applicable to services in the single-line and multi-line business local exchange services basket would remain in place for Télébec. The Commission notes that, as a result, Télébec was not required to file rate reductions to meet its price cap obligations for 2002.
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Residential optional local services in HCSAs
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30.
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In Decision 2002-43, the Commission concluded that increases to the monthly rates for residential optional local services in HCSAs should not exceed $1.00 per feature per year but that this limit would not apply to the prices of service bundles that included a residential local exchange service or a residential optional local service.
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31.
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The Commission notes that the proposed increases to the monthly rates of TELUS Québec's SmartTouch services do not exceed the limit of $1.00 per feature per year. The Commission considers that the proposed increases to the rates for Residential bundles are consistent with Decision 2002-43 where the Commission determined that prices for these services were not to be capped.
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Business local services
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32.
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The pricing constraints that apply to services in the single-line and multi-line business local primary exchange services basket include:
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- a basket constraint, operating through the SBL for that basket, which must be updated annually by the rate of inflation;
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- a rate element constraint limiting rate increases to a service by 10% per year; and
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- 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 services should not generally be permitted to be further de-averaged within a band.
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33.
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The Commission findsthat the proposed increases to the monthly rates for local business service in Bands A, B and C do not exceed the rate element constraint of 10%.
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34.
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The Commission notes that in Follow-up to Implementation of price regulation for Télébec and TELUS Québec, Telecom Decision CRTC 2002-43 - Service basket assignment, Telecom Decision CRTC 2003-56, 21 August 2003 (Decision 2003-56), it determined that Radio paging access service should be classified as a competitor service rather than to the single-line and multi-line business local exchange services basket as proposed by TELUS Québec. Consequently, the revenues allocated to the single-line and multi-line business local exchange services basket will be lower than was assumed by TELUS Québec. For this reason, TELUS Québec's proposal to increase local business service rates in TN 333 would result in the SBI being above the SBL, in contravention of the constraint on the single-line and multi-line business local exchange services basket.
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35.
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The Commission notes that the tariff revisions proposed by TELUS Québec in TN 337 would result in a small increase in revenues. The Commission finds these tariff revisions would further increase the SBI above the SBL. The Commission further notes that the rate reductions associated with the proposed business local service contract options can only be implemented on a prospective basis.
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36.
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In light of the above, the Commission is not approving the proposed tariff revisions since they would violate the constraint on the single-line and multi-line business local exchange services basket for the 2002 price cap period.
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37.
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However, in view of the date that this decision is being issued, the Commission considered that, on an exceptional basis, it would assess whether the proposed tariff revisions are in compliance with the constraint on the single-line and multi-line business local exchange services basket for the 2003 price cap period.
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38.
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The Commission notes that as of 1 August 2003, the SBL for the single-line and multi-line business local exchange services basket should have been adjusted by the rate of inflation, as measured by the year over year change in the gross domestic product price index.
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39.
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The Commission finds that the tariff revisions to business local service proposed in
TN 333 and TN 337 would result in the SBI being lower than the SBL for the single-line and multi-line business local exchange services basket and thus in compliance with that basket constraint for the 2003 price cap period.
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40.
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With respect to Négotel's comments, the Commission notes that it has already approved similar business local service contract options for other ILECs, including Bell Canada and TELUS Communications Inc.
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41.
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The Commission notes that in Review of promotions, Telecom Public Notice
CRTC 2003-1-1, 13 March 2003, it suspended consideration of applications for ILEC promotions in the local wireline market until a decision is issued on the matters raised in that Public Notice. Accordingly, the Commission will consider TELUS Québec's proposal to introduce a promotion for subscribers to the new contract options for local business service at a later date.
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Other capped services
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42.
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The pricing constraints which apply to services in the other capped services basket include:
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- a basket constraint, operating through the SBL for that basket, which must be updated annually by the rate of inflation less the productivity offset;
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- a rate element constraint limiting rate increases for a service to 10% per year; and
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- 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 the rates for other capped services should not generally be permitted to be further de-averaged within a band.
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43.
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The Commission notes that as TELUS Québec proposed no price increases to other capped services, the rate element constraint limiting rate increases for a service to 10% per year is not pertinent. The Commission's assessment is therefore limited to determining whether the proposed tariff revisions are sufficient to ensure compliance with the basket constraint on other capped services.
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44.
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The Commission notes that it is concerned that, in a number of instances, the price cap model filed by TELUS Québec included proposed rates lower than those in its proposed tariff pages. The Commission finds that if the proposed tariff revisions had been reflected in the price cap model, they would have resulted in the SBL being lower than the SBI, in contravention of the basket constraint on other capped services.
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45.
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In Decision 2003-40 the Commission determined that the reduction in revenues associated with the mandated rate reduction to Unlisted number service for residential subscribers would not qualify as an exogenous factor adjustment. The Commission considers that TELUS Québec's proposal to have the revenue reduction associated with the $2.00 rate for Unlisted number service for residential subscribers considered as part of the revenue reduction required by the basket constraint on other capped services is exactly what TELUS Québec would have been allowed to do had the Commission determined in Decision 2003-40 that the mandated rate reduction to Unlisted number service for residential subscribers would qualify as an exogenous factor. As a result, the Commission concludes that the revenue loss associated with that rate reduction should not qualify towards enabling TELUS Québec to comply with the basket constraint on other capped services. Accordingly, further rate reductions to other capped services will be required.
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46.
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The Commission determined in Decision 2003-56 that Unlisted number service for residential subscribers should be classified to the group of services with frozen rates rather than to the other capped services basket as proposed by TELUS Québec. In
Decision 2003-56, the Commission also added a significant number of services to
TELUS Québec's other capped services basket. The Commission notes that these changes will affect the revenues allocated to the other capped services basket and consequently, the revenue reduction required by the basket constraint. This, in turn, will have an impact on the rate reductions required to other capped services.
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47.
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In light of the above, the Commission finds that the proposed rate decreases to
Non-published number service for residential subscribers, ProxiRéseau service and Large capacity digital network service are insufficient for TELUS Québec to comply with the basket constraint on other capped services. Taking into consideration the Commission's determinations in the preceding paragraphs, TELUS Québec will have to make further rate reductions to other capped services retroactive to 1 June 2002. The Commission is therefore not prepared to approve the rates for other capped services on a final basis at this time.
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Services with frozen rates
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48.
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As noted above, the Commission directed Télébec and TELUS Québec to reduce the rate for Unlisted number service to $2.00 for local residential service subscribers in Decision 2003-40. The Commission finds that TELUS Québec's proposal to reduce the rate for Unlisted number service is in compliance with that Commission's directive.
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Competitor services
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49.
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In Decision 2002-43, the Commission established two categories of services within the competitor services group. The first category comprised those services that are in the nature of an essential service (Category I competitor services). The second category comprised other services developed for use by telecommunications service providers (Category II competitor services).
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50.
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The Commission noted in Decision 2002-43 that the Companies offered a number of services comparable to the services classified as competitor services in Decision 2002-34 and that the rates for most of the Companies' competitor services were based on approved rates for either Bell Canada or TELUS Communications Inc. In Decision
2002-43, the Commission also found that, similar to the other ILECs, the Companies were likely to experience productivity and efficiency gains with respect to the provision of Category I competitor services and determined that rates for these services should reflect productivity gains on an ongoing basis. The Commission determined, in Decision 2002-43, that a rate element constraint equal to the rate of inflation less the productivity offset should apply to the rates for Category I competitor services.
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51.
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The Commission also noted in Decision 2002-43 that the rates for Category II competitor services were either mandated or market-based and were based on considerations in addition to, or other than, Phase II costs. In Decision 2002-43, the Commission determined that the rates for services that classified as Category II competitor services should be capped at existing rate levels.
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52.
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The Commission notes that TELUS Québec proposed reductions equal to inflation less the productivity offset, at the individual rate element level, to the rates for the services it classified as Category I competitor services. The Commission finds, however, that
TELUS Québec did not consistently apply the rate element constraint applicable to Category I competitor services to the service charges associated with those services. In Decision 2003-56, the Commission determined that Basic listing interchange file (BLIF) and Universal voice messaging service should also be assigned as Category I competitor services. The Commission considers that, with the exception of labour rates and the rate for Equal access start-up costs, all rates for Category I competitor services should be reduced by inflation less the productivity offset in compliance with the rate element constraint established in Decision 2002-43.
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53.
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The attachment to this decision sets out the Commission's determinations with respect to the rates for Category I competitor services not addressed by TELUS Québec.
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Commission determinations
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54.
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In light of the foregoing:
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- the Commission approves on a final basis the proposed tariff revisions to TELUS Québec's SmartTouch services and Residential bundles for local residential service subscribers in HCSAs, Unlisted number service, Non-published number service and local business service, with the exception of tariff revisions related to introduction of a promotion for local business subscribers subscribing to the new contract options for that service;
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- the Commission approves on an interim basis the proposed tariff revisions for ProxiRéseau service and Large capacity digital network service;
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- the Commission approves on a final basis the proposed tariff revisions for Trunk-side interconnection, Network recorded announcement for customers of disconnected IXSPs with trunk-side access, Bulk transfer of customer base between IXSPs with feature group D service, Compensation per call, Billing and collection service, Co-location for Canadian telecommunications carriers and
high-speed Internet service providers, Basic listing interchange file and the other rates for Category I competitor services set out in the attachment to this decision;
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- the Commission approves on a final basis the remainder of
TELUS Québec's rates, other than the rates for services in the other capped services basket, which are to remain interim;
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- the Commission directs TELUS Québec to re-file its 2002 annual price cap model updating the services in each basket in accordance with the Commission's determinations in Decision 2003-56 and to file, within 30 days of this decision, tariff revisions to comply with the basket constraint on other capped services for the 2002 annual price cap period;
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- the Commission directs that the approved rates, excluding the following exceptions, are to take effect on 1 August 2002. The proposed rate changes to local business service, including the new contract options, are to take effect on the date of this decision. The proposed rate increases to TELUS Québec's SmartTouch services are to take effect at a date to be determined by TELUS Québec, which is to be no earlier than 1 August 2002. The proposed rate increases to Residential bundles are to take effect at a date to be determined by TELUS Québec, which is to be no earlier than 1 February 2003;
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- the Commission directs TELUS Québec to issue revised tariff pages forthwith;
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- the Commission directs TELUS Québec to provide all customers affected by the rate reductions approved in this decision with rebates forthwith; and
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- the Commission approves on a final basis Télébec's rates.
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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: 2003-08-22