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Telecom Decision CRTC 2003-64
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Ottawa, 25 September 2003
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Follow-up to price cap Decision 2002-34: TELUS' revised service improvement plan
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Reference: 8638-C12-73/02
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The Commission approves a revised service improvement plan of $21.4 million for TELUS to be completed by 2006.
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1.
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The Commission received an application dated 13 September 2002 by TELUS Communications Inc. (TELUS), pursuant to Regulatory framework for second price cap period, Telecom Decision CRTC 2002-34, 30 May 2002 (Decision 2002-34) proposing a revised service improvement plan (SIP). TELUS estimated that its revised SIP would cost $13.3 million based on a revised four-year roll-out plan. TELUS updated its revised SIP on 2 May 2003, increasing the total of the proposed SIP to $20.8 million, due to additional capital expenditures in Alberta. On 9 May 2003, TELUS filed minor corrections to its revised SIP and on 14 May 2003, TELUS amended the cost of its toll-free Internet access project.
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2.
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The Commission received no comments regarding this 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 features and the capability to connect via low-speed data transmission to the Internet at local rates. The Commission then set three goals: (i) to extend service to the few areas that are unserved; (ii) to upgrade service levels in those areas where customers do not have access to telecommunications services that meet the BSO; and (iii) to maintain service levels, and ensure that existing levels do not erode under competition.
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4.
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In Decision 2002-34, the Commission approved a SIP for TELUS of $10.6 million and directed TELUS to refile its SIP based on a four-year roll-out period. The Commission also established a framework that should be applied when extending service to unserved premises. Specifically, the Commission approved, among other things, a maximum capital cost criteria of $25,000 for both permanent and seasonal premises, including a $1,000 customer contribution and the use of a 100% take rate in each locality for calculating the total capital cost of the SIP.
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TELUS' submission
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5.
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On 2 May 2003, TELUS proposed a $20.8 million SIP consisting of $9.65 million for service to unserved communities, $8.7 million for service to previously unserved individuals, $0.7 million for service due to growth and $1.7 million for upgrades to nine communities for local access to the Internet. TELUS later amended this last amount from $1.7 to $0.3 million.
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Unserved communities
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6.
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In its revised SIP, TELUS listed 61 communities in British Columbia (B.C.) and Alberta that were without service. TELUS proposed to provide service to 35 of these communities under its revised SIP. TELUS identified eight communities that were technically eligible for the SIP, but had not been included. TELUS identified seven communities that had not been included since they would be better served under the service extension program (SEP) currently in effect in B.C. TELUS submitted that 11 communities were ineligible for its SIP because the average capital cost per dwelling exceeded the $25,000 capital criterion.
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7.
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TELUS submitted that the eight communities that were technically eligible for the SIP would not receive service due to the $10.6 million limit approved by the Commission in Decision 2002-34. TELUS stated that the capital cost to extend service to these eight communities would be $1.354 million. TELUS stated that it selected these eight communities based on their relative low demand, high capital cost per dwelling ratio, and in some cases, the need for higher-cost technologies. TELUS proposed to track and report the status of the costs and demand in these communities as part of its annual SIP tracking plan. TELUS noted that should any of the communities proposed for service under its SIP choose not to accept service, it would look to replace that community with one of these additional eight communities.
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8.
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TELUS submitted that its SEP, the currently tariffed plan to provide service to unserved premises in B.C., had a different costing formula from that used for the SIP. Under the SEP, TELUS would assume 100 percent of the first $2,000 in capital associated with providing service to an unserved customer. The customer would be responsible for 20 percent of the next $9,000 in capital cost to a maximum of $1,000. As a result, for the first $11,000 in capital costs, the customer would be responsible for $1,000 and TELUS for $10,000. The customer would then be responsible for 100 percent of any capital costs beyond $11,000.
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9.
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TELUS submitted that there were seven unserved communities in B.C. where provision of service was estimated at $672,000 in capital expenditures.TELUS had not included these communities in its SIP since, in TELUS' submission, these unserved customers would be better served under the SEP in terms of their capital contribution. As a result, TELUS proposed to notify these seven communities of their option and cost contribution under the SEP to obtain service, and to handle any requests for service from these communities as part of TELUS' current SEP order and provisioning process.
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10.
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Of the 61 unserved communities in Alberta and B.C., TELUS submitted that 11 communities were ineligible for the SIP because the capital cost per dwelling for these communities exceeded the $25,000 limit.
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11.
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TELUS stated that the communities in question would be informed of the option to participate under the SIP by means of the instalment option for large construction charges. Furthermore, on a going-forward basis, TELUS stated that it will advise any new unserved customers whose request for service exceeds $25,000 of their option to pay by means of one of the large construction charges instalment plans.
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Commission analysis and determination
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12.
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In Decision 2002-34, the Commission determined criteria for the SIP that would ensure that service would be provided to as many unserved premises as reasonably possible over the following four years. In Decision 2002-34, the Commission approved a SIP for unserved premises in TELUS territory of $10.6 million in capital expenditures and stated that it would review progress on a yearly basis to determine whether additional capital was required.
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13.
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Based on the objectives established in Decision 2002-34, the Commission finds that the eight communities identified by TELUS as costing $1.354 million must be added to its SIP. The Commission considers that the communities in question should be included in the SIP now since they meet the criteria and the additional expenditures fully comply with the directives in Decision 2002-34.
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14.
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The Commission notes that, from TELUS' evidence, only four of the seven communities in B.C. that TELUS suggested remain in the SEP would be better served under the SEP. In those four communities, the costs per customer would be less than $1,000. In the other three communities, the customers would have to contribute $1,000.
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15.
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In Decision 2002-34, the Commission determined that during the period of the SIP, for localities where outside plant had already been installed before the commencement of the SIP, each new customer who requested service in that locality was to have a choice between the lesser of a contribution cost calculated pursuant to a current tariff, or $1,000, assuming a capital cost limit of $25,000. The Commission did not address whether the same choice should be available to each new customer in an unserved B.C. locality.
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16.
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The Commission finds that including this choice in the SIP in the B.C. localities in question would be consistent with the Commission's objective of serving as many premises as possible through the SIP. The Commission considers that the same choice should apply to all unserved localities in B.C. where the customer contribution should be the lesser of a contribution cost calculated pursuant to a current tariff, or $1,000, assuming a capital cost limit of $25,000.
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17.
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The Commission considers that the seven additional communities in B.C. are to be included in TELUS' SIP for an estimated capital cost of $0.7 million and that, as in other unserved B.C. localities, the customer contribution is to be based on the lesser of the current SEP tariff or $1,000.
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18.
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The Commission considers that TELUS' proposal to notify those 11 communities deemed ineligible under the SIP cost criteria is appropriate. The Commission intends to monitor the number of customers who continue to be unserved because of cost using the annual tracking report established in Decision 2002-34.
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Unserved individuals in Alberta
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19.
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TELUS noted that according to Decision 2002-34 it was required to make available to unserved individuals, where it had facilities in place, the lower of either the SIP or the current tariffed arrangements. TELUS stated that currently under its tariff, the capital that an unserved individual would contribute towards service would depend on whether he lived within a base rate area or not. TELUS stated that areas in which it had facilities were generally those within its operating exchange boundaries (OEB). Those within a base rate area would not contribute capital towards the cost of their service unless there were unusual costs associated with providing service. TELUS stated that under its tariff, unserved individuals beyond the base rate area but still within its OEB would contribute, under the Individual Line Service (ILS) program, an amount of $560 either up front or in monthly installments over a 36-month period. TELUS stated that individuals who lived beyond an OEB would pay full construction costs for any facilities required beyond the OEB.
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20.
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TELUS submitted that the existing ILS tariff should continue to apply where there are facilities to individual customer locations e.g., for the provision of second lines to customers outside of TELUS' base rate area who have already received service under the ILS program. However, TELUS submitted that, where new facilities have to be constructed beyond the base rate area and where the cost of these facilities is up to $25,000, it would be consistent with the objectives of the SIP program to consider all requests for service as eligible for SIP funding. In this way, TELUS submitted that all customers beyond the base rate area, including customers that are beyond the OEB, would be treated in the same non-discriminatory manner.
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21.
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TELUS stated that a customer currently receiving ILS in Alberta would have paid $560 in contribution for the initial access line and would have to pay an additional $560 for a second line, for a total contribution of $1,120 for the two lines. TELUS stated that a customer receiving service beyond the base rate area under the SIP proposal would contribute $1,000 and could receive service for two access lines. Accordingly, TELUS submitted that the lesser contribution is $1,000 and this amount should be charged to customers under the SIP program. However, TELUS proposed that customers that would have placed orders for service by 1 June 2003 would contribute $560 consistent with the current tariff.
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22.
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For requests from customers who live beyond the OEB, TELUS proposed to assess the customer's contribution according to the SIP methodology. For past requests for service by customers beyond the OEB that were declined due to cost since Decision 99-16 was issued, TELUS stated that it would contact the customers, recalculate the cost of their service under SIP, and advise them accordingly. TELUS estimated that it would cost $2.5 million annually or an additional $7.5 million for its SIP to include service to the premises beyond the base rate area and beyond the OEB over a three year period 2003-2005.
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Commission analysis and determination
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23.
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When the Commission, in Decision 99-16, directed TELUS to file a SIP, its objective was to provide service to as many Canadians as possible. The BSO clearly established that service as comprising, among other things, an individual line. The Commission considers that the provision of second lines is outside the scope of the SIP and that second lines should be provided under existing tariffs.
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24.
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In Decision 2002-34, the Commission determined that during the period of the SIP, for localities where outside plant had already been installed before the commencement of the SIP, each new customer that requested service in that locality was to have a choice between the lesser of a contribution cost calculated pursuant to a current tariff, or $1,000, assuming a capital cost limit of $25,000. The Commission considers that the inclusion of the $7.5 million capital cost estimate in TELUS' SIP is appropriate and reiterates its finding in Decision 2002-34 that TELUS is to charge customers in localities where outside plant was installed before the commencement of the SIP the lesser of the tariff or $1,000 when providing service to customers.
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25.
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The Commission considers that it would not be suitable to impose any time constraints or to make any differentiation in contribution required based on the time of the request for service since the SIP is a four year program, aimed at providing service to as many as possible.
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Unserved individuals in B.C.
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26.
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TELUS stated that the situation for determining where the company had facilities in B.C. differed from that in Alberta. TELUS stated that it did not define base rate areas or OEBs in B.C. as it did in Alberta. Rather, TELUS stated that the cost to provide service to unserved individuals was currently calculated based on the company's SEP.
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27.
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TELUS estimated that since the issuance of Decision 99-16, there had been approximately 400 requests for service from individuals in B.C. in which the individuals were provided quotes under SEP but chose not to subscribe. All these requests involved installation costs in excess of the $11,000 threshold under SEP. Under the SIP criteria, TELUS estimated that the total cost of providing service to those unserved individuals where TELUS had facilities in B.C. and where the cost was in excess of $11,000, but less than $25,000, would be approximately $1.2 million. TELUS included the estimated $1.2 million in its SIP but argued that the cost to serve these dwellings typically represented a far higher level of capital investment per dwelling and higher risk of stranded investment relative to similar household located in unserved communities.
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28.
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Based on previous requests for service under SEP, TELUS also forecasted approximately 28 requests from individuals in unserved areas where the cost of service would exceed the $11,000 SEP threshold but could be eligible under the SIP threshold of $25,000. Assuming the average capital cost to serve each of these individuals was $25,000, TELUS estimated the additional cost of providing service under its SIP would be $700,000over four years. TELUS included the estimated $700,000 in its proposed SIP.
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29.
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On a going-forward basis in B.C., for new service requests from individuals who do not reside in one of the communities listed in the SIP, TELUS proposed to adopt a working definition of "where the Company has already installed outside plant before the commencement of the SIP" as being two power pole spans. That is, TELUS stated that for new service requests during the SIP term that come from customers within two power pole spans of TELUS' existing facilities in B.C., TELUS would apply the lesser of the SIP or the SEP. TELUS noted that removing the option of the SEP from these individuals could add to the customers' cost for service in those instances where the total capital cost to provide service is less than $7,000. TELUS submitted that it would not be in these customers' best interest to remove a program (i.e., the SEP) that would see them pay less than they would under the SIP. For new service requests during the SIP term that come from customers beyond two power pole spans of TELUS' existing facilities, TELUS would apply the SEP only.
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30.
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As directed in Decision 2002-34, TELUS proposed to notify those individuals who had declined service due to cost since Decision 99-16 and to report the results in its annual tracking report. For both Alberta and B.C., TELUS anticipated initiating this contact before the end of 2002.
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Commission analysis and determination
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31.
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The Commission notes that TELUS argued against including the additional $1.2 million for the 400 unserved premises that did not subscribe to its SEP in the past. The Commission recognizes that there is some risk of a high level of capital investment per dwelling and stranded investment, as well as a low revenue potential for the premises in question. However, the Commission notes that TELUS will be fully compensated for the costs associated with the capital expenditures in question, either through its total subsidy requirement (TSR) for its high-cost serving areas (HCSAs) or its deferral account for non-HCSAs. The Commission considers it appropriate that TELUS has included the $1.2 million capital expenditure in its SIP proposal.
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32.
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In Decision 2002-34, the Commission ruled that customers in localities where the company has already installed outside plant before the commencement of the SIP, each new customer that requests service in that locality is to have a choice between the lesser of a contribution cost calculated pursuant to the tariff (SEP), or $1,000, assuming a capital cost limit of $25,000. As set out in paragraph 16 of this decision, the Commission considers that the same choice should apply to all unserved localities in B.C. Having considered the foregoing, the Commission directs that during the next four years, unserved customers in B.C. are to pay the lesser of a contribution cost calculated pursuant to the SEP, or $1,000, assuming a capital cost limit of $25,000.
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Revised total capital for the unserved portion of the SIP
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33.
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In light of the foregoing, the Commission approves an adjusted total for the unserved portion of TELUS' SIP as follows:
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a) 35 unserved communities from TELUS' proposal
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$9.65 million
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b) 8 communities that TELUS proposed to delay
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$1.35 million
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c) 7 communities from the SEP
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$0.672 million
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d) 400 unserved individuals in B.C. who had not
subscribed in the past (SEP)
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$1.2 million
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e) estimated growth - 28 additional unserved
individuals (SEP)
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$0.7 million
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f) unserved individuals in Alberta
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$7.5 million
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Total for 50 communities plus individuals (rounded)
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$21.1 million
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Roll-out plan
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34.
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In its original SIP filed on 15 March 2001, TELUS proposed a five-year roll-out period 2002-2006. In its revised SIP of 13 September 2002, TELUS proposed a four-year roll-out period 2003-2006, notwithstanding the Commission's directive in Decision 2002-34 to implement a four-year roll-out period 2002-2005. TELUS stated that due to the date by which Decision 2002-34 was issued (30 May 2002), and the fact that none of the proposed SIP capital expenditures were made in 2002, 2003 would be the first year of the SIP in terms of actual construction activity.
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Commission analysis and determination
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35.
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In Decision 2002-34, the Commission approved a four-year roll-out period 2002-2005 for Aliant Telecom Inc., Bell Canada, and TELUS, which was consistent with the price cap period. The Commission notes that TELUS has proposed to shift its roll-out period by one year to 2003-2006.
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36.
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The Commission recognizes that TELUS did not commence its SIP in 2002. In this decision the Commission extended the scope of TELUS' SIP to include additional construction. The Commission considers there is a risk that TELUS would not be able to complete the expended SIP 2005. The Commission finds that the one-year shift is reasonable. The Commission approves TELUS' proposed roll-out of 2003-2006.
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37.
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The Commission directs TELUS to revise the SIP period to 2003-2006 in Tariff 21416 item 204 and to file tariff pages forthwith.
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Priority
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38.
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In determining the priority for service provision within its SIP, TELUS submitted that it had assigned: (i) the same priority to seasonal premises as permanent premises; (ii) a higher priority to localities with a low capital cost per dwelling than localities with a high capital cost per dwelling; and (iii) a higher priority to localities that requested service before other localities that only recently requested service.
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39.
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Based on the above factors, and an approved SIP capital cost of $10.6 million, TELUS provided a revised SIP roll-out plan by eligible community and by year. TELUS noted that this list was substantially different than the one provided in its original SIP filed during the proceeding leading to Decision 2002-34. TELUS submitted that this difference was largely due to the inclusion of communities with a sizeable number of seasonal and temporary dwellings, which had not been considered in its original SIP.
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Commission analysis and determination
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40.
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In Decision 99-16, the Commission directed that the SIP be designed, subject to network and cost limitations, to target larger communities first and to serve permanent dwellings before seasonal ones. The Commission considers that the design priorities employed by TELUS do not meet these requirements.
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41.
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Although the Commission, in Decision 2002-34, approved the same capital criteria for permanent and seasonal premises, it did not change the priorities that it established in Decision 99-16. For example, localities comprised entirely of permanent premises should receive service before localities comprised entirely of seasonal premises.
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42.
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The Commission directs TELUS to redesign its roll-out plan to comply with the Commission's directions with respect to service priority within 30 days of this decision, filing a copy with the Commission. The Commission also directs TELUS to commence construction work as planned in 2003, and not to cancel or reschedule any project that is currently underway or soon will be underway such that the roll-out schedule is jeopardized.
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Service requests in SIP communities beyond the cut-off date
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43.
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For future service requests in communities that have already received service under the SIP, TELUS proposed to make the SIP available to the residents making those requests for a period of three years after the date in which it commenced construction in that community. For example, TELUS submitted that if 12 residents in a community of 17 demand service under the SIP, and TELUS commenced construction on 15 March 2004, the remaining residents in that community, as well as any future residents who might move into the community after that date, would be eligible for service under the SIP until 15 March 2007. After that date, TELUS stated that its current tariff (SEP in B.C. and ILS in Alberta) would apply.
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Commission analysis and determination
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44.
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The Commission notes that it plans to review the price cap framework in the final year of the current four-year price cap period (2002-2005). The Commission notes that its intent in Decision 2002-34 is that all SIP construction should be completed within the final year of the SIP, unless there are special circumstances.
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45.
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The Commission notes that there are special circumstances in TELUS' SIP. The roll-out period of 2003-2006 is no longer concurrent with the price cap period of 2002-2005. In the next price cap review, the Commission may well consider whether new SIPs are required for the period 2006 onwards. The Commission considers that, until that time, it would be premature to approve SIP construction after 2006. The Commission therefore directs TELUS not to accept requests for service under its current SIP unless the request is made and the customer contribution paid before the end of 2006.
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Underserved communities
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46.
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In Decision 2002-34, the Commission approved TELUS' proposal to provide toll-free Internet access in the following nine communities in B.C.: Bella Bella, Granisle, Greenville, Hemlock Valley, Kitkatla, Kitwanga, Klemtu, Stewart and Zeballos. The Commission concluded that the estimated costs were reasonable, and expected that TELUS would complete these upgrades by the end of 2003. In its revised SIP, TELUS submitted that the estimated cost to serve Greenville had increased from $32,000 to $1.49 million.
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47.
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In its letter dated 14 May 2003, TELUS submitted that there had been changes to the estimated project costs for Greenville and Kitkatla. Specifically, TELUS stated that the estimated cost had decreased from $1.49 million to $15,000 for Greenville, and had increased from $39,000 to $65,000 for Kitkatla due to revisions in TELUS' planning.
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Commission analysis and determination
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48.
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The Commission approved an estimated cost of $32,000 for Greenville in Decision 2002-34. The Commission notes that with the decrease from $32,000 to $15,000 for Greenville and the increase from $39,000 to $65,000 for Kitkatla, there is a net increase of $9,000. As a result of the latest changes, the Commission estimates that the total cost to provide toll-free Internet access in the nine communities in question has increased from $287,000 to $296,000. The Commission finds that this increase is not significant. The Commission approves the revised total of $296,000.
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49.
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The Commission therefore approves a total SIP for TELUS of $21.4 million as follows:
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a) Subtotal for unserved premises
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$21.1 million
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b) Subtotal for underserved premises (rounded)
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$0.3 million
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Total of TELUS' SIP
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$21.4 million
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Service charges
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50.
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TELUS noted that the costs identified in its SIP proposal only related to the capital costs associated with providing service to those communities. For clarity, TELUS submitted that customers would be informed that in addition to SIP costs, it would be charging other administrative, service, and construction charges as applicable pursuant to its tariff. Pursuant to its tariff, these service charges currently apply in addition to the ILS in Alberta and SEP charges in B.C.
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51.
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TELUS stated that a new customer in Alberta who requested service in a dwelling that already had facilities would be assessed a one-time data processing service charge of $18 and an office connection service charge of $17 in order to activate the new service. TELUS stated that these service charges would also apply if TELUS had to provision new facilities to the customer's location (i.e., if the dwelling was not previously served), and would be in addition to any capital contributions that the customer would have to make.
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52.
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TELUS argued that not charging the appropriate service charges to SIP customers would not only leave TELUS with a cost shortfall relative to the administrative costs associated with activating service, but would also provide SIP customers with an undue preference relative to non-SIP customers in similar situations who are assessed these service charges under Commission-approved tariffs.
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53.
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TELUS also submitted that, according to its tariffs, the customer has the responsibility to provide the poles, conduits or trenching required on his property to allow TELUS to place its facilities from the customer's property line to the service provider demarcation point. TELUS stated that the customer has the option to either hire an outside contractor or to pay TELUS for the work. TELUS intended to apply these tariff requirements to SIP customers.
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Commission analysis and determination
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54.
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In Decision 99-16 and Decision 2002-34, the Commission established an unserved customer contribution of $1,000 to the capital cost of providing telephone service. The Commission did not address administrative and service charges in those decisions. The administrative and service charges in question are not a contribution to capital, but relate to the expense incurred to activate a line. The Commission considers that new SIP customers should be treated in the same manner as other new customers regarding the activation of new lines. The Commission directsTELUS to bill administrative and service charges to its new SIP customers according to its tariffs.
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55.
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Regarding construction costs incurred on private property, the Commission's intent in Decisions 99-16 and 2002-34 was that the maximum charge to the customer would be $1,000 for projects costing up to $25,000. The Commission considers that it is reasonable to expect that the cost to the customer could exceed $1,000 if work on private property is charged to the customer. The Commission is of the view that this would defeat the intent of its previous decisions. The Commission considers that under the SIP the construction charges should be included in the service estimate and subject to the $25,000 limit. The Commission directsTELUS to include those construction costs incurred on private property in the project capital cost estimates.
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SIP cost recovery
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56.
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On 27 March 2003, pursuant to Decision 2002-34, TELUS filed its 2003 TSR calculation, which included the recovery of costs associated with the SIP in HCSAs. TELUS noted that the SIP cost adjustment was based upon the communities identified in the TELUS submission filed on 13 September 2002, modified to reflect a three-year roll-out plan.
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Commission analysis and determination
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57.
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The Commission notes that the total amount of TELUS' SIP has increased from the amount used in the subsidy calculation to $21.4 million approved in this decision, and that the roll-out plan has been increased from three to four years. Accordingly, the Commission directsTELUS to reflect the SIP and roll-out approved in this decision in its 2004 subsidy calculation to be filed by 31 March 2004.
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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: www.crtc.gc.ca
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Date Modified: 2003-09-25