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Telecom Decision CRTC 2003-84
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Ottawa, 19 December 2003
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Final 2003 revenue-percent charge and related matters
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Reference: 8638-C12-45/00, 8695-C12-200303967, 8695-C12-200304692 and 8740-M3-200303339
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In this decision, the Commission approves on a final basis, effective 1 January 2003, a 2003 contribution collection revenue-percent charge of 1.1% and the 2003 subsidy per residential network access service (NAS) for the territories of the large incumbent local exchange carriers (ILECs), except for MTS Communications Inc.'s Band F, which is only effective 17 October 2003. The Commission also approves on an interim basis, effective 1 January 2003, revised 2003 subsidy requirements for Société en commandite Télébec (Télébec) and TELUS Communications (Québec) Inc. (TELUS Québec).
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The Commission approves on an interim basis, effective 1 January 2004, a 2004 contribution collection revenue-percent charge of 1.1%, the subsidy per residential NAS for the territories of the large ILECs, 2004 subsidy requirements for Télébec and TELUS Québec and continued supplemental funding for Northwestel Inc.
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Background
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1.
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In Changes to the contribution regime, Decision CRTC 2000-745, 30 November 2000 (Decision 2000-745), the Commission introduced a national revenue-based contribution collection mechanism (the contribution regime) and a methodology for the calculation of the subsidy requirements, based upon residential network access service (NAS) in high-cost serving areas, in the territories of the large incumbent local exchange carriers (ILECs). The carriers referred to as large ILECs are Aliant Telecom Inc. (Aliant Telecom), Bell Canada, MTS Communications Inc. (MTS), Saskatchewan Telecommunications (SaskTel) and TELUS Communications Inc. (TELUS).
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2.
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Under the contribution regime, telecommunication service providers (TSPs) with annual Canadian telecommunications service revenues equal to or greater than $10 million are required to contribute towards the subsidization of residential local service in high-cost serving areas. This contribution is collected through a revenue-based mechanism where a revenue-percent charge is applied against a TSP's contribution-eligible revenues. Contribution-eligible revenues are calculated based upon a TSP's Canadian telecommunications service revenues less certain specific deductions including retail Internet revenue, retail paging revenue and terminal equipment revenue. The revenue-percent charge is calculated using the ratio of the national subsidy requirement to the total reported contribution-eligible revenues of all TSPs who are required to contribute.
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3.
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The national subsidy requirement is comprised of Canadian Portable Contribution Consortium Inc. (CPCC) and Central Fund Administrator (CFA) administrative and operational costs, supplemental funding for Northwestel Inc. (Northwestel), subsidies for the small ILECs, subsidy requirements for Société en commandite Télébec (Télébec) and TELUS Communications (Québec) Inc. (TELUS Québec) and estimated subsidy requirements for the territories of the large ILECs. The carriers referred to as small ILECs are listed in Appendix A.
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4.
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In Restructured bands, revised loop rates and related issues, Decision CRTC 2001-238, 27 April 2001, as corrected by Decision 2001-238-2 (Decision 2001-238), the Commission established the costing rules to be used for the determination of the subsidy per residential NAS for the territories of the large ILECs. This included the adoption of a uniform approach to identifying high-cost service areas and a consistent set of costing methodologies by which the large ILECs were to determine their base average primary exchange service (PES) costs.
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5.
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The base average PES costs established in Decision 2001-238 excluded adjustments for inflation, an annual productivity offset and the cost recovery of the revenue-percent charge established in Decision 2000-745.
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6.
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In Regulatory framework for second price cap period, Telecom Decision CRTC 2002-34, 30 May 2002 (Decision 2002-34), the Commission directed the large ILECs to adjust the PES cost component of their subsidy per residential NAS calculations to account for inflation, a productivity offset of 3.5%, any estimated service improvement plan (SIP) costs and the cost recovery of the revenue-percent charge.
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7.
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In Final 2002 revenue-percent charge and related matters, Telecom Decision CRTC 2002-71, 22 November 2002 (Decision 2002-71), the Commission set, on an interim basis for 2003, a revenue-percent charge of 1.3%, subsidy requirements for Télébec and TELUS Québec and the subsidy per residential NAS for each band in the territories of the large ILECs.
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8.
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The Commission has received the information necessary to determine the estimated national subsidy requirement for 2003, the final revenue-percent charge for 2003 and the interim revenue-percent charge for 2004.
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CPCC/CFA administrative and operational costs
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9.
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By letter dated 3 March 2003, the CPCC advised the Commission that the CPCC and CFA administrative and operational costs would be approximately $1.0 million for 2003.
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10.
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The Commission notes that the 2003 CPCC/CFA administrative and operational costs have decreased by 50%, when compared to 2002. The Commission considers the estimate to be reasonable and notes that it will review the CPCC/CFA administrative and operational costs for 2004 during the finalization of the 2004 revenue-percent charge.
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Supplemental funding for Northwestel
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11.
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In Decision 2000-745, the Commission determined that any supplemental funding for Northwestel would be added, as a separate amount, to the national subsidy requirement.
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12.
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In Northwestel Inc. - Initial annual review of supplemental funding, Telecom Decision CRTC 2003-39, 20 June 2003 (Decision 2003-39), the Commission approved interim 2003 supplemental funding of $13.4 million for Northwestel.
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13.
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On 20 June 2003, the Commission issued Northwestel Inc. - Annual review of supplemental funding, Telecom Public Notice CRTC 2003-7 (Public Notice 2003-7), to, among other things, assess the level of supplemental funding for Northwestel for 2003. The record of Public Notice 2003-7 closed in November 2003.
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14.
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The Commission considers that $13.4 million continues to be an appropriate amount for the interim supplemental funding for Northwestel until a final determination has been made in the proceeding initiated by Public Notice 2003-7.
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15.
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In light of the above, the Commission approves on an interim basis the continued use of $13.4 million as the annual supplemental funding for Northwestel for 2003 and 2004 until a final determination has been made with respect to Public Notice 2003-7 and directs the CFA to remit, on an interim basis, effective 1 January 2004, monthly subsidy payments to Northwestel equivalent to one-twelfth of the annual supplemental funding.
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Subsidies for the small ILECs
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16.
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In Regulatory framework for the small incumbent telephone companies, Decision CRTC 2001-756, 14 December 2001 (Decision 2001-756), the Commission established a new regulatory framework for the small ILECs and specific annual subsidy amounts that each small ILEC would receive for each of the years 2002 through 2005. In this decision, the Commission approved total subsidy amounts of $30.105 million for 2003 and $27.882 million for 2004 for the small ILECs.
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17.
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In Ontario Telecommunications Association - Review and vary regarding the regulatory framework decision and the national subsidy requirement order, Telecom Decision CRTC 2002-49, 16 August 2002 (Decision 2002-49), the Commission approved an application to review and vary Decision 2001-756, to increase the annual subsidy amounts for Nexicom Telecommunications Inc., Nexicom Telephones Inc. and North Renfrew Telephone Company Limited, as the three companies had inadvertently provided incorrect information during the proceeding that led to Decision 2001-756. The impact of Decision 2002-49 was to increase the small ILECs' total subsidy amounts by $0.028 million for 2003 and $0.042 for 2004.
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18.
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In Thunder Bay Telephone - Application to review and vary certain aspects of Regulatory framework for the small incumbent telephone companies, Decision CRTC 2001-756, 14 December 2001, Telecom Decision CRTC 2002-70, 7 November 2002 (Decision 2002-70), the Commission approved an application to review and vary Decision 2001-756, granting high-cost status for four wire centres for Thunder Bay Telephone that had been denied in Decision 2001-756. The impact of Decision 2002-70 was to increase the small ILECs' total subsidy amounts by $0.513 million in each of 2003 and 2004.
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19.
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In Application to review and vary Decision 2001-583 and Decision 2001-756, Telecom Decision CRTC 2003-21, 4 April 2003 (Decision 2003-21), the Commission approved an application to review and vary Decision 2001-756, to increase the annual subsidy amounts provided to O.N.Telcom, by calculating its annual subsidy amounts using a higher estimated 2002 contribution requirement than had been used in Decision 2001-756. The impact of Decision 2003-21 was to increase the small ILECs' total subsidy amounts by $0.175 million for 2003 and $0.081 for 2004.
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20.
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As a result of the determinations in the above review and vary decisions, the Commission notes that the total subsidy amounts for the small ILECs have increased to $30.821 million for 2003 and $28.518 million for 2004.
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21.
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In view of the decrease in total subsidy amounts from 2003 to 2004, the Commission directs the CFA to distribute, effective 1 January 2004, monthly subsidy amounts to the small ILECs equal to one-twelfth of the approved 2004 subsidy amounts identified in Appendix A.
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Subsidy requirements for Télébec and TELUS Québec
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22.
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On 14 June 2001, the Commission issued Implementation of competition in the local exchange and local payphone markets in the territories of Télébec and TELUS Québec, Public Notice CRTC 2001-69 (Public Notice 2001-69), to, among other things, establish the appropriate band structure and related PES costs for Télébec and TELUS Québec. The Commission has not yet made a determination in this proceeding.
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23.
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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 a new regulatory framework for Télébec and TELUS Québec and determined that Télébec was entitled to a transition subsidy because of the magnitude of the shortfall between its going-in revenue requirement and the contribution it would receive from the central fund.
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24.
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In Decision 2002-43, the Commission directed Télébec and TELUS Québec to use the proxy national average Phase II PES costs in each of their high-cost bands eligible for subsidy. The Commission also directed Télébec and TELUS Québec to apply the same PES cost adjustments (inflation, a productivity offset and the cost recovery of the revenue-percent charge) as those of the large ILECs. In the case of Télébec, its inflation and productivity offset adjustments were to be applied to its transition subsidy until the transition subsidy reached zero and the productivity offset applicable to the transition subsidy was set at 4.7%.
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25.
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By letter dated 31 March 2003, Télébec filed a proposed 2003 subsidy requirement of $20.422 million and requested an additional $8.273 million for under-funding in 2002. In its submission, Télébec based its 2002 and 2003 subsidy calculations upon its band and PES cost proposal, filed pursuant to Public Notice 2001-69. Télébec submitted that, since a 2002 subsidy calculation using its Public Notice 2001-69 proposal would be $8.273 more than the Commission approved in Decision 2002-71, it should receive an $8.273 million upward adjustment in 2003.
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26.
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By letter dated 9 April 2003, l'Union des consommateurs argued that Télébec's subsidy should not be based upon Télébec's Public Notice 2001-69 proposal until the Commission had made a determination pursuant to Public Notice 2001-69.
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27.
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By letter dated 27 June 2003, Télébec submitted that, using the national average Phase II costs and the wire centres classified in Decision 2002-43, its 2003 subsidy requirement would be $10.2 million, including a transition subsidy of $2.1 million. Télébec also submitted that, using the national average Phase II costs and its wire centres classified in accordance with Decision 2001-238, its 2003 subsidy requirement would be $10.0 million, including a transition subsidy of $3.7 million. Télébec explained that the difference between the two calculations was due to some wire centres being misclassified in the process that led to Decision 2002-43.
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28.
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By letter dated 27 May 2003, TELUS Québec filed a proposed 2003 subsidy requirement of $11.865 million based upon the band structure established in Decision 2001-238 and the proxy national average Phase II costs.
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29.
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The Commission does not consider it appropriate for Télébec to receive additional 2002 funding of $8.273 million because Télébec's 2002 subsidy requirement was finalized in Decision 2002-71.
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30.
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The Commission notes that Télébec based its 2003 subsidy calculations on (a) its band and PES cost proposal in Public Notice 2001-69, (b) its submission that some wire centres were misclassified in Decision 2002-43 and (c) no adjustment for the cost recovery of the revenue-percent charge.
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31.
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The Commission notes that, in Decision 2002-43, it directed Télébec to calculate its subsidy requirement using the proxy national average Phase II costs and the associated band structure and to provide for the cost recovery of the revenue-percent charge.
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32.
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The Commission does not consider it appropriate for Télébec's 2003 subsidy requirement to be calculated using its Public Notice 2001-69 band and PES cost proposal, as a determination with respect to Public Notice 2001-69 has not been issued yet. The Commission also considers that Télébec's 2003 subsidy requirement should be calculated based upon wire centres classified in accordance with Decision 2001-238 and that Télébec's subsidy requirement should be adjusted in order to provide for the cost recovery of the revenue-percent charge, as directed in Decision 2002-43.
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33.
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Based upon the proxy national average Phase II costs, the associated band structure and including the revenue-percent charge cost adjustment, the Commission finds that Télébec's 2003 subsidy requirement is $10.335 million, which includes a transition subsidy of $3.805 million.
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34.
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The Commission notes that TELUS Québec only adjusted for the cost recovery of the revenue-percent charge by reducing its average monthly local rates by 1.3%. The Commission considers that TELUS Québec should have calculated its revenue-percent charge cost adjustment by reducing its average monthly local rates by 4.5%, as directed in Decision 2002-43. The Commission has, therefore, adjusted TELUS Québec's subsidy calculations to reduce its average monthly local rates by 4.5%.
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35.
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Based upon the revised revenue-percent charge cost adjustment, TELUS Québec's 2003 subsidy requirement is $11.856 million.
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36.
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The Commission is of the view that the 2003 subsidy requirements for Télébec and TELUS Québec should only be made interim at this time, pending a Commission determination pursuant to Public Notice 2001-69. The Commission is also of the view that, if the final 2003 revenue-percent charge is different than the interim 2003 revenue-percent charge, then Télébec's and TELUS Québec's cost recovery of the revenue-percent charge in their subsidy requirement calculations should be adjusted accordingly.
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Subsidy requirements for the territories of the large ILECs
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37.
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In Decision 2002-34, the Commission directed the large ILECs to file revised subsidy per residential NAS calculations by 31 March of each year.
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38.
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By 1 April 2003, the Commission had received estimated subsidy per residential NAS calculations from Aliant Telecom, Bell Canada, MTS, SaskTel and TELUS.
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39.
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In Bell Canada - Revised service improvement plan, Telecom Decision CRTC 2003-43, 27 June 2003 (Decision 2003-43), the Commission provided Bell Canada the opportunity to revise, as required, its subsidy per residential NAS calculations for 2003 to take into account the SIP approved by the Commission.
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40.
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By letter dated 30 June 2003, Bell Canada indicated that its 31 March 2003 submission had included the requested financial information.
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41.
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The Commission has reviewed the subsidy per residential NAS calculations submitted by Aliant Telecom, Bell Canada and SaskTel and finds them in accordance with the directives in Decision 2002-34. The Commission notes that in the case of Bell Canada, its subsidy calculations reflect reductions in the Ontario gross receipts tax and Quebec telecommunications, gas and electric tax, as approved and directed by the Commission in 2002 Annual price cap filing, Telecom Decision CRTC 2003-15, 18 March 2003, corrected by Decision 2003-15-1, 15 April 2003.
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42.
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In its subsidy calculations, MTS proposed a Band F subsidy per residential NAS calculation based upon its Band F proposal filed in Tariff Notices 499 and 499A (Tariff Notices 499/A), dated 14 March 2003 and 22 April 2003, respectively.
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43.
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In MTS Communications Inc. - Reclassification of Band D exchanges to Band F and related rate issues, Telecom Decision CRTC 2003-70, 17 October 2003 (Decision 2003-70), the Commission denied MTS's Tariff Notices 499/A Band F proposal and approved, effective the date of Decision 2003-70, an interim 2003 Band F subsidy per residential NAS of $4.05 per month. The Commission considers that MTS's final 2003 Band F subsidy per residential NAS should be based upon the approved interim 2003 Band F amount and has adjusted MTS's subsidy per residential NAS calculation accordingly. The Commission notes that, in accordance with Decision 2003-70, the MTS Band F subsidy per residential NAS is effective 17 October 2003.
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44.
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The Commission notes that, in its subsidy calculations, TELUS (a) included its British Columbia SIP costs after the inflation and productivity offset adjustments and (b) only adjusted for the cost recovery of the revenue-percent charge by reducing its average monthly local rates by 1.3%.
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45.
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The Commission notes that, in Decision 2002-34, the Commission directed that each company add its Phase II SIP costs for high-cost serving areas to the costs that flow into the subsidy calculation, not as an addition after the inflation and productivity offset adjustments.
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46.
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The Commission is of the view that TELUS should include its Phase II SIP costs in its subsidy calculation by adding them to the Phase II costs that flow into the subsidy calculation, as identified in Decision 2002-34. The Commission has adjusted the TELUS-British Columbia subsidy per residential NAS calculations accordingly.
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47.
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The Commission notes that, in Decision 2002-34, it directed that the revenue-percent charge cost recovery adjustment for 2002 would be calculated by reducing the average monthly rate by 4.5% and then multiplying the result by the revenue-percent charge to determine the revenue-percent charge cost adjustment, which would be added to the average PES cost. The Commission also directed that, for subsequent years, a similar adjustment is to be used.
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48.
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The Commission notes that while TELUS applied the methodology correctly, it only reduced its average monthly local rates by 1.3%, rather than the 4.5% directed in Decision 2002-34. The Commission has, therefore, adjusted the TELUS subsidy per residential NAS calculations to reduce its average monthly local rates by 4.5%.
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49.
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The Commission is of the view that if the final 2003 revenue-percent charge is different than the interim 2003 revenue-percent charge, then the cost recovery of the revenue-percent charge in the subsidy per residential NAS calculations for the territories of the large ILECs should be adjusted accordingly.
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50.
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In light of the above, the Commission finds that, based upon the 2002 year-end NAS per band, the 2003 total subsidy requirement for the large ILECs is approximately $179.6 million.
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Final 2003 and interim 2004 revenue-percent charge
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51.
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Based upon the determinations, set out above, the Commission finds that the estimated 2003 national subsidy requirement is $247.0 million, and is comprised of the following:
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$ million
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CPCC/CFA administrative and operational costs
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1.0
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Northwestel
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13.4
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Small ILECs
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30.8
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Télébec and TELUS Québec territories
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22.2
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Large ILEC territories
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179.6
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Total
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247.0
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52.
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The Commission notes that at the end of 2002, there was a surplus of $5.7 million in the contribution fund and, in accordance with Decision 2003-39, Northwestel is in the process of repaying the $5.3 million difference between the supplemental funding received during 2002 and what was approved by the Commission in Decision 2003-39.
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53.
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In Decision 2000-745, the Commission established a true-up mechanism, whereby any over or under collection in a given year would be carried forward to the following year.
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54.
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Taking into account the 2002 surplus of $5.7 million and the Northwestel repayment of $5.3 million, the estimated total amount to be collected during 2003 is reduced to $236.0 million.
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55.
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The Commission notes that, based upon the 2002 annual revenue reports received from the TSPs and the June year-to-date contribution-eligible revenues reported to the CFA, the contribution-eligible revenue for 2003 is expected to be approximately $21.6 billion.
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56.
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The Commission, therefore, finds that the final revenue-percent charge required for 2003 is 1.1%, effective 1 January 2003. The Commission also finds that an interim revenue-percent charge of 1.1% is appropriate for 2004, effective 1 January 2004.
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57.
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The Commission approves a final 2003 revenue-percent charge of 1.1%, effective 1 January 2003, and an interim 2004 revenue-percent charge of 1.1%, effective 1 January 2004.
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58.
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The Commission directs the CFA to adjust the monthly contribution paid by the TSPs to reflect the final 2003 revenue-percent charge of 1.1%, effective 1 January 2003.
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59.
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The Commission notes that the $11.0 million surplus from 2002 has reduced the final revenue-percent charge for 2003 and without such a surplus in 2003, the contribution fund could be short of funds during 2004. In the event that this occurs, the Commission notes that the procedures approved in Revised procedures for the revenue-based contribution regime, Telecom Decision CRTC 2003-8, 28 February 2003, established a priority payment order, which would result in the large ILECs, Télébec and TELUS Québec receiving some of their subsidy entitlements in subsequent months.
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60.
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Having approved a final 2003 revenue-percent charge of 1.1%, the Commission has adjusted the 2003 subsidy requirements for Télébec and TELUS Québec to account for the cost recovery of the final revenue-percent charge, rather than the interim revenue-percent charge of 1.3%. Accordingly, the 2003 subsidy requirements for Télébec and TELUS Québec are $10.320 million and $11.822 million, respectively, and Télébec's subsidy requirement includes a transition subsidy of $3.805 million.
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61.
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The Commission approves on an interim basis, effective 1 January 2003, revised 2003 subsidy requirements of $10.320 million for Télébec and $11.822 million for TELUS Québec.
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62.
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The Commission directs the CFA to adjust the distribution of monthly subsidy to equal one-twelfth of the revised interim 2003 subsidy requirements, effective 1 January 2003.
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63.
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The Commission notes that the 2003 subsidy requirements for Télébec and TELUS Québec include annual price cap adjustments effective 1 August 2003 and that these price cap adjustments carry-forward into 2004. The Commission finds that the estimated 2004 subsidy requirements are $7.370 million for Télébec, which includes a transition subsidy of $0.876 million, and $10.990 million for TELUS Québec.
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64.
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The Commission approves on an interim basis, effective 1 January 2004, 2004 subsidy requirements of $7.370 million for Télébec and $10.990 million for TELUS Québec.
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65.
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The Commission directs the CFA to distribute, each month, one-twelfth of the interim 2004 subsidy requirements, effective 1 January 2004.
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66.
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Having approved a final 2003 revenue-percent charge of 1.1%, the Commission has adjusted the 2003 subsidy per residential NAS for each band in the territories of the large ILECs to account for the cost recovery of the final revenue-percent charge, rather than the interim revenue-percent charge of 1.3%. Accordingly, the 2003 subsidy per residential NAS for each band in the territories of the large ILECs are set out in the table below.
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Date Modified: 2003-12-19