ARCHIVED - Telecom - Commission Letter - 8695-C12-200304692 - Télébec Limited Partnership - Subsidy requirement

Letter

Our File: 8695-C12-200304692

Ottawa, 21 May 2003                         

Ms. Isabelle Courville
President and Chief Executive Officer,
Bell Nordiq Group Inc.
7151, rue Jean-Talon est, Bureau 706
Anjou (Québec)
H1M 3N8

Ms. Courville: 

Subject:  Télébec Limited Partnership - Subsidy requirement

This is in response to your letter of 17 April 2003.

I have read with interest Télébec's proposed approach to determine a revised interim subsidy requirement for 2003 pending the Commission's determination 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 and carefully considered supporting arguments. 

As you know, the Commission has established basic principles for the calculation of the subsidy requirement for all local exchange carriers providing local services in high cost serving areas.  I acknowledge that for Télébec some of the parameters used in the calculation of the subsidy requirement have yet to be determined on a final basis.

However, the evidence submitted in the proceeding that led to Implementation of price regulation for Télébec and TELUS Québec, Telecom Decision 2002-43, 31 July 2002 (Decision 2002-43), demonstrated that the use of proxies such as the national average Phase II costs and the use of the banding classification criteria established in Restructured bands, revised loop rates and related issues, Decision CRTC 2001-238, 27 April 2001, provided for the establishment of an appropriate interim subsidy requirement for Télébec within the basic principles established for all local exchange carriers.

In Decision 2002-43, the Commission determined Télébec's going-in revenue requirement using Phase III methodologies, established a going-in revenue requirement shortfall and a transitional subsidy mechanism to reflect such shortfall.  In implementing the transitional subsidy mechanism, the Commission suspended the application of the I-X constraint to the basket of Residential services in non-High Cost Serving Areas, the basket of Other capped services and certain Competitor Services.  The Commission also decided that the annual adjustment of inflation less a productivity offset to residential local exchange costs in High Cost Serving Areas for the annual total subsidy requirement calculation was not to be applied by Télébec until the transitional subsidy was eliminated.  These measures were put in place to allow the company greater pricing flexibility to adjust its rates in adapting to the new levels of subsidy while retaining the earnings through the transitional period which otherwise would have been lost through the productivity offset.

In light of the above Commission staff is estimating Télébec's 2003 total subsidy requirement at $10.2 million.  This amount includes transition funds of approximately $2.1 million.  The detailed calculations are attached for your information.

Thus far, the Commission has been attentive to Télébec's regulatory issues and addressed them fairly. I can assure you that the Commission will diligently consider the issues raised in the proceeding initiated by Public Notice CRTC 2001-69.  Meanwhile, it is our view that the basic principles for the calculation of the subsidy requirement, especially for the establishment of interim amounts, should be adhered to.

Yours sincerely,

Original signed by

David Colville
Vice-Chairman,
Telecommunications 

Att:

Télébec Limited Partnership
 Interim Total Subsidy Requirement Calculation for 2003

Notes: 

1.   Refer to page 18 of 22 of Télébec's submission dated 30 August 2002, page 1 of 5 of Annexe 1.4 

2.   Transition subsidy of $7.593 established in Decision 2002-43 for first 7 months of 2002, less I-X productivity adjustment (1.158%-4.7%* $115.5 million). Refer to paragraphs 675 and 676 of Decision 2002-43.  Same adjustment is applicable for 2003.