ARCHIVED - Telecom - Commission Letter - 8661-C25-04/02 - Staff opinion on the termination date of the equal access start-up cost recovery rate for Saskatchewan Telecommunications

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Ottawa, 30 January 2004

Our File: 8661-C25-04/02


To: Distribution List

Staff opinion on the termination date of the equal access start-up cost recovery rate for Saskatchewan Telecommunications

The opinions and statements expressed herein constitute a staff opinion and not a decision of the Commission.

By letter dated 9 August 2002, Call-Net Enterprises Inc., on behalf of itself, Call-Net Communications Inc., Call-Net Technology Services Inc. and Sprint Canada Inc. (collectively, "Call-Net") requested Commission staff to provide an opinion as to when the equal access (EA) start-up cost recovery rate established in Competition in the Provision of Public Long Distance Voice Telephone Services and Related Resale and Sharing Issues, Telecom Decision CRTC 92-12, 12 June 1992, ("Decision 92-12") would terminate.

By letter dated 7 August 2003, Commission staff indicated that it would be appropriate that the Equal Access (EA) start-up cost recovery tariff for each ILEC, other than SaskTel, be terminated on the 10-year anniversary of the implementation date of the respective tariffs. Staff noted that a different mechanism was adopted by SaskTel to recover its EA start-up costs. Specifically, SaskTel's start-up cost recovery procedures were established by the Province of Saskatchewan and were based on the recovery of the actual costs of start-up related to the implementation of long distance competition in the province.

In the public proceeding leading to CRTC denies Call-Net's application to discontinue the tariffs for the recovery of start-up costs, Order 2001-28, 18 January 2001, SaskTel indicated that long distance competition was introduced in Saskatchewan during 1996 and the actual costs of start-up and the recovery of those costs from competitors had been tracked since that time. Commission staff, therefore, requested that SaskTel provide its current tracking information, including actual start-up costs incurred, actual competitor trunk-side demand and actual EA start-up cost recovery revenues received to date, and to further indicate its anticipated EA tariff termination date, by 25 August 2003. Further, Commission staff stated that SaskTel could also comment on why its EA start-up cost recovery rate should not terminate when it has recovered 30% of the costs incurred, regardless of whether the 10-year period had passed since the rate was first imposed. Finally, a process was set out for interested parties to comment and Sasktel to reply to these comments.

In its response dated 25 August 2003, Sasktel indicated that its actual EA start-up costs amounted to $8.33 million and that, at the end of July 2003, it had recovered $2.03 million or 24.4% of its total EA start-up costs based on actual competitor demand of 2,991.9 million minutes. SaskTel also submitted that, based on its current projections of competitors' trunk-side demand, it anticipated that it would recover its total actual EA start-up costs by the end of 2007.

Sasktel submitted that when long distance competition was introduced under the jurisdiction of the Government of Saskatchewan ("the Government"), the Government directed SaskTel to implement an EA start-up cost recovery mechanism with no discounts allowed to competitors because, in its view, the people of Saskatchewan indirectly and SaskTel directly should not be compelled to subsidize competitive entry into the province.

SaskTel also submitted that, in the proceeding initiated by Telecom Public Notice CRTC 99-22, SaskTel proposed, as part of its transition to federal legislation, to harmonize its operational practices and policies to be consistent with the policies and practices of the Commission, where reasonable. At that time, SaskTel identified that its EA start-up cost recovery mechanism differed from that of other federally regulated ILECs and set out reasons for this difference.

SaskTel noted that in SaskTel -Transition to Federal Regulation, Telecom Decision CRTC 2000-150, 9 May 2000 (Decision 2000-150), the Commission established the parameters under which SaskTel would operate upon becoming subject to federal regulation and granted SaskTel forbearance for a number of competitive services, including long distance services. In SaskTel's view, the Commission stated that there were no significant barriers to entry in toll markets in Saskatchewan; the markets were sufficiently competitive to warrant forbearance pursuant to section 34 of the Act; and that the additional conditions identified for toll forbearance in Decision 94-19 had been met to the Commission's satisfaction. Further, SaskTel noted that, in Decision 2000-150, while the Commission required SaskTel to bring its competitor interconnection tariffs and agreements more closely in line with those approved for the other major incumbent telephone companies it did not require SaskTel to modify its EA start-up cost recovery mechanism.

SaskTel noted that its interconnection agreements with Call-Net and Allstream were submitted to the Commission, pursuant to Decision 2000-150, and approved in their entirety. SaskTel's EA start-up cost recovery rate was established on a forecast of competitors' traffic and full cost recovery over a 10-year period. SaskTel pointed out that these agreements permit the recovery of SaskTel's actual EA start-up costs, not a portion of the estimated cost of start-up, as established for the other incumbent carriers. SaskTel noted that both interconnection agreements contained a clause which stipulated that competitors would continue to make payments toward start-up cost recovery until such time as the actual amount has been recovered in full.

In its comments on 10 September 2003, Allstream Corp. (Allstream) submitted that SaskTel's start-up cost recovery mechanism should be made to align with the Commission's directives in Decision 92-12 regarding recovery of EA start-up costs. Allstream pointed out that, in Decision 92-12, the Commission stipulated that recovery be made on the basis of long-run market share and the Commission determined that the competitor share of the EA start-up was 30% of the costs. According to Allstream, in Decision 2000-150, the Commission contemplated a re-examination of the appropriate mechanism for the recovery of EA start-up costs and made it clear that such a mechanism should be consistent with the mechanisms of other major incumbent telephone companies.

Allstream also submitted that a tracking mechanism for the recovery of SaskTel's EA start-up costs was a necessity and requested that the Commission direct SaskTel to file semi-annual reports, outlining in similar format, the information provided by SaskTel in its submission dated 25 August 2003.

In its reply comments on 24 September 2003, SaskTel argued that there was no expectation that its mechanism for recovering EA start-up costs would be re-examined subsequent to Decision 2000-150. SaskTel submitted that the start-up costs referred to in Decision 2000-150 were those related to the implementation of local network interconnection and local number portability since issues regarding local competition were generally beyond the scope of the proceeding leading to Decision 2000-150. In SaskTel's view, it was the recovery of local competition start-up costs that the Commission intended to address after 30 June 2000.

Regarding Allstream's tracking request, SaskTel noted that it was a condition of its interconnection agreements with Call-Net and Allstream to track the costs and payments of start-up. Furthermore, SaskTel submitted that the information it provided in its comments on 25 August 2003 provided evidence that Sasktel was tracking the EA start-up costs as required. In SaskTel's opinion, regulatory intervention was not required to ensure that SaskTel continued to meet its contractual obligations.

Commission staff notes that based on the approved inter-connecting agreements, Allstream and Call-Net are required to pay a fixed rate until the actual EA start-up costs are fully recovered. Commission staff notes that the level of SaskTel's EA start-up cost recovery rate is comparable to the EA start-up cost recovery rates for NBTel and MT&T. Furthermore, staff notes that SaskTel's EA start-up cost recovery rate is lower than that of MTS. Commission staff also notes that, based on SaskTel's submission, the application of this rate, which commenced in 1996, is expected to terminate by year end 2007. In light of the above, Commission staff is of the view that 31 December 2007 is a reasonable and appropriate termination date for SaskTel's EA start-up cost recovery rate. Therefore, with regard to Allstream's tracking request, Commission staff does not consider it necessary that Sasktel be required to file annual tracking reports with the Commission.

Yours sincerely,

Scott Hutton
(Acting) Director General
Competition, Costing & Tariffs 

Date modified: 2004-01-30

Date modified: