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ARCHIVED - Telecom Order CRTC 2004-262

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Telecom Order CRTC 2004-262

  Ottawa, 5 August 2004

Bell Canada

  Reference: Tariff Notice 6787
 

Optical fibre

1.

The Commission received an application by Bell Canada, dated 17 December 2003, proposing to revise General Tariff item 960, Optical Fibre, in order to decrease the rates for intra-exchange optical fibre.

2.

In particular, Bell Canada proposed to:
 
  • decrease all monthly contract rates by 50%;
 
  • decrease the service charge per location from $6,000 to $4,000; and
 
  • increase the minimum routed fibre distance from 2,500 metres to 3,000 metres.

3.

Bell Canada filed an economic study, including imputation test results, in support of its proposed rate reductions to intra-exchange optical fibre.

4.

Bell Canada submitted an updated price cap model demonstrating that the proposed revisions would not result in the service basket index (SBI) exceeding the service basket limit (SBL) for the other capped services basket.

5.

Bell Canada requested that the proposed tariff revisions become effective on 19 February 2004.

6.

The Commission received comments from Allstream Corp. (Allstream), dated 16 January 2004, Xit Telecom Incorporated (Xit), dated 19 January 2004, and Ralph Doncaster of IStop.com (IStop), dated 29 January 2004.

7.

The Commission received reply comments from Bell Canada, dated 29 January 2004.
 

Parties' comments

8.

Allstream, Xit and IStop were all opposed to Bell Canada's application and submitted that the monthly rates for the optical fibre service should be reduced further than what had been proposed.

9.

Allstream, Xit and IStop submitted that the proposed rates were not in line with the underlying costs of the service. All three questioned the inclusion, in Bell Canada's supporting economic study, of some capital costs associated with power plant equipment that would not be used to provide optical fibre. IStop also questioned the inclusion of some one-time costs that it considered should at least be less than similar costs included in the economic study provided in support of Ethernet service, as filed by Bell Canada under Tariff Notice 6726. Allstream and Xit argued that the rates for the optical fibre service must be based on the costs of providing the service plus an appropriate mark-up.

10.

IStop submitted that Bell Canada's proposed rates seemed excessive in comparison with those proposed by TELUS Communications (Québec) Inc. (TELUS Québec) under Tariff Notice 362 and in comparison with some of the optical fibre rates in special facilities tariffs previously approved for Bell Canada.

11.

Allstream and IStop opposed the increase to the minimum routed distance. IStop submitted that the change to the minimum routed distance was unjustified. IStop noted that Bell Canada was not subject to any routed minimum when provisioning a network for itself. IStop argued that, for this reason, the minimum span requirement should be removed. Allstream argued that Bell Canada's strategy to increase the minimum routed distance was a means for the company to reduce potential demand for the service. Allstream noted that Bell Canada had failed to provide any reason for the change to the minimum routed distance requirement and that this modification would result in an increase of 20% to the minimum rate for this service.

12.

IStop and Xit requested some specific modifications to the terms and conditions of Bell Canada's optical fibre service. IStop requested that Bell Canada be required to offer a 24-strand fibre option. Xit requested that the customer location eligibility (i.e., demarcation point definition) be redefined and that Bell Canada be required to offer this service in single optical fibre increments.
 

Bell Canada's reply

13.

Bell Canada noted that the proposed rates were designed to reflect the market value of the retail service and to comply with the regulatory requirement that they pass the imputation test. The company argued that there was no requirement, as implied by Allstream and Xit, that the rates for retail services be based on costs plus a mandated mark-up, as is the case, for example, for Category I competitor services.

14.

Bell Canada also noted that there was no requirement, as suggested by IStop, that the pricing of one incumbent local exchange carrier's (ILEC's) service should reflect the pricing of another ILEC's service. The company noted that IStop's reference to TELUS Québec's proposed intra-exchange tariff rates was inaccurate since TELUS Québec had raised those rates in Tariff Notice 362A.

15.

Bell Canada noted that there was no requirement, as suggested by IStop, for an ILEC to offer this service under a 24-strand option. The company stated that it offered a proposed rate for additional pairs which would allow customers to increase their service to 24 fibre strands if required.

16.

Bell Canada noted that Xit had requested that the General Tariff for intra-exchange optical fibre be modified to include terms and conditions to address customer-specific situations under Special Assembly Tariffs N2 and N4. Bell Canada argued that these Special Assembly Tariffs were designed to accommodate customer-specific arrangements that do not meet the terms and conditions of the General Tariff.

17.

Bell Canada explained, in response to Allstream, that the minimum routed distance was being increased to ensure that its intra-exchange optical fibre service maintained its price positioning vis-à-vis other services that use optical fibre as part of their make up.
 

Commission analysis and determination

 

Costing issues

18.

The Commission notes that, under the current regulatory regime, the proposed rates for a new service or a rate decrease, must be supported by, and satisfy, an imputation test. The Commission also notes that the imputation test is the accepted method of determining whether the proposed rates would be anti-competitive.

19.

The Commission notes that competitors questioned the inclusion of specific cost elements in Bell Canada's economic study supporting the imputation test. The Commission notes that the cost details were filed in confidence. The Commission finds that the cost estimates provided are reasonable and is satisfied that the proposed rates pass the imputation test.
 

Compliance with pricing constraints set out in Decision 2002-34

20.

In Regulatory framework for second price cap period, Telecom Decision CRTC 2002-34, 30 May 2002 (Decision 2002-34), the Commission established the following pricing constraints which apply to services in the other capped services basket:
 
  • a basket constraint, operating through the SBL for that basket, which must be updated annually by the rate of inflation less the productivity offset;
 
  • a rate element constraint limiting rate increases for a service to 10% per year; and
 
  • 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 local exchange services should not generally be permitted to be further de-averaged within a band.

21.

The Commission finds that the proposed tariff revisions comply with the basket constraint requirement that the SBI not exceed the SBL for the other capped services basket. As Bell Canada proposed no price increases to other capped services, the rate element constraint limiting rate increases to 10% per year is not pertinent.

22.

The Commission also finds that the proposed tariff revisions comply with the Commission's prohibition against further de-averaging rates for other capped services within a band.
 

Other issues

23.

The Commission notes IStop's request that Bell Canada be required to offer a 24-strand fibre option and Xit's requests that the demarcation point be redefined and that optical fibre be available in one strand increments. The Commission considers that IStop and Xit are essentially requesting that the intra-exchange optical fibre service be redefined. The Commission notes that there is insufficient evidence on the record of this proceeding to demonstrate that the demand for the requested options would be sufficient to warrant their inclusion in the General Tariff.

24.

In Decision 2002-34, the Commission determined that a mandated mark-up of 15% above Phase II costs was appropriate for those competitive services classified as Category I competitor services. The Commission notes that this requirement does not apply to other capped services where the price represents the perceived market value of the retail service.

25.

Accordingly, the Commission finds that the proposed tariff revisions are in accordance with the Commission's determinations in Decision 2002-34.

26.

The Commission approves Bell Canada's application. The revisions take effect as of the date of this order.
  Secretary General
  This document is available in alternative format upon request and may also be examined at the following Internet site: http://www.crtc.gc.ca

Date Modified: 2004-08-05

Date modified: